Financial results

Reported key figures

Reported key figures
  2017 2016
In millions of euros    
     
Revenues 1,241 1,548
Total expenses ‑910 ‑1,265
     
Operating result 331 283
Financial income and expenses ‑77 ‑125
Share in result of associates 47 61
     
Result before taxation 301 219
Taxes ‑42 ‑36
     
Result after taxation 259 183

Revenues

In 2017, revenues declined by € 307 million compared to the previous year. This decline was mainly caused by a decrease in the permitted revenues of GTS as a result of the method decision and regulatory settlements from previous years. Some long-term contracts in the non-regulated business also expired.

Operating result

The operating result increased by € 48 million compared to the previous year. The impairment of € 150 million on the gas transport network in Germany has an effect of negative € 117 million on the operating result and negative € 33 million on the ‘share in result of associates’. For more details, see the section on ‘Regulatory settlements’ in this chapter.

Our operating result was also affected by an impairment last year as well. This impairment amounted to € 450 million and related to the gas transport network in the Netherlands. Excluding the impairment in 2016 and the impairment this year, the decrease in the operating result amounted to € 285 million (the normalised operating result).

The decrease in the normalised operating result was primarily due to the decline in revenues mentioned earlier. The decline in revenues is offset to some extent by lower expenses. This decrease in the expenses was caused by, among other things, the fact that significant preparation costs were incurred last year, in contrast to this year, for the possible construction of a nitrogen plant. Furthermore, fewer additions to the provisions were required this year.

Despite an increase in the utilisation of nitrogen for the conversion from high-calorific to low-calorific gas following a further decline in the production from the Groningen gas field, the total energy costs for gas transport remained at the same level as in the previous year. This was mainly due to lower rates compared to last year.

Result after taxation

The result after taxation increased by € 76 million compared to last year. Excluding impairments in 2016 and 2017 (the normalised result after taxation), there was a decrease of € 151 million, which was mainly due to a decrease in our operating result.

The financial expenses decreased substantially compared to the previous year. This decrease was mainly due to a decrease in the total interest-bearing debt.

Excluding the impairment in 2017, our share in the result of associates increased by € 19 million (see the normalised key figures). This increase was the result of the sale of our share in the European energy exchange ICE Endex.

Normalised key figures

Normalised key figures
  2017 2016
In millions of euros    
     
Revenues 1,241 1,548
Total expenses*) ‑793 ‑815
     
Operating result 448 733
Financial income and expenses ‑77 ‑125
Share in result of associates *) 80 61
     
Result before taxation 451 669
Taxes ‑81 ‑148
     
Result after taxation 370 521

*) Normalised for the effects of the impairment in 2017 (€ 150 million) and in 2016 (€ 450 million)

Investments

In 2017, Gasunie Deutschland became a 16.5% partner in the EUGAL pipeline project. This is a multi-year investment project for the construction of a 485-kilometre pipeline in Germany. The total investment value for Gasunie Deutschland amounts to approximately € 475 million.

A number of other multi-year projects are also ongoing, such as improving the earthquake-resistance of our network and the Jason investment project, which is almost complete. As part of the Jason project, the current IT systems for gas transport are being replaced with a new gas transport management system. The total investment value of the Jason project amounts to approximately € 100 million. The new gas transport management system is expected to be taken into use in the first half of 2018.

The focus in the coming years will remain on replacing and maintaining our existing gas transport network and other operating assets. The replacement and maintenance investments are expected to decrease in the coming years due to a recalibration of the multi-year replacement programme. As a result of new initiatives in the field of sustainable energy, our business development investments are expected to increase in the coming year. Approximately € 20 million is expected to be invested in business development in 2018.

For the next 3 years, we expect an investment level of between € 250 and € 350 million. The investment level in 2017 was € 260 million.

Financial outlook

We expect the operating result for the coming years to be in line with the normalised operating result for this year. The permitted revenues will decline over the coming years as a result of the start of the new regulatory period for Gasunie Deutschland and the 2017-2021 method decision for Gasunie Transport Services; however, this revenue decline will not be entirely visible in the coming years because of regulatory settlements from the past. The total costs and financial expenses are expected to remain relatively stable, as a result of which the net result of the coming years will be in line with the normalised net result for this year.

Regulation of network operators

The revenues of the network operators in the Netherlands and Germany are regulated. The rates that we charge our customers are determined annually by the regulatory authorities. The regulatory authority in the Netherlands is the Authority for Consumers & Markets (ACM), and in Germany it is the Bundesnetzagentur (BNetzA).

Regulatory settlements

In both the Netherlands and Germany, a system of revenue regulation applies: the rates are calculated by dividing the permitted revenues for the year in question by the estimated capacity bookings. The permitted revenues consist of a capital cost allowance for the invested capital, a reimbursement for the annual depreciation costs (calculated on the basis of the depreciation periods determined by the regulatory authority and the value of the assets) and a reimbursement for the operating costs.

