avatar Alliander N.V. Finance, Insurance, And Real Estate
  • Location: GELDERLAND 
  • Founded: 1998-12-17
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    Annual report 2019 Working together on transition


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    Annual report 2019 | Contents 2 Contents About this report 3 Our story in 2019 8 Profile of Alliander 12 Our mission 16 Trends and developments 17 Our strategy 19 How we create value 20 Objectives and results 21 The value that we create 24 Ensuring a high level of supply reliability for a low cost 25 Being a credit-worthy company with solid returns 34 Achieving sustainability in energy supply and operations 50 Ensuring a safe energy network, a safe working environment, and a safe data environment 61 Being an attractive, inclusive employer with equal opportunities for all 67 Key social impacts 76 Contribution to Global Goals (SDGs) 83 Dilemmas and lessons learned 86 Statement by the Management Board 88 Corporate governance 89 Corporate governance 90 Risks 98 Report of the Supervisory Board 102 Composition of the Management Board 109 Composition of the Supervisory Board 111 Remuneration report 113 Financial statements 116 Consolidated financial statements 119 Notes to the consolidated financial statements 123 Company financial statements 169 Notes to the company financial statements 171 Proposed profit appropriation for 2019 180 Events after the balance sheet date 181 Principal subsidiaries and other participations 182 Other information 183 Profit appropriation 184 Independent auditor's report and assurance report 185 Opinion of the Alliander stakeholder panel 194 Materiality test 196 Explanation of SDG'S 206 Connectivity matrix 207 Interaction with stakeholders 209 SWOT 213 Key criteria for measuring impact 214 Five-year summary 217 Definitions and abbreviations 218 Other non-financial information 222


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    About this report


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    Annual report 2019 | About this report 4 About this report The Alliander annual report provides an account of our activities from 1 January 2019 to 31 December 2019. Starting points for our integrated reporting are transparency, the dialogue with stakeholders and the impact and value of our activities. We report transparently, based on the value we offer society and the matters our stakeholders find relevant. The annual report was published on 18 February 2020. Guide to this annual report: a foundation of creating long-term value Creating value for society is Alliander’s key objective. We accomplish this through our daily activities, by innovating, and by investing. Accordingly, Alliander’s value creation model is the recurring theme in this annual report. By following the value creation model, we explicitly show the relationship between social developments, our goals, our strategy, and how we maximise our contribution to society while minimising any adverse side effects. To this end, in 2019 we assessed and detailed our value creation process once more. In the first section of this annual report, we discuss our role and the choices we make in the energy supply chain. Our mission, our trends and developments, and our strategy all form an integral part of this. In the second section, we report on our activities in terms of the value we create in the long term, i.e.: 1. Ensuring a high level of supply reliability for a low cost 2. Being a credit-worthy company with solid returns 3. Making the energy supply and our operations sustainable 4. Ensuring a safe energy network, a safe working environment, and a safe data environment 5. Being an attractive, inclusive employer with equal opportunities for all The final part of the report details the key effects of our activities on society and explains our contribution to the United Nations Sustainable Development Goals (SDGs). Here, we also explain our corporate governance structure. Stakeholder dialogue Our key stakeholders are our customers, employees, local and regional public authorities in our service areas, and the shareholders/ investors. We also work closely with industry partners, national government authorities, supervisory bodies, social sector organisations, and knowledge centres. By maintaining an ongoing dialogue with the stakeholders, we stay informed of the trends in society, expectations regarding Alliander, and how we can work in unison to achieve a timely and successful energy transition at the lowest cost to society. We exchange thoughts and use these stakeholders as a sounding board for our policy choices and decisions. One example from 2019 is the session we organised for members of the new Provincial Councils in our service areas to engage on the impact the energy transition is having on energy infrastructure. We discussed the sustainable energy system and the role of the network operator.


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    Annual report 2019 | About this report 5 Stakeholder panel In keeping with last year, a stakeholder panel read the report at an early stage in its preparation. In December 2019, the dialogue we had with the panel centred on Alliander’s vision on and role in the energy transition, on transparency in the report, and on adding climate risks to the report. The panel also mentioned a number of topics it felt were not adequately covered in the report. An account of the opinion of the stakeholder panel is included in the report. At the start of each chapter we state for which stakeholders the chapter is relevant. Material issues We ask our stakeholders to tell us what topics they would like to see included in the annual report. We report on the 15 highest scoring topics (‘material issues’) in this annual report. These topics are shown in the following materiality matrix. In 2019, after an extensive analysis in 2018, we reassessed the topics based on desk research consisting of a media analysis, research into equivalent organisations, and a review of industry reports, supplemented with the input we received from our stakeholders during the year. Based on our findings, we have combined the topics ‘Safe and healthy working practices’ and ‘Safe infrastructure’ into a single topic ‘Safe working practices and safe infrastructure’. Based on the research we also added two new topics: ‘Company’s adaptability’ and ‘A future-proof network’. Although, unlike last year, the topic ‘Responsible communication and information’ did not make it to the list of material issues, it is a topic that remains relevant for Alliander. The introduction to each chapter of the annual report states which material issues are covered in the chapter. You can also click the materiality matrix online for more information and references. The complete materiality matrix showing all the issues is included in the appendices under Other information. Numbering of material issues We did not make any changes in 2019 in terms of the extent of the impact of material issues on the stakeholders and the extent of Alliander’s impact on the material issues. The number assigned to each topic indicates the extent to which attention has been focused on that topic over the last year. From the desk research we conducted it emerged that ‘Reliability of supply’ was the topic that drew the most attention in 2019.


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    Annual report 2019 | About this report 6 Materiality chart 1 4 3 2 5 7 9 8 11 6 15 12 10 14 13 1 Reliability of supply 9 Organisational capacity for change 2 Safe working practices and 10 Future-proof network infrastructure 11 Corporate social responsibility in the 3 Promoting renewable energy supply chain generation 12 Corporate Governance and business 4 Working together on innovative ethics solutions 13 Workplace well-being 5 Data-driven network management 14 Data security, privacy, and 6 Talent acquisition and development cybersecurity 7 Customer satisfaction 15 Access to affordable energy 8 Responsible investment policy Integrated report This annual report presents financial, operational and corporate social responsibility (CSR) information in an integrated manner, based on the following: • Relevant provisions in the Dutch Civil Code • International Financial Reporting Standards (IFRS) • Revised Dutch Corporate Governance Code 2016 • GRI SRS reporting guidelines (‘Comprehensive’ option), Electric Utilities Sector Supplement • EU Directive on disclosure of non-financial information and diversity • International Integrated Reporting Council (IIRC) The online annual report includes the GRI Content Index, which lists the relevant GRI indicators and allows easy navigation to the relevant pages in the report. Consolidation The financial and non-financial information in the report has been consolidated for Alliander and the subsidiaries that have a significant impact on the material aspects. Where information has not been consolidated, this is explicitly stated. In addition, we have included information on other Alliander business operations that are mainly dedicated to the energy transition. The information-gathering process was largely guided by the material issues.


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    Annual report 2019 | About this report 7 In accordance with the Disclosure of Non-Financial Information Decree and the Disclosure of Diversity Policy Decree, Alliander provides information about certain non-financial and diversity aspects. For more information on the material aspects of the human rights topic, please refer to the relevant provisions in our Supplier Code of Conduct. Information about ethical business practices is provided in the ‘Integrity’ section of the Corporate governance chapter. Transparency Alliander operates in the complex dynamics of a rapidly changing energy sector. Like our shareholders, we place great value on transparency. We comply with the Transparency Guideline, the revised Dutch Corporate Governance Code 2016, and the Decree on Corporate Governance 2009. We also make it clear how we contribute to achieving the United Nation’s Sustainable Development Goals (UN Global Goals). In 2019, Alliander won the FD Henri Sijthoff Award in the non-listed companies category for its 2018 annual report. This award is presented by Dutch national financial newspaper Het Financieele Dagblad to companies that excel in their financial reporting. In addition, with our report for 2018 we came second in the running for the Ministry of Economic Affairs and Climate Policy’s Crystal Award (Kristalprijs) 2019 for the company with the best CSR reporting. Invitation to stakeholders and readers To involve our partners in the energy transition agenda at an early stage, we want to discuss with them their primary energy requirements and the best route forward to meeting these. To this end, Alliander is keen to engage with stakeholders about transitioning to the new energy system. We form coalitions to address the society-wide problem of the shortage of technicians in the labour market. We cordially invite readers of our annual report who wish to discuss topics like the energy transition or a natural-gas-free future, or who have any questions, suggestions, or tips for us, to contact us at communicatie@alliander.com.


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    Our story in 2019


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    Annual report 2019 | Our story in 2019 9 Our story in 2019 As in 2018, the economy grew in 2019 and the energy transition has moved up a gear. The number of requests for connections for large companies has increased seven-fold in just a few years, we laid over 200 kilometres more medium-voltage cable than in 2018 (+38%), we connected 721MW of solar power (+48%) to the grid, and 1,712 public charging points for electric cars were installed in our service area (+39%). And, during all of this, we (and our contractors) were faced with a serious shortage of technicians in the Netherlands. As we look back over 2019 we have a double message to pass on. On the one hand, we are proud of our employees because we achieved our highest production level ever. Moreover, we worked on putting important innovations into practice, such as the flex-market in the Zuidplaspolder area. On the other hand, in 2019 it became abundantly clear that, in the Netherlands, there are limits to what the electricity grid can handle. It is now so busy in parts of our network that our customers are unable to get new connections or additional capacity; before this can happen, existing power stations will need to be expanded or new ones built. Unfortunately, due to lengthy permit procedures and the acute shortage of technicians in the Netherlands, that takes time. We find this a very unfortunate situation for our customers. We devote a lot of attention to our dialogue with them and, fortunately, the effects of this are reflected in the low number of complaints and high customer satisfaction. Dutch Climate Agreement and RES There will continue to be a great deal of work to be done over the coming decade as well: in the Climate Agreement drawn up in the Netherlands in 2019 (referred to as the ‘Climate Agreement’ in this report), it was agreed that, throughout the Netherlands, 35 terrawatt hours of renewable solar and wind power produced onshore would be fed into the grid by 2030. In addition, by 2030 more than 1.5 million homes must be removed from the gas grid and heated differently, and 1.8 million additional charging points for electric cars are also needed. The Dutch electricity grid was never designed for all those wind turbines, solar panels, charging stations, and heat pumps; nonetheless, the infrastructure must be ready on time. Studies that we performed after completion of the Climate Agreement showed that, roughly speaking, demand for electricity will have at least doubled by 2050. That will put greater demands on our network. In Amsterdam alone, we need six to eight new electrical substations by 2030 to facilitate growth and sustainability, while permit processes can take years, physical space is scarce, and the Netherlands is grappling with a shortage of technicians. It is therefore essential that we know what work needs to be done on the energy infrastructure, where it needs to happen, and when. The Regional Energy Strategies (RES), which the municipalities and provinces started developing last year, are crucial in doing just this. With our knowledge and expertise, we contribute very actively to the formation of these RES. In addition, we are consulting with stakeholders with the aim of bringing laws and regulations that date back to a time when there was hardly any decentralised generation of energy into the 21st century, with a view to bringing about the energy transition. One example is the introduction of the transmission capacity statement (transportindicatie), a measure aimed at ensuring that there is sufficient network capacity to transmit sustainably generated energy. Recruiting technicians As in previous years, in 2019 we devoted a lot of energy to recruiting technically-minded colleagues, and we are pleased to report that we were able to welcome an additional 262 specialist technicians to the company last year. However, it takes years to train the technicians and training facilities are in scarce supply: in 2019, we were already stretched to the limit in terms of training resources and opportunities. Currently, 34% of our service technicians are in training. We work in close collaboration with the industry and regional educational institutions to spark the interest in more young people for a job in the technical sector. We also develop innovative collaboration concepts with contractors with the aim of increasing the number of technicians in the Netherlands. Safety Safety is a key priority at Alliander. This applies to our employees, people in the surrounding community, customers, and contractors. Unfortunately, our Lost Time Injury Frequency (LTIF) increased to 2.1 from 1.4 in 2018; fortunately, no serious accidents occurred. We have, however, commissioned research into the exposure of our employees to hazardous substances such as benzene, asbestos and chromium-6, and revised the work instructions where necessary. We also directed our attention to environmental issues like PFAS and nitrogen.


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    Annual report 2019 | Our story in 2019 10 Reliable grids The Netherlands boasts one of the most reliable power grids in the world, with a 99.99% availability rate. In 2019, customers were, on average, without electricity for 21.9 minutes (2018: 30.6 minutes) and without gas for 40 seconds (2018: 39 seconds). We also used the Smart Cable Guard – a monitoring tool that anticipates disruptions – in our electricity grid on a larger scale. Moreover, in 2019 we started locating weak spots in the grid with the help of data and AI, enabling us to replace these components before they can cause a power outage. Highly effective organisation The energy transition is presenting Alliander with the biggest job it has ever faced in its 100-year history. To be able to take on this challenge, it is essential that all employees have the same objectives in mind and that the organisation become more resolute and effective. Based on the results of a strategy alignment survey, all teams in the company have been discussing Alliander’s core objectives. Moreover, we started a redesign of our organisation in 2019, which we expect to complete in 2020. Major steps in this regard have already been taken by our IT department and Qirion. Sustainable business practices Alliander is working towards having climate-neutral operations by 2023. We are increasingly focusing on reusing components and on recycling raw materials that are becoming ever more scarce. In 2019 we purchased 30% of our materials on a circular basis. We have decreased the energy consumption in our buildings, and a quarter of our lease cars are now electric. In Groenlo, we installed a sustainable, energy-neutral and partly circular substation, and we have taken further steps towards ‘greening’ our network losses. In September 2019, we signed a contract with Danish power company Ørsted to reduce our carbon emissions by around 25% annually. Added to other measures, this new contract ensures that more than 95% of our network losses will be offset. Financial results Alliander’s profit after tax came to €253 million (2018: €334 million). Profit excluding incidental items for 2019 worked out at €267 million, up €6 million on 2018. Total expenses showed a limited increase to €1,591 million (2018: €1,572 million) and Alliander’s total investments ran to €834 million in 2019 (2018: €731 million). Alliander’s high creditworthiness was reaffirmed by rating agencies S&P and Moody’s. Changes to the Management Board As the energy transition, new technologies, and digitalisation are accelerating and having an ever greater impact, we need additional focus in how we run Alliander. With this in mind, Daan Schut joined Alliander’s Management Board on 1 April 2019 as the Chief Transition Officer (CTO). His main focus is the completion of the energy transition and digitalisation measures. With Walter Bien joining us as our new Chief Financial Officer (CFO) on 7 October, we were able to welcome a director with the financial background needed to deal with the issues posed by the energy transition. He succeeded Mark van Lieshout, who stepped down as Alliander’s CFO on 1 March. We would like to thank Mark for the many years he has dedicated to building the company we know today. Outlook Although economic growth is expected to slow down, the energy transition is exponentially increasing in intensity. This means that a number of fundamental issues lie ahead of us in 2020: doubling production in the coming years, the long-term financing of the company, and intensifying collaboration with partners like other network companies, contractors, installers, and municipal and provincial authorities. Thousands of employees work with Alliander and our contractors every day to get the job done. They are our most important asset and resource. It is these people who are in contact with our customers each day and who work together on our mission: ensuring that the lights are on, homes are heated, and businesses can keep operating, even in these complex times, as we transition to a new, sustainable energy system. We would like to extend our special thanks to these people for their contribution. Together with our stakeholders, in 2020 we will continue to work on our biggest challenge, the one that faces us all: ensuring an energy supply that gives everyone access to reliable, affordable and renewable energy on equal terms. Ingrid Thijssen, Walter Bien, Daan Schut Alliander Management Board


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    Annual report 2019 | Our story in 2019 11 From left to right: Walter Bien, Ingrid Thijssen, Daan Schut


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    Profile of Alliander


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    Annual report 2019 | Profile of Alliander 13 Profile of Alliander Alliander is working on creating a future-proof energy network. We are driven by the social importance of keeping energy reliable, affordable and accessible for everyone. With our knowledge and skills, we are helping the Netherlands make the right choices in the energy transition. Alliander N.V. is a network company comprising a group of companies employing some 7,300 people (6,800 FTEs) in all, including agency workers. Together, we stand for high-quality knowledge of energy networks, energy technology and technical innovation. With our partners and shareholders, we discuss our plans for the future and offer solutions to complex energy transition issues. The shares are held by Dutch provinces and municipalities. Our role in the energy chain We have been statutorily tasked with managing and further developing the gas and electricity grid. We also actively facilitate markets in the provision of products and services that help create a future-proof energy network. We are building and maintaining the infrastructure, and we manage energy flows. We track who produces or consumes energy: when, where, and how much. We are on hand 24/7 to deal with outages; after all, without energy everything comes to a standstill.


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    Annual report 2019 | Profile of Alliander 14 As an independent party, we give customers the kind of insights that help them develop their energy supply. We show them exactly what the energy network can handle and are clear on the social expenditure involved in different choices. We conceive and implement innovative solutions for the future-proofing of the energy network. Sustainability plays a key role in the choices we make. This is how we are working together on an energy network that is right for everyone. How we are organised Liander Liander manages and develops the energy grid in its service area. The network operator has the social responsibility of seeing that gas and electricity is distributed to millions of consumers and businesses every day. There is an increasing demand for large-scale feed-in of electricity. To address this demand, Liander is upgrading the power grid and implementing innovative solutions. Qirion Qirion is a specialist in power grids and the go-to knowledge centre for complex energy issues. Qirion designs, builds, and maintains power networks, taking on a unique service role. Qirion focuses on the high-voltage domain and increasingly supports the development of new networks. Kenter Kenter supplies innovative solutions for energy metering and energy management. This includes installing meters, supplying metering data, and providing insight into energy usage via online analyses. Kenter is responsible for the sale, construction, and management of mid-voltage installations in the free domain. Firan Firan develops, builds and manages alternative energy infrastructures, such as district heating and biogas networks. It connects landowners, public authorities, energy providers and users to help them achieve their sustainability ambitions. Alliander Telecom and Utility Connect (in collaboration with Stedin) Alliander Telecom supplies reliable telecommunication systems used to control and protect critical infrastructures (including electricity and gas networks). Telecommunications are of paramount importance, for instance for securing, controlling and reading data from critical network elements and communicating with control centres. Utility Connect (in collaboration with Stedin) offers a wireless data communication network with optimum coverage and capacity for the smart meter and for distribution automation applications. Alliander AG, Germany As a small-scale service provider operating in Germany, Alliander AG manages electricity and gas grids, public lighting, and traffic lights in Berlin, North Rhine-Westphalia, Hessen and other areas. 450connect, which operates a wireless telecommunications network for the control of vital infrastructure, is a subsidiary of Alliander AG. Other activities Read more about our other activities on www.alliander.com. A full list of our subsidiaries is included in the financial statements under Principal subsidiaries and other participations.


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    Annual report 2019 | Profile of Alliander 15 Facts and figures regarding our network 2019 in figures Our service area Number of customer Number of employees in Electricity & Gas connections FTEs Electricity 5.8 mln 5,703 5.7 mln in 2018 5,669 in 2018 Electricity outage CO2 emissions duration 21.9 minutes 264 kton 30.6 minutes in 2018 288 kton in 2018 Net revenue Investments in property, Grid length (in kilometres) plant and equipment ELECTRICITY 1.9 € bn 834 € m 91,000 km 91,000 km in 2018 1.9 € bn in 2018 731 € m in 2018 GAS Total assets Profit 42,000 km 42,000 km in 2018 8.8 € bn 253 € m 8.3 € bn in 2018 334 € m in 2018


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    Annual report 2019 | Profile of Alliander 16 Our mission Energy is essential for our well-being and our prosperity. Energy enables us to heat our homes, cook, and communicate. It keeps our roads safe, our trains moving, and financial systems up and running. Energy, in short, enables us to live, work and travel. Without energy everything would come to a standstill. Our mission We stand for an energy supply where everyone has access to reliable, affordable and renewable energy on equal terms. This is a mission we work towards every day. It is our job to make sure the lights are on, homes are heated, and businesses can keep operating – not just today, but in a sustainable tomorrow too. How we make a difference Reliability Our customers need to be able to rely on maximum safety and continuity in the supply of their energy, 24 hours a day, 7 days a week. That is why we adhere to safe working practices and avoid scheduled and unscheduled power cuts wherever possible. Affordability Our consumers want to pay as little as possible for their reliable energy supply, and so we work ceaselessly every day to improve the effectiveness and efficiency of our operations. Accessibility Our consumers must have access to the energy supply on equal terms, which is why we enable customers to choose their own energy supplier and service providers and to feed in energy.