If the revenues achieved differ from the permitted revenues, the difference in revenues is settled in subsequent years. Current IFRS rules do not allow regulatory settlements to be recognised on the balance sheet as a receivable or debt. Consequently, under IFRS, regulatory settlements are not recognised in the year in which they arise, but in the year in which the settlements take place in the rates. This causes timing differences between IFRS and the regulatory revenue model, which can result in periodic impairments.

German regulation stipulates that network operators already receive an investment allowance during the construction phase of an expansion investment. After the investment is put into operation, this investment allowance must be repaid over a period of 20 years. This repayment takes place by settlement through the rates. Nominally this arrangement is neutral, however, by bringing the investment allowances forward, a positive net present value effect arises. Over the past decade, Gasunie Deutschland has made major expansion investments and therefore managed to bring forward significant investment allowances. The focal point of the repayment obligation lies in the period from 2023 onwards, resulting in a substantial decrease in revenues. The revenues normalised for this effect display a stable pattern, however.

In the overviews below, revenues are shown corrected for regulatory settlements resulting from differences between the permitted and actual revenues and energy costs (ENF). The revenues of Gasunie Deutschland have also been corrected for investment allowances received. Special settlements, such as settlements resulting from appeal procedures, have not been taken into account in the overviews below.

Gasunie Transport Services 2017 2016
In millions of euros    
     
Revenues based on IFRS policies  928   1,208 
Regulatory settlements in year T; stemming from previous years 49 ‑22
Difference between achieved revenues/ENF and permitted revenues/ENF in year T ‑6 ‑25
Investment allowances - -
     
Revenues corrected for regulatory settlements 971 1,161

Gasunie Deutschland 2017 2016
In millions of euros    
     
Revenues based on IFRS policies 224 235
Regulatory settlements in year T; stemming from previous years 3 2
Difference between achieved revenues/ENF and permitted revenues/ENF in year T 36 31
Investment allowances ‑20 ‑20
     
Revenues corrected for regulatory settlements 243 248

For GTS, the level of regulated revenues in 2017 decreased by approximately € 200 million compared to the previous regulatory period. In the years prior to 2016, the level of regulated revenues was comparable to 2016. Gasunie Deutschland’s regulated revenues were stable in 2016 and 2017, at a level of approximately € 250 million. This is consistent with the picture from previous years.

The EBITDA corrected for the aforementioned regulatory settlements (the underlying result) amounted in 2017 to € 814 million and decreased by approximately € 200 million compared to the previous year. This decrease was mainly due to a lower level of regulated revenues for GTS.

The rates for 2017 included set-off of an amount of € 52 million from previous years. This sum consists of a negative settlement of € 49 million for Gasunie Transport Services and a negative settlement of € 3 million for Gasunie Deutschland.

In 2017, the difference between the permitted revenues and energy costs and actual revenues and energy costs amounted to € 30 million. For Gasunie Transport Services, this difference equalled € 6 million (more revenues/energy costs than permitted) and for Gasunie Deutschland, € 36 million (less revenues/energy costs than permitted). These amounts will be set off in the rates in subsequent years.

Gasunie Deutschland received approximately € 20 million in investment allowances in 2017 and recognised these in the IFRS revenues. This amount will likewise be set off in the rates in subsequent years, however.

The overviews below show the movements in the regulatory receivables and debts to be settled which, on the basis of IFRS policies, have not been included on the balance sheet. The special settlements have also not been taken into account in the overviews below.

Overview of regulatory amounts to be settled 2017 2016
In millions of euros    
     
Gasunie Transport Services    
     
To be settled on 1 January ‑75 ‑28
Regulatory settlements in year T; stemming from previous years 49 ‑22
Difference between achieved revenues/ENF and permitted revenues/ENF in year T ‑6 ‑25
Investment allowances - -
     
To be settled on 31 December ‑32 ‑75
     
Gasunie Deutschland    
     
To be settled on 1 January ‑32 ‑45
Regulatory settlements in year T; stemming from previous years 3 2
Difference between achieved revenues/ENF and permitted revenues/ENF in year T 36 31
Investment allowances ‑20 ‑20
     
To be settled on 31 December ‑13 ‑32

A sum of € 45 million had to be settled (debt) at year-end 2017. This sum consists of an amount to be settled for Gasunie Transport Services equalling € 32 million and an amount for Gasunie Deutschland equalling € 13 million. In the overview below, this amount is divided up according to the periods in which the amounts will be settled in the rates and recognised in the financial statements on the basis of IFRS policies:

Amounts to be settles at year-end 2017 according to term Total 0-1 year 2-5 year > 5 year
In millions of euros        
         
Gasunie Transport Services ‑32 ‑26 ‑6 0
Gasunie Deutschland ‑13 8 54 ‑75
         
Total to be settled ‑45 ‑18 48 ‑75
         
of which investment allowances to be settled ‑80 ‑1 ‑4 ‑75

An amount of positive € 62 million will be settled for Gasunie Deutschland in the upcoming (5-year) regulatory period; in the subsequent period (from 2023 onwards) an amount of negative € 75 million will be settled.