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    Annual report 2019 | Profile of Alliander 17 Trends and developments In implementing our task, it is important that we know which factors can influence our activities. In this chapter, we describe key trends and developments taking place around us and what we must do in response. What we see around us The world around us is changing. The economy is growing and customer expectations are rising. This is nothing new. But what is different this time is the accelerating energy transition. The Netherlands aims to reduce national carbon emissions by 49% compared with 1990 levels by 2030. In 2019, the Dutch Climate Act was adopted and, as part of this act, public sector bodies, businesses, and social sector organisations presented the Climate Agreement. The Climate Agreement sets out agreements on the feed-in of 35 terrawatt hours of renewable energy produced onshore, taking millions of homes off the gas grid and heating these differently, and installing additional charging points for electric vehicles. Our biggest challenge is to ensure that the power infrastructure is ready on time. National and international climate goals Economic growth The economy is growing. The implication for Alliander is that more new houses, businesses, and buildings need to be connected to the grid. Moreover, greater power capacity is required to facilitate the considerable growth of businesses, which can be seen, for example, in the sharp increase in the number of data centres, the growing demand for larger connections, and the surge in demand for expanded capacity from our current customers. Energy transition In practice, we are seeing that the energy transition is leading to more local energy generation and consumption: solar energy is becoming increasingly affordable, and, partly as the result of the Dutch subsidy scheme designed to promote the production of sustainable energy (SDE+), many large-scale solar farms have been built in the regions in which Alliander operates. Furthermore, various wind farms are being built, and electric transport and the associated charging infrastructure are becoming a familiar sight: in 2019 we connected 1,700 public charging points (more than twice as many as in 2018). A huge amount of work awaits us in the coming ten years to fulfil the agreements in the Climate Agreement. System studies show that the electricity demand will have at least doubled by 2050. We cannot afford not to see that the required work gets done. We want the Netherlands to achieve the climate goals, and for customers to get the capacity and energy they want. In addition to the major focus on reducing CO2 emissions, the nitrogen and PFAS issues also played a role in 2019. At the end of 2019, the government took measures to get construction projects that had been brought to a halt going again, including lowering the maximum speed on motorways and raising the PFAS standard. However, it will take until 2024 before new construction is brought back up to speed: until 2023 fewer homes than planned will be delivered in our service area due to the temporary shutdown (or continuing standstill) of construction projects.


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    Annual report 2019 | Profile of Alliander 18 Shortage of technical staff A vast amount of electrical engineering work is required to bring about the energy transition and meet the growing number of applications for connections and extra power. Tens of thousands of extra technical specialists are needed in the Netherlands. Filling the vacancies is a major challenge for the construction industry, installation sector, and network operators. Farewell to natural gas and coal The Netherlands wants to stop using natural gas from the Groningen gas field by 2030. All coal-fired power stations need to be shut down by then too. Initiatives to phase out fossil fuels like natural gas are springing up around the country. For example, the obligation to connect new buildings to the gas grid has already been repealed, and 69% of applications for new construction and renovations are now ‘natural gas-free’. All municipalities are working on their own transition vision statement for heating, in which they describe how they intend to wean each district off natural gas and which alternative will take its place. Alliander is assisting the municipalities and provinces with knowledge and experience. The transition vision statements will be ready in 2021. Rising costs of the energy supply As a result of the major investments that will be made in the energy networks, the costs for network management will increase, which will, in turn, make it increasingly difficult for more and more households to pay their energy bill. Digitalisation Digitalisation opens up new opportunities for consumers and businesses to manage their utility bills and conserve energy. Network operators can benefit from digitalisation by gaining a better understanding of the consequences of the energy transition, the condition of the grids, and the investment opportunities. In addition, digitalisation offers the market new opportunities for the procurement, trade, and exchange of energy. Impact on Alliander The developments require substantial investments in our networks, and it also means a vast amount of work. In parts of our networks use is approaching the maximum capacity. The capacity that an average solar farm supplies, for example, is comparable to the electricity consumption of a medium-sized city. Liander has many applications from solar farms, especially those in rural areas where the cables are thin because the demand for electricity was traditionally low. The cause is the sharp increase in subsidies for solar farms in the past two years. We are working hard on solving these bottlenecks by upgrading networks and applying innovative solutions. This takes time however. Until these issues are addressed, there is a chance that in some areas we will not yet be able to supply the capacity that the customer demands. For network operators to make the right investment decisions in good time, it is essential that they know well in advance what needs to be done to the infrastructure and where this needs to happen. It is with this in mind that the network operators want the transition to sustainable energy to be brought about in a well-considered, manageable way. The arrangements in the Climate Agreement and the development of the Regional Energy Strategies are crucial in this respect. Alliander (and network operator Liander in particular) are assisting municipalities and provinces with knowledge and expertise. Our mandate for society The trends, developments and issues in the world around us constitute the basis for the formulation of our strategy, which describes how we as a company deal with the challenges of the changing energy system. Our strategy outlines how we respond to these new demands, while our SWOT analysis sets out where the opportunities and threats lie for our organisation.


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    Annual report 2019 | Profile of Alliander 19 Our strategy The foremost development has been and is the drive towards making the energy supply more sustainable, and the pace of this change will continue to accelerate. Our stakeholders expect us to pursue a strategy that sees us making a substantial contribution towards the new energy landscape. To absorb the effects of the energy transition Alliander applies a four-pillar strategy. 1. We support customers in making choices that work for them as well as for the energy system as a whole. We want to make it attractive for customers to consume energy when supplies are plentiful, feed power back into the grid when supplies are low, and use the energy network as little as possible during times of peak load. For this, we are rolling out the smart meter and working on different tariffs for the use of the electricity grid so that we can make better use of our current grid. 2. Investing in new open networks New energy networks are being created that are not accessible to everyone under the same conditions. We prefer, however, to develop new open networks, such as open district heating networks, to make it possible in every local situation to choose the best option in terms of sustainability and (minimising) costs to society. 3. Digitalisation New technology, both hardware and software, is an unprecedented enabler in operating our networks, and in preventing or troubleshooting outages. It also enables us to fine tune our investments in the networks, gearing these to the actual condition of our networks rather than blindly applying standard rules. 4. Excellent network management The reason for our existence is to ensure that our energy networks remain among the most reliable in the world. Safety is the number one priority, closely followed by the highest level of reliability possible. The reliability of supply via our networks is 99.99%. We also work towards providing the highest level of customer convenience possible.


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    Annual report 2019 | Profile of Alliander 20 How we create value Our value creation process is aimed at maximising the positive impact of our business operations for all our stakeholders. We use the resources and capital available to us as efficiently as possible, while focusing on making the greatest possible contribution to society. In order to determine the social effects of our actions, we updated the value chain in 2019. Among other things, this has led to the reformulation of our outputs (what our stakeholders notice), outcomes (the long-term value we create), and impacts (key effects on society). The outcomes are formulated in such a way that they represent real value for our stakeholders. An explanation of the long-term value we create can be found in the relevant chapters in this annual report. A complete overview of the social impact of Alliander can be found in the chapter Key social impacts. Value creation model In the connectivity matrix, we show how the elements like value, material issues, indicators, objectives and results, strategy, and the contribution to the Sustainable Development Goals are connected.


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    Annual report 2019 | Profile of Alliander 21 Objectives and results Ensuring a high level of supply reliability for a low cost Objectives 2019 Result 2019 Objective 2020 Strategic objective Principal risks10 Customer convenience Consumer: 55% Customer convenience Customer convenience measured by the NES measured by the NES Customer convenience score is higher than 53% score will increase in the Realisation of work measured by the NES (consumer market) and upcoming years. package score is higher than 50% Business: 33% 32% (business market)1. (consumer market) and 40% (business market). Cybersecurity Electricity outage 21,92 Maintain low outage The objective is to have duration duration. The objective is a high reliability of a maximum of 23 supply. Maintain low outage minutes1. Capacity for change duration.The objective is a maximum of 22 minutes. Repeat outages 17 The number of unique The number of unique Future-proof IT cable numbers with more cable numbers with more Landscape The number of unique than five interruptions is than five interruptions is cable numbers with more 17 or lower. a maximum of 17 in the than five interruptions is coming years. 17 or lower. Smart meter offering 624,000 We offer smart meters to By 2020, everyone has Long-term 375,000 addresses. been offered a smart regulatory focus We offer smart meters to meter. 585,000 addresses. Being a credit-worthy company with solid returns Objectives 2019 Result 2019 Objective 2020 Strategic objective Principal risks10 Retention of solid rating S&P AA-/A-1+/stable Maintain solid A-rating Our objective is to outlook profile remain a creditworthy Maintain solid A rating Moody’s Aa2/P-1/stable company. Continuously profile. outlook outperform the sector in FFO/Net debt 29.0% FFO/net debt objective > terms of costs and 20% operational excellence. Long-term Objective >20% Solid results compatible regulatory focus Interest cover 13.3 Interest Cover Objective with the regulated >3.5 permitted return. Objective >3.5 Net debt/(Net debt + 36.5% (net debt/ (net debt + Financeability equity) equity) Objective < 60% Objective < 60% Capacity for change Solvency; 55.6% Solvency Objective >30% Objective: >30%.


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    Annual report 2019 | Profile of Alliander 22 Making the energy supply and our operations sustainable Objectives 2019 Result 2019 Objective 2020 Strategic objective Principal risks10 CO2 emissions from 264 kton CO2 emissions are a We strive for climate- business operations3 maximum of 207 ktonnes neutral operations in Long-term (according to a sector- 2023. regulatory focus CO2 emissions are a wide calculation method). maximum of 271 ktonnes (according to a sector- wide calculation method). Future-proof IT Circular procurement4 30%5 40% of all our primary In 2025, 60% of our Landscape assets are purchased on primary assets are 25% of all our primary the basis of circular purchased on the basis assets are purchased on procurement. of circular procurement. the basis of circular Capacity for change procurement. Ensuring a safe network, a safe working environment, and a safe data environment Objectives 2019 Result 2019 Objective 2020 Strategic objective Principal risks10 LTIF (lost time injury LTIF 2.1 None6 Safety is a precondition Safety frequency) for our business operations. We create a proactive safety culture. Privacy energydata Cybersecurity


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    Annual report 2019 | Profile of Alliander 23 Being an attractive, inclusive employer who offers equal opportunities to everyone Objectives 2019 Result 2019 Objective 2020 Strategic objective Principal risks10 Employee survey score 70 In 2020, we aim for a Top-class employer; an on a scale of 100 (2018)7 score of 71 in the Great innovative and Place to Work employee successful company In 2019, we aim for a surveys. where we develop score of 71 in the Great future-oriented Place to Work employee knowledge and surveys. competences. Employee absenteeism 4.2% Absenteeism score is The maximum employee Absenteeism score is 4.3% or lower. absenteeism rate is 4.3% 4.3% or lower. in the coming years Women in leadership 26.9% At least 30% of all At least 33% of our positions leadership positions are leadership positions will filled by women. be filled by women by At least 29.3% of all 2024. leadership positions are Capacity for filled by women. change Employees at a distance 1019 Offering 108 We offer long-term work from the labour market apprenticeships to for people at a distance people at a distance to to the labor market who Offering 100 the labor market. At least meet the criteria of the apprenticeships to 83 of these places Labour Participation Act. people at a distance to comply with the Labor In addition, we also offer the labor market. At least Participation Act. work experience 58 of these places placements, internships comply with the Labor and other learning Participation Act8. experiences for a broad target group. We will meet the requirements of the Dutch Labour Participation Quota Act by 2024. This topic is explained in the online annual report along with the objectives and results. 1 As a result of the re-prioritisation of the work, with a focus on investments in the network and the resolution of transmission restrictions, the Net Effect Score (NES) and the Customer Minutes Lost (CML) will not improve. 2 The figure for electricity outage duration differs from the figure stated in the regulatory report, because interruptions in the high-voltage network (CBL assets) owned by Alliander are taken into consideration in the regulatory report. 3 The CO2 emission target for 2019 was recalculated according to the most recent emission factors. 4 The scope of the KPI comprises primary assets: low and medium voltage cables, gas pipes, distribution and power transformers, and legacy and smart electricity & gas meters. 5 From 2019 the target and the score are rounded off to whole numbers. 6 No target is set for the Lost Time Incident Frequency (LTIF) performance indicator, because the number of accidents leading to sickness absence should be zero. 7 We did not conduct an employee survey in 2019. Instead, the focus was on the strategy alignment survey and discussing the outcomes of this with all employees. This is discussed in more detail later in the report. Due to this the figure from the end of 2018 has been used. Alliander has the ambition to be a top-class employer and will launch a new employee survey in 2020. 8 From 2019 Alliander is taking measures in accordance with the Dutch Participation Act. 9 The figure for employees at a distance from the labour market comprises 64 employees working for us under the Dutch Participation Act and another 37 with a work experience placement. 10 The Risks chapter explains the risks in detail.


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    The value that we create


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    Annual report 2019 | The value that we create 25 Ensuring a high level of supply reliability for a low cost In the coming years, a lot of work needs to be done to advance the energy transition. At the same time, the quality of our energy supply must remain high at the lowest possible cost to society; at a 99.99% availability rate, our power grid is among the most reliable in the world. Related topics This chapter is about our measures in the area of reliability of supply and customer convenience. The information relates to several topics the stakeholders feel are important. Furthermore, these activities contribute to achieving an SDG: Related material issues Contribution to SDG ① Reliability of supply ④ Working together on innovative solutions ⑤ Data-driven network management ⑦ Satisfied customers ⑨ Company’s adaptability ⑩ Future-proof network ⑮ Access to affordable energy Related stakeholder groups Customers, shareholders and investors


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    Annual report 2019 | The value that we create 26 Objectives and results reliability of supply Customer convenience Electricity outage duration 1 OBJECTIVE 2019 OBJECTIVE 2019 Customer satisfaction measured by NES score above 50% (Consumers) and 40% (Business). 22 minutes RESULT 2019 RESULT 2019 RESULT 2019 CONSUMERS BUSINESS 55 % 50% in 2018 33 % 38% in 2018 21.9 minutes 30.6 minutes in 2018 Realisation of planned smart meter offering Cable numbers with >5 interruptions OBJECTIVE 2019 OBJECTIVE 2019 585,000 minimum 17 maximum RESULT 2019 RESULT 2019 624,000 644,000 in 2018 17 17 in 2018 1 The figure for electricity outage duration differs from the figure stated in the regulatory report, because interruptions in the high-voltage network (CBL assets) owned by Alliander are taken into consideration in the regulatory report. Pressure on the power grid The reliability of supply in our electricity grid was again very high in 2019. All the same, the acceleration of the energy transition, the growth of the economy, and the shortage of technicians have together put the reliability of the grid under pressure. Expansion, upgrades, and smart solutions have alleviated the shortage of transmission capacity in some locations, but these measures are not sufficient to meet the rising demand for energy. Since 2019, an increasing number of bottlenecks have been occurring in the power grid in the Netherlands, posing an obstacle to the energy transition and to the further economic development in the Netherlands. The electricity grid is busy with delivering power, but also with the feed-in of electricity. Expanding the grid is a process that will take many years, which is why we are also taking another approach with regard to the energy transition, i.e. applying smart solutions and innovations where possible. In some instances, laws and regulations need to be amended before we can apply innovations on a larger scale. Insufficient transmission capacity Network operators are having to deal with a rapidly expanding work package. For example, the demand for the highest capacity connections, used for connecting large solar farms and data centres, has increased sevenfold in just a few years. A large solar farm makes a claim on the electricity grid comparable to a small city like Weesp, and a data centre draws about double that amount. To continue to meet demand, we are expanding the electricity grid in many locations. This is a long process, however, partly due to the lengthy permit procedures. We are working hard to upgrade and expand our electricity grid, and over the last year we exerted even more effort in this area. Despite these efforts, owing to the skills shortages combined with the growing economy, we are increasingly unable to implement connections or network upgrades as quickly as the customer wants or within the statutory 18-week term. More and more often, businesses that want to generate or buy more electricity in areas where there is insufficient network capacity will have to wait until we have upgraded the network there. In advance of the expansion of the power grid in these locations, we have investigated whether congestion management – the coordination of supply and demand for electricity in an area – is an option, which it is not in virtually all areas facing capacity constraints. As a result, ‘transmission restrictions’ are placed on businesses in these areas, with the effect that if they need more electricity or want to feed in more electricity than a given amount, they will generally have to wait until the grid has been expanded. This measure is needed to prevent power cables from being overloaded resulting in district-wide power outages.


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    Annual report 2019 | The value that we create 27 Transmission capacity statement Since 1 October 2019, after consultation between network operators and various stakeholders, the transmission capacity statement (transportindicatie) has been part of the application procedure for the Dutch subsidy scheme designed to promote the production of sustainable energy (SDE+). Without a positive statement, the application cannot be accepted. The intention is to prevent subsidies for renewable power generation going to areas where the electricity grid does not have sufficient transmission capacity for this, nor will have this within the next few years. Power producers can request the statement from their network operator prior to applying for the subsidy. A positive transmission capacity statement indicates that, at that moment, the grid has sufficient capacity to transmit the electricity generated by the project. During the autumn SDE+ subsidy round, we received 3,869 requests for a transmission capacity statement, mainly for connecting solar farms to the grid. We provided a positive statement for 86.9% of the requests, i.e. a total of 3,361. Excellent network management Supply reliability of the electricity grid In 2019, our customers were without electricity for an average of 21.9 minutes, a big improvement over last year (2018: 30.6 minutes), which can mainly be attributed to the lack of major outages in 2019 (2018: 4). Besides this, there were fewer outages in the summer period than last year. This was thanks, in part, to our use of new digital tools that enable us to better monitor components that are sensitive to sustained periods of heat: we can localise imminent disruptions faster and guide our service technicians more effectively. Components are replaced preventively where necessary. It is worth noting that 21% of the power disruptions were caused by excavation works being carried out by outside parties. The number of unique cable numbers with more than five interruptions per year was 17, the same as the target (maximum 17) and just as high as in 2018 (17), despite the sharper focus on repeat disruptions and smart technical adjustments in the network. An example of this is REZAP Fault Master, a device that can pinpoint the fault location at the next (dormant) fault. Outage duration of power grid and causes 0 The Dutch average for 2019 is not yet known.


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    Annual report 2019 | The value that we create 28 Repeat outages 0 Supply reliability of the gas grid Gas outages are relatively uncommon. The main cause of fluctuations in the gas outage duration are random outages caused by a third party and which leave customers without gas for a long time. In November, 63 homes in the village of Doorwerth were without gas for between a day and a day and a half. This was the result of water from a burst water main entering a damaged gas main, which then had to be cleaned (along with other local gas lines) and repaired before it could be brought back into use. Outage duration of gas grid and causes 0 The Dutch average for 2019 is not yet known. Infrastructure maintenance In 2019, we spent €1,044 million on the maintenance, replacement and construction of our energy infrastructure (2018: €954 million).