New regulatory period in Germany

The regulatory authority in Germany determined the permitted revenues for the upcoming (2018-2022) regulatory period in 2017, once again declaring Gasunie Deutschland 100% efficient. The starting point for the new regulatory period is therefore certainly positive.

During the last regulatory period (2013-2017), Gasunie Deutschland was able to operate efficiently and effectively, which enabled it to achieve additional result.

In the periods to come, the possibilities of realising an additional result will decline in nature and size. This is due on the one hand to ongoing developments in the regulatory framework. On the other hand, in the years to come, the investment allowances received earlier will be settled through rates and recognised in the financial statements based on IFRS policies. This will result in lower revenues. The total amount of investment allowances to be set off totalled approximately € 80 million at year-end 2017; for details, see the section on ‘Regulatory settlements’.

IFRS rules state that the adoption of new regulatory parameters, which takes place once every 4 to 5 years, is cause to perform an impairment test (re-evaluation of the value of the assets). The timing differences that exist between the IFRS rules and the regulatory revenue model, including regulatory settlements, are included at the same time in the valuation of the assets during an impairment test.

The ongoing developments in the regulatory framework and the repayment obligation in connection with investment allowances received earlier resulted in a one-off write-down of € 150 million on our network in Germany in 2017.

Financing

In March 2017, we repaid a bond loan of € 750 million. For the benefit of this repayment, a 3-year bond loan of € 300 million was issued in November 2016, at an interest rate of 0%. We did not contract any new long-term loans in 2017.

During 2017, besides short-term deposits on the money market, we also made use of the Euro Commercial Paper (ECP) programme. Our short-term loans increased during 2017, from € 24 million to € 281 million. This increase was mainly due to the fact that fewer new long-term loans were contracted than repaid in 2017.

The total interest-bearing debt at the end of 2017 was € 3,446 million, a decrease of € 514 million compared to year-end 2016. The ‘Cash and cash equivalents’ balance sheet item amounted to € 41 million at the end of 2017 (year-end 2016: € 238 million). As a result, our net debt position (interest-bearing debt less cash) decreased in 2017 by € 316 million to € 3,405 million.

Solvency at year-end 2017 was 59%. Solvency increased slightly due to an increase in equity by € 180 million and a decrease in the net debt position.

In our financing policy, besides seeking to maintain our liquidity position at an adequate level, we also strive to have sufficient access to financing alternatives and to attract financing as efficiently as possible. To adequately meet these objectives, we make optimum use of the Euro Medium Term Note (EMTN) programme, the aforementioned ECP programme, our own activities on the public and private money and capital markets, and the multi-year committed bank credit facility (RCF).

In 2017, we ended cooperation with one of our banks. As a result, the size of our multi-year committed credit facility (RCF) decreased from € 750 million to € 680 million. This amount is fully committed until the end of July 2021.

Looking ahead, a bond loan of € 300 million will have to be repaid in October 2018. For refinancing purposes, we will issue a new bond loan of approximately € 300 million in 2018. A bond loan of € 300 million must also be repaid in 2019. No repayments are scheduled for 2020.

Credit ratings

In 2017, the rating agency Standard & Poor’s maintained our long-term credit rating at AA- with a stable outlook. The short-term rating is A-1+. After the adoption of the definitive method decision for GTS, Moody’s Investors Services increased the outlook for our long-term A2 credit rating from stable to positive. The short-term rating remains at the highest possible rating level of P-1. Moody’s expects to make a decision in 2018 on possibly raising Gasunie’s long-term credit rating.

Tax payments

In 2009, we entered into a ‘compliance covenant’ with the Dutch tax authorities, in which we laid down mutual agreements. In line with this covenant, we have set up an internal Tax Control Framework (TCF), on the basis of which we draw up and execute our tax policy, tax processes and control measures. Our tax policy aims to ensure that we pay any taxes due in a timely manner and in accordance with tax laws and regulations in those countries where we operate.

Gasunie is aware that it must be possible to explain tax decisions to the outside world. In 2017, Gasunie adopted frameworks on the basis of which tax decisions made and to be made are substantiated. These frameworks are applied to N.V. Nederlandse Gasunie and at least its 100% subsidiaries in the Netherlands and abroad.

The table below shows how much we paid in taxes for the most important types of taxes.

The difference between the corporate income tax paid in the Netherlands in 2016 and 2017 was due to the fact that the fiscal result was higher in 2016 than in 2017. The difference between the dividend tax paid in the Netherlands in 2016 and 2017 was due to the fact that a higher dividend was paid out in 2017 than in 2016.

Tax payments 2017 2016
     
Netherlands    
Corporate income tax 45 104
VAT 64 70
Wage tax 68 65
Dividend tax 17 50
Total 194 289
     
Germany    
Corporate income tax 25 27
VAT 17 20
Wage tax 11 11
Total 53 58