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    Annual report 2019 | The value that we create 29 Replacement of grey cast-iron and asbestos cement mains Since 2009, a large-scale replacement programme for the replacement of grey cast-iron and asbestos cement mains has been under way. The programme is scheduled to be finished in 2040. In 2019, we met with representatives of ten municipalities (in which 70% of the mains concerned are buried) to discuss accelerating the programme, striving for completion by 2032. This move was prompted by the official recommendations of the Dutch State Supervision of Mines. Our results by region Gelderland The Province of Gelderland covers a large, highly diverse area. Various major housing developments were under construction last year, and we saw an increasing demand for capacity in business parks and the commercial greenhouse sector. We also saw an increase in initiatives related to the production of renewable energy. These developments have had a huge impact on the grid. Based on dozens of talks with growers, we made an analysis of energy scenarios in the Bommelerwaard region, and worked on connecting renewable energy initiatives around the Deil interchange to the grid. For the solar initiatives in the Achterhoek region, we built a new substation in Laarberg, and we worked on upgrading the Borculo substation. In 2019, we ran a pilot in Wageningen with the first prefab substation. Despite the use of innovative approaches like the flex-market and the flexnet in Nijmegen-Noord, we still saw the demand for capacity exceeding the available capacity in a number of locations. Friesland In Friesland, the rapid growth of solar energy in particular means that the electricity networks are having to handle an increasingly heavier load. In 2019, a number of solar farms were connected to the grid, including close to Oosterwolde. We have also decided to start a pilot installation at a solar farm in Oosterwolde that will convert renewable energy from the solar farm into green hydrogen. These types of pilots contribute to the realisation of alternative solutions that enable the transport of renewable electricity from areas where the grid is under pressure. Noord-Holland The province of Noord-Holland has a major, accelerated new-build challenge: data centres want to establish themselves there, and a reliable power supply is essential for commercial greenhouse operators. The demand for electricity is ever increasing, while the grid does not have the capacity to meet this demand. To address this, we worked with TenneT on expanding the electricity grid, and in 2019 we completed the De Weel and Middenmeer substations. With regard to the heating transition, in Purmerend the first homes in the ‘test bed’ of the Ministry of the Interior and Kingdom Relations were made natural gas-free, and the first open district heating network in the Netherlands was launched in Zaanstad. In Haarlemmermeer we expanded the electricity grid to facilitate the connection of data centres. The installation of the second 50kV connection between the Haarlemmermeer electrical substation and Rozenburg is under way. Since 2015, together with TenneT we have been searching for a location in the region for a new Haarlemmermeer substation, as of yet without success, unfortunately. Amsterdam Liander and the City of Amsterdam collaborated in a thematic study on the energy transition in the city. As a result of the construction of new homes and data centres, as well as the electrification of vehicles, heating, industry and more, electricity consumption will rise rapidly in the coming years. These developments have had a huge impact on the grid. We also installed five smart medium-voltage stations to help resolve outages more quickly in the future. Liander has installed new networks so that new-build homes in the district of Amsterdam- Noord, for example, can be connected. In addition, more than 250 new charging points were connected, and we brought an underground gas distribution unit into operation. Under the Amsterdam Natural Gas-Free initiative, the first homes in the Gentiaanbuurt district were weaned off natural gas. Zuid-Holland Preparations were started in 2019 for the launch of a flex-market in the Zuidplaspolder area to reduce the pressure on the network as much as possible. In addition, Liander and the municipalities in the Holland Rijnland region conducted a scenario study to gain insight into where and when investments in the electricity grid are needed to facilitate economic developments and the energy transition. The first steps have been taken to integrate these grid investments in the region. We took the first steps towards implementing solutions to facilitate renewable energy initiatives in Boskoop. Flevoland Flevoland has a vast amount of rural land, perfect for renewable energy initiatives. This is already taking place on a large scale with the many wind turbines. In addition, the number of planning applications for solar farms is increasing. This presents our organisation with the major challenge of seeing that the infrastructure is ready to accommodate this, alongside facilitating large-scale generation of wind energy. For this, cooperation between government, business and Liander is needed. In 2019, we worked on connecting the solar farms in Luttelgeest (4MW) and Almere De Vaart (20MW).


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    Annual report 2019 | The value that we create 30 Access to affordable energy Thousands of households cannot or are barely able to pay their monthly energy bill. According to research agency Ecorys, this group may become larger if all homes are disconnected from the gas grid. This is alarming news. As a network operator, we stand behind the principle that energy should be accessible and affordable for everyone. Last year we completed a trial with prepaid energy. The pilot was carried out by Alliander, Stedin, Greenchoice, Vattenfall and Energiebank to make households more aware of their energy usage and offer them additional help so they can avoid being disconnected and accumulating new debts. From the pilot it emerged that prepaid energy gives consumers more control over their energy costs and helps them save money and prevent payment arrears. It also boosts the sense of self-reliance. We prefer not to disconnect customers’ power in the winter. In this context, we go further than the law requires. The law states that we must stop disconnecting customers if it freezes in De Bilt (the site of the Royal Netherlands Meteorological Institute) for 48 hours. Every week, we take a look ahead to determine whether the average temperature will be below zero in any 24-hour period. In cases of doubt, we decide in the customer’s favour. Online campaign helps prevent ‘contractless’ customers Every year, Liander has to deal with customers who consume energy but do not pay for it since they do not have an energy contract. This can happen as the result of moving home for example. This type of administrative network loss costs us €16.9 million annually. Reducing the number of customers without a contract helps decrease network losses while increasing customer convenience. We launched an online campaign to inform customers who are in the process of moving about taking their energy contract along with them or concluding a new contract. In total we reached over 4.5 million people through social media and online ads, and the video was viewed almost 5 million times. The result is that more customers now know the importance of arranging a contract. The number of customers without a contract when they move home fell from nearly 39% to 35% during the campaign period. Seasonal influences also played a role in this. How we are addressing the challenges So that we can continue to ensure the reliability of the electricity grid, we take measures to gain insight into the bottlenecks in capacity in the grid. We do everything we can to expand the network where the bottlenecks are occurring, as well as at locations where we anticipate that demand will increase in the future. We are also looking for opportunities to make even better use of the cables and installations that are already in place. Improving our operational processes In response to the increased workload and the shortage of technicians, we made various changes in our operational processes in 2019. These changes have enabled us to continue to improve our performance in terms of promptness, increasing productivity, and cost- awareness. For example, in 2019 it became possible for us to draw up quotations for large-user connections (such as requests for connecting solar farms) digitally and send these directly to the customer, whereas this process originally involved numerous manual steps and had a longer lead time. Stricter work agreements and tightened oversight also ensure that more projects start on time; this way, better use is made of the technical capacity, and customers and contractors can be assured of higher reliability in the planning. Long-term and integrated outsourcing During the year under review, we achieved positive results with outsourcing entire projects to contractors. The contractors handle both the preparations and implementation, which includes linking up to the networks, enabling us to handle more work together. In August, Liander signed a major contract with three contractors, who will carry out replacement and expansion work over the next ten years at around 4,500 medium-voltage stations in three regions. In October, Liander signed a four-year contract with contractors for work on the energy networks in Amsterdam. By outsourcing activities in full, our technicians can focus on other specialist work, troubleshooting, and maintenance on the power grid. Furthermore, because these long-term contracts provide contractors with more certainty about their work package, they can hire and train more people, meaning the Netherlands can rely on more technicians. Work planning Up to 2019, when planning our work we determined the amount of time our activities would take on the basis of fixed, average standard lead times. We analysed which factors affect these standard lead times, such as the presence of any soil contamination. Now, by using more precise standards in projects, we can plan our work more accurately, enabling us to handle more work. In 2019, we started managing large-user connection projects using this new standards approach.


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    Annual report 2019 | The value that we create 31 Product innovation We have been experimenting with production innovation in the implementation process, like with the prefab substation we developed with other parties. In Wageningen the first prefab substation was brought into operation. This solution reduces the installation time considerably and minimises interdependencies in the planning. Recruitment, training and retention With regard to our in-house technical staff, we have put considerable effort into increasing labour capacity by working on recruitment, training and retention. This includes special programmes for recruiting and training school-leavers and asylum status holders, as well as holding onto technical staff through retention measures and by offering career development paths. The training and development section provides more information. Smart innovations We are constantly investigating ways to make optimum use of the existing network using innovative solutions, including smart expansions and smart technical modifications to the electricity grid, for example, and initiatives to enhance collaboration between sectors and with supply chain partners and new energy carrier partners. The measure or solution chosen depends on the situation. Examples of technical innovations include ‘cable pooling’ (connecting solar farms and wind farms on a single cable) and non-redundant connections. Redundant power is a kind of reserve power that ensures that the electricity does not have to be switched off in the event of power interruptions or maintenance. By using this reserve capacity at stations, we have more capacity in the grid. In 2019, we set up pilots to investigate the possibilities of the new energy carrier hydrogen. We want to learn what the large-scale production of green hydrogen from wind and solar power can mean for affordable and reliable network management. Increasing the company’s effectiveness To ensure that we make a successful contribution to the energy transition, it is essential that Alliander focus on meeting the challenges. It is important that we organise ourselves effectively and operate as one team. To find out whether all employees have the same goal in mind for Alliander, a strategy alignment survey was held at the end of June. From this survey, it was clear that managers and employees know the challenges Alliander is facing in order to continue to fulfil our task. We have also seen that there is room for further increasing our focus in how we take on challenges as an organisation, how teams contribute to the pursuit of our strategy, and which priorities they must set. There is also scope for better collaboration between Alliander teams on clear choices that we make as an organisation for Alliander’s future. After the survey, each team met to discuss the direction Alliander is taking. Work is currently ongoing on an approach that will help us create an excellent organisation. Organisational changes To become more effective and agile, in 2019 various adjustments were made to Alliander’s business units, like at Qirion, for example, which is working with a new classification of regions. The IT unit, too, launched a transformation programme in 2019. We also work with new methods that increase our agility and we continue to examine how we can organise and perform our tasks in the most effective way possible. Digitalisation Digital technologies and innovations are unlocking new opportunities for managing our networks. Alliander employs these new opportunities to more quickly detect and even prevent interruptions, make more targeted investments in the networks, and offer customers the data and services (including self-service) they need to make better energy choices and manage energy flows more effectively, allowing for better use of the current grid. This is how we can restrict the need for network upgrades. With this in mind, in 2019 we continued work on the roll-out of digital components, i.e. devices that can monitor, detect and, in some cases, switch, such as the Smart Cable Guard (SCG), smart medium-voltage stations, and smart meters. The data from these smart devices are converted into valuable information for customers and employees using innovative algorithms and AI. This way we can ensure that the service technician is already close by when the customer reports a disruption, that outages are prevented, and that optimum use is made of the grid’s capacity. Because some customers request a large number of connections all at once, we have developed a customer integration tool. This allows us to quickly analyse multi-connection requests and make calculations to determine the impact on substations and the medium-voltage network.


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    Annual report 2019 | The value that we create 32 Fewer and shorter disruptions Smart Cable Guard (SCG) is a system that detects and pinpoints weak spots in the underground electricity network, ideally before these lead to outages. Using this system, in 2019 we prevented 40 power cuts and shortened the duration of 77 others. By the end of the year, we had over 900 SCGs monitoring our network, which is more than targeted (800). Smart meters installed in homes and small businesses also help to shorten the duration of power outages. These meters help us pinpoint faults so that the service technician can get to the location faster, and we do not have to ask customers all sorts of technical questions either: we already know the answers. This year, service technicians started working with an app that provides them with on-site information that was previously only available back at home base. If customers are entitled to financial compensation as a result of a low-voltage power outage, this is automatically calculated and paid out in more than 80% of the cases. Targeted network investments Digital installations can support traditional installations in order to shorten the outage duration as much as possible at the lowest costs possible. There are countless possibilities for combining digital with traditional installations. For this purpose, an optimisation model has been created that uses algorithms to automatically come up with the most cost-efficient proposal for the installation of smart medium- voltage stations, SCGs, and breakers, helping our network planners to make targeted investment decisions. With regard to the smart medium-voltage stations, the 127 we installed put us above the 100 targeted for the year under review. Flex-market in the Zuidplaspolder area Following the flex-market in Nijmegen-Noord, we started preparations for a flex-market in the Zuidplaspolder area. Due to the construction of new homes and the expansion of businesses in this area, we expect a shortage of distribution capacity (grid congestion). Together with TenneT and Stedin we are preparing for the construction of a new distribution substation, though it will be a few years before the substation is completed. One of the solutions to capacity problems in the meantime is a flex-market that matches supply of electricity to demand, by shifting electricity consumption to different times or storing energy temporarily for use during peak periods. Offering smart meters One crucial link in the creation of a smarter infrastructure is the smart meter. Customers are increasingly making their own energy decisions. Smart meters help customers to save energy, use energy when costs are low, or feed energy back into the grid when the price of electricity is high. Since the start of the roll-out of the smart meter, we have offered the device to 2.4 million customers. Each day, more than 2 million requests for data from the smart meter are now being processed. In 2019, we offered the smart meter to more than 600,000 customers and we are ahead of the schedule that was presented to the Ministry of Economic Affairs and Climate Policy. We achieved this result despite a prolonged production stop in October 2018 at one of the two suppliers of the smart meters, which was due to quality issues in the production process. At the end of 2019, 107% of the work scheduled for 2019 had been carried out. The progress made each month is shown on Alliander.com. We intend to offer smart meters to all our customers by 2020, which means we still have 375,000 addresses to go in 2020. We expect to encounter many empty buildings and homes where adjustments to the meter cabinet or connection are required. We are working in close cooperation with our partners, such as contractors, to offer customers the smart meter. Customer convenience Customer convenience in consumer and business markets 0


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    Annual report 2019 | The value that we create 33 The key determining factor of customer satisfaction is the convenience they experience. Immediately after we complete a job, we ask customers for feedback on our services. To express the amount of convenience experienced by customers, we calculate a score – the Net Effort Score, or NES. We calculate the NES by deducting the percentage of customers experiencing some or a lot of difficulty with the service from the percentage of customers finding it easy or very easy. This information gives us insight into the good results we achieve and the areas where improvements still need to be made. The Net Effort Score is updated on a monthly basis on our website at Alliander.com. Customer convenience can come under pressure owing to difficulties completing all the work we have to do, the long waiting times customers face, and the fact that we are not always able to provide the required capacity. Despite this, the figures remained fairly stable. Customer convenience rated by business customers In 2019, customer convenience based on the Net Effort Score (NES), as rated by business customers was 33%, compared with 38% in 2018. The connection times for customers are becoming longer, and requests for quotes for solar power generation and the associated feed-in requests are increasing sharply. The increasing number of transmission restrictions is also being met with a lack of understanding. Due to the increase in these requests, it is not possible to process them all within the prescribed deadline. Customers also state that they have to put a lot of effort into getting the answer they are seeking during the implementation process and the follow-up phase. Providing business customers with good service involves interacting with many other parties (municipalities, contractors, other business parties) and requires a lot of customisation. The associated processes are optimised and digitised; however, due to the fact that the work is more customised than standard, there are fewer opportunities for digitalisation. Customer convenience rated by consumers Our customer convenience score for the consumer market stood at 55% in 2019. Despite the problems with completing all the work in the work package, this is higher than in 2018 (50%). This increase is attributable in part to the accessibility of our customer contact centre, as well as the use of new communication channels. The most important points for attention in 2019 were communications in the period between applying for the work to be carried out and this being done, and the long lead times: this is where the customers experience the greatest inconvenience. Sharp rise in number of customer queries Customer queries were up 13% compared with 2018. The size and scope of the work package and the energy and heating transition have resulted in customers contacting us more frequently. The Customer Contact Centre mainly received questions about the application process, preventing disconnection, and information requests concerning the process for people without a contract. Customers consult the website primarily for information on outages and connections, or they visit the contact page. Online customer service The Liander.nl website was visited more than 2.4 million times in 2019. Satisfaction with our online services was 34%; the score is measured on a monthly basis and is, in general, increasing. The information on outages is especially appreciated. In 2019 we also worked on improving the self-service functions, including for customers who are moving home. We have seen that customers who move home do not always conclude a contract with an energy supplier. We now help these customers with customised advice to help them retain their energy supply, and we offer them real-time insight into the status of their contract request. Other changes on Liander.nl are: • Expansion of the power cut overview to include planned power cuts (for maintenance purposes). The location of the power cut is now also shown on a map. • Decision-making tool for customers considering getting a new connection. By entering a single-use verification code for this function, customers can see which connection they currently have and can compare it with a larger or smaller connection and see a cost estimate for each. • Expanding the Liander webshop with the possibility of changing connections.


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    Annual report 2019 | The value that we create 34 Being a credit-worthy company with solid returns As a major energy network company, we have an important social function in Dutch society. Consequently, our social, financial and sustainability performance plays a significant role in the considerations of shareholders and investors. Having a sound financial position enables us to perform accordingly. Related topics This chapter details what we do to ensure that our financial position is sound and remains so in the future. The information relates to the topics the stakeholders feel are important. Furthermore, these activities contribute to achieving an SDG: Related material issue Contribution to SDG ⑧ Responsible investment policy Related stakeholder groups Shareholders and Investors


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    Annual report 2019 | The value that we create 35 Objectives and results creditworthiness Rating FFO/Net debt Interest cover OBJECTIVE 2019 OBJECTIVE 2019 OBJECTIVE 2019 To retain a solid A rating profile RESULT 2019 > 20.0 % > 3.5 RESULT 2019 RESULT 2019 S&P AA-/A-1+/stable outlook Moody’s Aa2/P-1/stable outlook 29.0 % 13.3 32.2 % in 2018 12.9 in 2018 Net debt / (net debt + equity) Solvency ratio OBJECTIVE 2019 OBJECTIVE 2019 < 60.0 % > 30.0 % RESULT 2019 RESULT 2019 36.5 % 55.6 % 33.8 % in 2018 57.3 % in 2018 How finance and sustainability go hand in hand Thanks to our financial position, we are able to continue to invest in our networks and grow the business. This enables us to pursue our strategy and play a facilitating role in the energy transition. Our financial policy is designed to allow us to maintain a solid A rating. We see that, alongside a sound financial policy, shareholders and other investors are increasingly focusing on sustainability performance. Alliander supports the significance of sustainability and so the company’s sustainability targets play a prominent role in the management of the business and external financing. With this in mind, in 2019 Alliander issued a new green bond loan, our second to date. Our sustainability efforts have been rewarded with a sustainability classification of B by rating agency ISS-oekom. Financial policy Financial framework Alliander’s financial framework is formed by the FFO/net debt, interest cover, net debt/(net debt plus equity) and solvency ratios. These ratios, coupled with the norms against which they are measured, are crucial in obtaining and retaining a solid A rating profile on a standalone basis. In a departure from IFRS, when calculating the ratios, the subordinated perpetual bond loan is treated as 50% equity and 50% debt.


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    Annual report 2019 | The value that we create 36 Ratios on the basis of Alliander’s financial policy norm 31 December 2019 31 December 2018 FFO/net debt1 > 20% 29.0% 32.2% Interest cover2 > 3.5 13.3 12.9 Net debt/(net debt + equity) < 60% 36.5% 33.8% Solvency3 > 30% 55.6% 57.3% 1. The funds from operations (FFO)/net debt ratio is the 12-month profit after tax adjusted for deferred tax movements and incidental items and fair value movements plus depreciation of property, plant and equipment and amortisation of intangible assets and accrued income, as a percentage of net debt. 2. The interest cover ratio concerns the 12-month profit after tax, adjusted for the movements in the deferred tax assets and liabilities, for the incidental items and fair value movements, plus the depreciation and amortisation of property, plant and equipment and intangible assets and the net amount of finance income and expense, divided by net finance income and expense adjusted for incidental items and fair value movements. 3. The solvency ratio is obtained by dividing equity including the profit for the period less the expected dividend distribution for the current financial year by total assets less deferred income. As at 31 December 2019, the FFO/net debt ratio amounted to 29.0% (year-end 2018: 32.2%) compared with a required minimum of 20%. The decrease is the result of the increase in net debt with a relatively limited increase in the operating profit adjusted for incidental items. As at 31 December 2019, the interest cover ratio worked out at 13.3 (year-end 2018: 12.9). This increase is mainly due to a slight increase in the operating profit adjusted for incidental items. Alliander’s financial policy stipulates that this ratio should be a minimum of 3.5. The ratio of net debt/(sum of net debt and equity) as at 31 December 2019 amounted to 36.5% (year-end 2018: 33.8%). Alliander’s financial policy stipulates that this ratio should not exceed 60%. The increase came mainly from the increase in the net debt. The solvency ratio as at 31 December 2019 amounted to 55.6% (year-end 2018: 57.3%) compared with a required minimum of 30%. The decrease compared with 2018 is mainly due to the increase in total assets. Dividend policy The dividend policy (as part of the financial policy) provides for distributions of up to 45% of the profit after tax, adjusted for non-cash incidental items, unless the investments required by regulators or financial criteria demand a higher profit retention percentage and unless the solvency ratio falls below 30% after payment of dividend. The proposed profit appropriation for 2019 is shown on page 180 of the financial statements. Investment policy The investment policy is consistent with the financial policy and is part of Alliander’s strategy. Elements of investment policy include compliance with regulatory requirements relating to investments in the regulated domain, such as safety and reliability, and the generation of an adequate return on investment. Ordinary investment proposals are tested against minimum return requirements and criteria as set out in the financial policy. Innovative schemes require specific Management Board approval. As well as quantitative standards, investment proposals must also satisfy qualitative requirements. It should also be noted that, in principle, investments in the regulated domain arise from a network operator’s statutory duties. Economic performance Alliander makes a major contribution to the prosperity of the Netherlands, indirectly through the considerable impact that the distribution of energy has for the Dutch economy and for the quality of life experienced through the permanent availability of energy. This is further explained in our impact model in the Contribution to Global Goals chapter. The dividend distributed to shareholders and payments to providers of capital and government authorities make an indirect contribution to social goals. The way these items are allocated and used is set out below. Our financial stakeholders Alliander pursues an active policy of maintaining an open and constructive dialogue with shareholders, bondholders, financial institutions, credit rating agencies, sustainability rating agencies, analysts, and the media. We try to provide all stakeholders with timely and accurate relevant information on finances, strategy, risks, sustainability and other matters, in reports, in press releases, and in meetings, as well as by other means. Shareholders All of Alliander’s shares are held directly by Dutch provinces and municipalities. A full list of the shareholders can be found on www.alliander.com. The authorised share capital of Alliander N.V. is divided into 350 million shares with a nominal value of €5 each. All the shares are registered shares. As at 31 December 2019, there were 136,794,964 issued and paid-up shares. Contact with shareholders primarily takes place during the shareholders’ meetings. The company and its shareholders also meet outside of the shareholders’ meetings. A summary of the various shareholder dialogue structures can be found on the Alliander website.


  • Page 37

    Annual report 2019 | The value that we create 37 Institutional investors Institutional investors in our bond issues, such as asset managers, insurance companies, pension funds and banks, provide a large part of our financing in the form of debt. These are mostly Europe-based professional players on the international financial markets. We keep existing and potential bondholders informed of the company’s financial position and results, as well as developments in the industry by actively engaging in investor relations activities in addition to complying with ordinary publication requirements. In this context, late in February 2019 we met with investors in Amsterdam, Frankfurt, Paris and London to discuss the 2018 figures. In September 2019, we held a conference call on the half-year figures. Various matters were covered on both occasions, including the issue of the second green bond, the major campaign to install smart meters, and the impacts that the phasing-out of natural gas and the growing number of electric vehicles will have on Alliander. Banks In July 2018, Alliander renewed its existing committed €600 million back-up credit facility for one year. The facility, which now runs to July 2023, has been entered into with six banks. As in previous years, this facility was not drawn on during the year. Alliander has a loan from the European Investment Bank totalling €300 (with tranches received in 2017 and 2018). The loan becomes repayable in full in 2031. Rating agencies In order to retain ready access to the capital and money markets, it is important for existing and potential financiers to have an accurate picture of Alliander’s creditworthiness. Alliander uses credit ratings for this. Having a credit rating is also an obligation under the terms of the cross-border lease contracts Alliander entered into at the end of the 1990s. Alliander has credit ratings from S&P and Moody’s. These ratings comprise a long-term rating with an outlook, and a short-term rating. The outlook is an indication of the expected change in the long-term rating over the next few years. S&P and Moody’s have kept both ratings and outlook unchanged. The credit ratings as at year- end 2019 were as follows: long term short term Standard & Poor's AA- (stable outlook) A-1+ Moody's Aa2 (stable outlook) P-1 During the reporting period, Alliander was in contact with the rating agencies on several occasions. Discussions included the shortage of technical staff, cost savings, the challenges of the climate change targets, and the energy transition. Based on the recent financial performance and forecast figures for Alliander presented on these occasions, S&P and Moody’s reassessed Alliander’s creditworthiness and confirmed the existing ratings and outlook. We are being rewarded, too, for our sustainability efforts, as shown by the B sustainability classification awarded us by rating agency ISS- oekom; this is the highest rating ISS-oekom awarded to any company operating in the network sector. Tax and subsidies As a taxpaying company, Alliander is liable for various taxes, chief among which are corporate income tax, wage tax, and VAT. Dutch tax law applies to the largest share of this by far, with a small portion, namely our activities in Germany, falling under German tax law. The table below shows the totals per type of tax per country. Tax payments in 2019 € million Netherlands Germany Corporate income tax 57 1 Dividend tax 23 - Wage tax 170 2 Sufferance tax 148 - VAT 240 2 Total 638 5 In the past, Alliander entered into an Enforcement Covenant with the Dutch Tax and Customs Administration under the ‘Horizontal Supervision’ arrangements. Where there is any doubt about the interpretation of tax law, we engage in advance in a constructive and transparent dialogue with the Dutch Tax and Customs Administration, and with the Netherlands Enterprise Agency where subsidies are concerned. Furthermore, Alliander’s risk management model is reflected in the implementation of our tax strategy, and the Tax Control Framework is used to mitigate risk.


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    Annual report 2019 | The value that we create 38 With regard to matters relating to tax and subsidies, we have set the following objectives: • In our financial reporting – in the financial statements for example – we are transparent about the tax we pay. • We are totally transparent vis-à-vis internal and external stakeholders with regard to all relevant records relating to tax and subsidies. Stakeholders include the Dutch Tax and Customs Administration, the Netherlands Enterprise Agency, the Supervisory Board, the Management Board, and internal departments like Human Resources, Regulation, Risk Management, Legal Affairs, and Internal Audit. • For cross-border activities, the transfer pricing rules apply. In this context, a transfer pricing agreement has been drawn up for our activities under Alliander AG, which complies with the applicable rules. Our focus with regard to subsidies is on schemes that are intended for large corporations rather than those for regional activities. This way, by only applying for such regional subsidies where appropriate, we deliberately leave the field open at regional level for other companies to develop smaller sustainability initiatives. In 2019, we received €1 million (2018: €2 million) in subsidies. We did not receive any subsidies in Germany. Financial results in 2019 Financial flows within Alliander Alliander’s income is made up of approximately 85% income from the regulated activities of network operator Liander and 15% other income, the latter being income from rental of large-user meters, income related to new activities, and income from activities outside the Netherlands and from the activities of other companies outside the regulated energy sector. In the second quarter of 2020, network operator Liander will publish its own, separate annual report on its performance in 2019. The main expenditure relates to maintenance work on the electricity and gas networks and the operating expenses connected with all other activities. We invested in excess of €800 million in 2019, mainly for the replacement and expansion of our networks, as well as the installation of smart meters. This investment equates to roughly 35% of our total expenditure. Additionally, there is the dividend payable to our shareholders and the interest payments to the holders of the subordinated perpetual bond loan and other financiers. The dividend and interest payments for 2019 together amounted to approximately 7% of our overall expenditure. Finally, we pay sufferance tax charges to municipal authorities and corporate income tax to the Dutch Tax & Customs Administration. This accounts for another 9% of our outgoings approximately. Cost-effective and efficient operations Alliander is committed to reducing costs to ensure that we have sufficient financial scope to continue to invest responsibly in the future as well. In 2019 we continued with the company-wide cost-saving programme launched in 2018. The foundation of the programme is to pay ongoing attention to increasing cost awareness throughout the organisation and to critically consider which activities are really necessary for performing the job we do – without compromising safety or quality. Furthermore, the programme focuses on simplifying and improving processes, by standardising and digitising the activities for example. We also focus on refining procurement agreements and reducing indirect costs, by adjusting internal and external policies and reducing the deployment of contract staff for example. These measures saved the company €65 million at year-end 2019 compared to 2017. 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.


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    Annual report 2019 | The value that we create 39 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. Operating profit Revenue 0 0 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 0


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    Annual report 2019 | The value that we create 40 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 (permanent and Sufferance tax temporary) 0 0 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.


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    Annual report 2019 | The value that we create 41 Costs of network losses - electricity Transmission capacity costs 0 0 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 0 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.


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    Annual report 2019 | The value that we create 42 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. Maintenance costs and network investments 0 Incidental items Alliander’s results can be affected by incidental items and fair value movements. Alliander defines incidental items as items that, in the management’s opinion, do not derive directly from the ordinary activities and/or whose nature and size are so significant that they must be considered separately to permit proper analysis of the underlying results. In 2019, incidental items had a negative impact of €14 million on our net profit. In 2018, incidental items provided a gain of €73 million. This means that in 2019 the net profit, adjusted for these incidental items, was €6 million higher than in 2018. A table listing the incidental items is shown below, along with the notes to these.


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    Annual report 2019 | The value that we create 43 Reported figures and figures excluding incidental items and fair value movements Reported Incidental items and fair Excluding incidental items € million value movements and fair value movements 2019 2018 2019 2018 2019 2018 Revenue 1,930 1,920 - - 1,930 1,920 Other income 40 148 - 105 40 43 Total purchase costs, costs of subcontracted work and operating expenses -1,399 -1,404 -17 -3 -1,382 -1,401 Depreciation and impairments -449 -409 -6 - -443 -409 Own work capitalised 257 241 - - 257 241 Operating profit 379 496 -23 102 402 395 Finance income/(expense) -52 -46 -4 - -48 -46 Result from associates and joint ventures 1 3 - - 1 3 Profit before tax 328 453 -27 102 355 351 Tax -76 -119 13 -29 -89 -90 Profit after tax from continuing operations 252 334 -14 73 266 261 Profit after tax from discontinued operations - - - - - - Profit attributable to minority interests 1 - - - 1 - Profit after tax 253 334 -14 73 267 261 Other Income (2019: nil, 2018: €105 million income) The incidental income in 2018 is related to the gain on the sale of Allego. Total purchase costs, costs of subcontracted work and operating expenses (2019: €17 million expense, 2018: €3 million expense) The incidental expenses in 2019 consist of the costs for organisational changes (€9 million) and the costs of a provision for loss-making contracts in Germany of €8 million. The incidental expense in 2018 is made up of income of €5 million due to the impact of changes in the collective labour agreement and extra costs of €8 million arising from organisational changes. Depreciation and impairment (2019: €6 million expense, 2018: nil) The incidental expenses in 2019 consist of impairment of assets, including for a company building (€4 million). Total finance income/(expenses) (2019: €4 million expense, 2018: nil) The incidental expenses incurred in 2019 consist of the costs of the write-down on a long-term receivable (€4 million) relating to heating operations as a result of discontinuation of production. Tax (2019: €13 million income, 2018: €29 million expense) The income in 2019 is the result of the impact of the previously mentioned incidental items on corporate income tax (€4 million), but also, in particular, changes in the government’s plans to amend corporate income tax rates. In 2018, the corporate tax rate was expected to be lowered from 2020 onwards, but revised plans have now postponed this. The revaluation of deferred tax assets leads to income of €9 million in 2019, while in 2018 there was still an expense of €29 million.


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    Annual report 2019 | The value that we create 44 Segment reporting General Alliander has applied IFRS 8 Operating Segments with effect from the 2010 financial year. Alliander distinguishes the following segments: • Network operator Liander • Other The figures for each reporting segment, excluding incidental items and fair value movements, are shown in the following table. These figures are a direct reflection of the regular internal reporting. Detailed information on segment reporting can be found in note [2] of the financial statements. Primary segmentation Network operator Liander Other Eliminations Total € million 2019 2018 2019 2018 2019 2018 2019 2018 Operating income External income 1,773 1,772 197 191 - - 1,970 1,963 Internal income 10 10 336 313 -346 -323 - - Operating income 1,783 1,782 533 504 -346 -323 1,970 1,963 Operating expenses Operating expenses 1,375 1,337 539 555 -346 -323 1,568 1,569 Operating profit 408 445 -6 -51 - - 402 394 Network operator Liander The network operator Liander segment consists of the legal entity Liander N.V., which, as designated network operator within network company Alliander, has a statutory duty to manage the electricity and gas networks and related assets in the provinces of Gelderland and Flevoland, as well as in parts of Friesland, Noord-Holland, and Zuid-Holland. Liander connects customers to the energy infrastructure through which it distributes electricity and gas to those customers. Operating income in 2019 (€1,783 million) was virtually unchanged compared with 2018. The operating costs for Liander were up by €37 million, chiefly owing to higher purchase costs and the cost of subcontracted work as a result as of the greater work package. As a result, the operating profit of €408 million was €37 million lower than in 2018. Other The ‘Other’ segment covers the entirety of the other operating segments within the Alliander group, such as the activities of Kenter, Qirion, Stam, Alliander AG, Firan, the service units, corporate staff departments, and the new activities. At €197 million, external operating income in 2019 was up by €6 million compared with 2018. Operating profit for 2019 amounted to €6 million negative (2018: €51 million negative). This improvement is mainly accounted for by higher profits at Qirion and Kenter among others. Balance sheet The abridged balance sheet as at 31 December 2019 is shown below. Alliander N.V. € million 31 December 2019 31 December 2018 Assets Non-current assets 8,241 7,790 Current assets 547 555 Assets held for sale 3 - Total assets 8,791 8,345 Equity and liabilities Total equity 4,224 4,129 Non-current liabilities 3,768 3,363 Short-term liabilities 799 853 Total equity and liabilities 8,791 8,345


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    Annual report 2019 | The value that we create 45 The following notes explain the significant changes in the balance sheet as at 31 December 2019 relative to the situation as at 31 December 2018. Detailed information on balance sheet items is given in the financial statements. • The non-current assets increased by €451 million compared to the position at year-end 2018. This increase is mainly explained by the high level of investment, in particular in the networks and meters. Furthermore, IFRS 16 Leases applied from 1 January 2019, resulting in an increase in non-current assets of €63 million. • Equity increased by €95 million as a result of the profit achieved in 2019 (€253 million) on the one hand and the dividend paid in 2018 (€150 million) on the other. A summary of the movements can be found in note [12] of the financial statements. • The increase in non-current assets has been financed, in part, through external loans. • Furthermore, debts have increased as a result of IFRS 16, which has led to an increase of €64 million in the finance lease obligations. Please see page 124 for further information. Cash flow Consolidated cash flow statement Shown below is a summary of the cash flow statement for 2019. € million 2019 2018 Cash flow from operating activities 638 638 Cash flow from investing activities -713 -496 Cash flow from financing activities 88 -103 Net cash flow 13 39 The cash flow from operating activities in 2019 amounted to €638 million (2018: €638 million). In this cash flow, the lower interest paid in 2019 compared to 2018 was offset by higher working capital. The cash outflow from investing activities in 2019 amounted to €713 million, which is a €200 million improvement on 2018. This has two causes: 1. the increase of €103 million in investments. These are disclosed below; 2. the sale of Allego in 2018, which improved the cash flow from investing activities by €110 million in 2018. Third-party contributions to investments in 2019 amounted to €124 million, comparable to those in 2018. Investments 0


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    Annual report 2019 | The value that we create 46 Despite a decrease in investments in gas networks, the total level of investments has risen by €257 million in the past five years, an increase of 45%. This is almost entirely due to the increased investments in the electricity networks to address the increasing demand for connections for solar farms and wind turbines. Besides rolling out new and heavier-duty cables, we are building new electrical substations and expanding existing ones. Investments in the gas networks show a decrease of 18% compared to 2015, which is largely in line with expectations. Investments in smart meters remain high as a result of the large-scale roll-out. In the ‘Buildings, IT, etc. category’, over the last two years, there has also been an increase in the investments in telecommunications networks (both fibre optic networks and mobile data communications). Furthermore, investments at Kenter and at our buildings increased in 2019 as a result of renovation work. The relatively high investment figures in the years 2015 to 2017 are the result of the renovation of the buildings in Duiven and Bellevue. Free cash flow € million 2019 2018 Cash flow from operating activities 638 638 Cash flow from the the disposal of Allego - 110 Investments and divestments in non-current assets -837 -731 Construction contributions received 124 126 Free cash flow -75 142 The free cash flow in 2019 totalled €75 million negative, compared with a free cash flow in 2018 of €142 million positive. In 2018, the free cash flow was positively affected by the sale of Allego. Moreover, Alliander stepped up its investments in 2019. If we were to include the dividend payment in 2019 (€150 million) and the interest payments to the holders of the subordinated perpetual bond loan, the free cash flow in 2019 would amount to €233 million negative (2018: €29 million positive). This negative cash flow is being financed through the issue of short-term paper (ECP), which does entail an immediate increase in our net debt position. At year-end 2019 the cash flow from financing activities was €88 million positive (2018: €103 million negative). Disregarding the dividend payment and the payment to bondholders (total: €158 million), financing amounts to €246 million (increase in net debt). Part of the financing cash flow is the issue of a green bond. At the end of June 2019, Alliander issued a new green bond with a nominal value of €300 million and a term of 13 years. This was our second green bond issue to date; the first was issued in 2016. Revenue from the issue of this green bond will be used to invest in the smart meter, and in the ‘fair meter’ in particular. The fair meter is the result of a joint venture of network operator Liander and several parties from across the industry, aimed at making the smart meter more sustainable. The bonds were issued at a coupon rate of 0.875% and an issue price of 98.628%. Financial position Development in debt position The development in the net debt position over 2019 is shown below.


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    Annual report 2019 | The value that we create 47 Development in net debt position 0 The net debt position had risen by €300 million to €2,223 million at year-end 2019 (31 December 2018: €1,907 million). The main components of the net debt are the balance of free cash flow (minus €75 million), the dividend payment and payments to bondholders in 2019 (€158 million), and the independent increase in the debt position as a result of the implementation of IFRS 16 (€64 million). Please see page 124 for further information. Net debt position Net debt position € million 31 December 2019 31 December 2018 Long-term interest-bearing debt 1,765 1,475 Short-term interest-bearing debt 297 321 Lease liabilities 226 159 Gross debt 2,288 1,955 Cash and cash equivalents 153 140 Investments held for lease obligations related to cross-border leases 160 156 Total cash and cash equivalents and investments 313 296 Net debt in accordance with the annual financial statements (IFRS) 1,975 1,659 50% of the subordinated perpetual bond loan 248 248 Net debt on the basis of Alliander's financial policy 2,223 1,907 Alliander has a €3 billion EMTN programme. As at 31 December 2019, the carrying amount of the outstanding bonds was €1,392 million (nominal value €1,400 million). Alliander has an ECP programme totalling €1,500 million which can be used to issue short-term debt instruments. Alliander issued ECP loans at various times during the year; rounded off, €289 million in ECP loans were outstanding at year- end 2019 (year-end 2018: nil). Interest-bearing debt The repayment schedule for the interest-bearing debt as at year-end 2018 and 2019 was as follows:


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    Annual report 2019 | The value that we create 48 Repayment schedule for interest-bearing debt 0 The amounts scheduled for repayment in 2022, 2024 and 2026 mainly relate to bond loans. The other amounts relate to the repayment of shareholder loans and other loans. Events after the balance sheet date On 8 January 2020, Alliander Corporate Ventures B.V. signed a share purchase agreement (SPA) for the purchase of 100% of the shares of both Twinning Research Network Twente B.V. and TReNT Infrastructuur B.V. from TReNT Holding B.V. as of the same date. TReNT is an organisation with 18 employees that operates a fibre optic network of roughly 1,900km with approximately 650 connected customers through over 2,000 connections. Their annual revenue amounts to approximately €10 million. With the acquisition of TReNT, Alliander becomes the owner of its own telecommunications infrastructure in the service area of its network operator Liander in the eastern part of the Netherlands. It is Alliander’s policy to own this telecommunications infrastructure, because it is crucial for Alliander’s ability to safely operate its electricity and gas network. In a large part of the Liander service area, Alliander already owns the telecommunications infrastructure. And this will now also be the case in the eastern part of the Netherlands. Given that recent financial figures are not available for TReNT at this point, the (provisional) Purchase Price Allocation (PPA) under IFRS 3 has not yet been finalised and the associated notes have not yet been included. It will be finalised at a later stage. Our plans for 2020 Profit/loss Given the regulated nature of the largest part of Alliander’s operations, as well as the current regulatory methodology, the rate trend in 2020, and the increase in TenneT’s rates in 2020, Alliander expects a lower operating profit in 2020 compared to 2019 (unforeseen and non-recurring developments excluded). Investments We anticipate that the gross investments for, mainly, replacing and expanding the networks, as well as those relating to the energy transition and to IT, will total more than €800 million in 2020. Alliander’s work package is continuing to increase dramatically, in particular because both homes and businesses are increasingly using more electricity or want to feed their own sustainable electricity back to the grid. These investments are necessary to ensure a sustainable and reliable energy supply. As the energy transition continues to accelerate, this calls for a lot of extra work on our part. Due to the fast-growing demand from solar farms, data centres, and other rapidly developing energy-intensive sectors, like commercial greenhouses for example, the power grid is operating at full capacity in more and more locations. The projected investments will be made in regions experiencing a higher demand for capacity due to economic growth and the energy transition.


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    Annual report 2019 | The value that we create 49 Cash flow The higher level of investment in combination with the projected lower operating profit is expected to lead to a negative free cash flow in 2020. This, in combination with the dividend that will be paid in 2020 on the profit in 2019, will, as it did in 2019, result in a financing need on the part of Alliander.


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    Annual report 2019 | The value that we create 50 Achieving sustainability in energy supply and operations The energy supply is well on its way to become more sustainable in our service area. The increasing demand for electricity and the rapid rise of large-scale feed-in are keeping the power grid under pressure. This results in bottlenecks. We cannot solve these bottlenecks on our own however: this requires collaboration between all parties at an early stage and a systematic approach. We participate in the Regional Energy Strategies (RES) ensuing from the Dutch Climate Agreement. We accept our responsibility towards society through initiatives to make our own operations environmentally sustainable. Related topics This chapter is about our measures to make the energy supply and our own operations more sustainable. The information relates to several topics the stakeholders feel are important. Furthermore, these activities contribute to achieve the SDGs: Related material issues Contribution to SDGs ③ Promoting renewable energy generation ④ Working together on innovative solutions ⑧ Responsible investment policy ⑩ Future-proof network ⑪ Corporate social responsibility in the supply chain ⑮ Access to affordable energy Related stakeholder groups Customers, Shareholders and Investors

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