Notes to the consolidated balance sheet

All amounts in millions of euros unless stated otherwise.

Property, plant and equipment

Land and buildings

Machinery and equipment

Regulated networks

Other operating assets

Assets under construction

Total

Cost

At 1 January 2016

114

3,621

7,566

163

209

11,673

Investments

-

31

180

2

85

298

Acquisitions

-

40

-

-

4

44

Disposals

-19

-25

-26

-7

-1

-78

Reclassification from / to assets held for sale

-1

-56

-8

-

3

-62

Disposal activities Network Group

-13

-94

-7,662

-113

17

-7,865

Reclassification other

3

237

-50

-

-206

-16

Translation differences

-

-50

-

-3

-13

-66

At 31 December 2016

84

3,704

-

42

98

3,928

Investments

-

24

-

1

117

142

Acquisitions

2

91

-

2

64

159

Disposals

-

-75

-

-1

-

-76

Reclassification from / to assets held for sale

-

-

-

-

-2

-2

Reclassification other

-

79

-

-

-96

-17

Translation differences

-

-13

-

-

-1

-14

At 31 December 2017

86

3,810

-

44

180

4,120

Accumulated depreciation and impairment

At 1 January 2016

29

1,196

2,835

99

27

4,186

Annual depreciation and impairment

4

211

109

6

-

330

Disposals

-7

-22

-21

-7

-

-57

Reclassification from / to assets held for sale

-1

-37

-

-

-

-38

Disposal activities Network Group

-7

-17

-2,906

-72

-

-3,002

Reclassification other

-

35

-17

-2

-

16

Translation differences

-

-2

-

-

-4

-6

At 31 December 2016

18

1,364

-

24

23

1,429

Annual depreciation and impairment

3

202

-

5

6

216

Acquisitions

-

-

-

-

-

-

Disposals

-

-71

-

-

-

-71

Reclassification from / to assets held for sale

-

-

-

-

-

-

Reclassification other

-

11

-

-

-

11

Translation differences

-

-2

-

-

-1

-3

At 31 December 2017

21

1,504

-

29

28

1,582

Carrying amount

At 1 January 2016

85

2,425

4,731

64

182

7,487

At 31 December 2016

66

2,340

-

18

75

2,499

At 31 December 2017

65

2,306

-

15

152

2,538

Capitalised interest

During the reporting period, there was no attributable interest capitalised for property, plant and equipment (2015: €18 million). The capitalisation rate for interest was 1.6% in 2017 (2016: 4.1%).

Assets under construction

Assets under construction were mainly offshore and onshore wind farms and standard investment in district heating networks.

Regulated networks

In 2016, the regulated network activities were disposed of to the then Eneco Holding N.V. The regulated networks category related to different types of Stedin’s assets in the regulated domain such as the electricity and gas networks, gas connections and meters required for gas and electricity distribution and transmission activities. Regulated network activities are subject to regulation by the Office of Energy Regulation of the Netherlands Authority for Consumers and Markets (ACM). Stedin’s networks and network-related assets in the regulated domain were revalued and are measured at the revaluation value, which is the fair value at revaluation date less accumulated depreciation and impairment. The difference between depreciation based on the revalued carrying amount and depreciation based on the original cost, less deferred tax, was transferred periodically from the revaluation reserve to the retained earnings reserve.

Intangible assets

Goodwill

Customer databases

Licences and software

Concessions, permits, trade names and other rights

Development costs

Total

Cost

At 1 January 2016

161

199

88

84

4

536

Investments

1

-

3

-

2

6

Disposals

-

-

-2

-1

-2

-5

Translation differences

-2

-

-

-2

-

-4

Disposal activities Network Group

-

-

-13

-8

-

-21

Reclassification other

-

-

7

-

-

7

At 31 December 2016

160

199

83

73

4

519

Investments

-

-

8

-

6

14

Acquisitions

347

310

20

55

-

732

Disposals

-

-

-1

-

-

-1

Translation differences

-

-

-

-1

-

-1

Reclassification other

-1

-

6

-

-

5

At 31 December 2017

506

509

116

127

10

1,268

Accumulated depreciation and impairment

At 1 January 2016

-

123

71

26

1

221

Annual depreciation and impairment

-

20

7

4

1

32

Translation differences

-

-

-

-1

-

-1

Disposal activities Network Group

-

-

-10

-2

-

-12

Disposals

-

-

-2

-

-1

-3

At 31 December 2016

-

143

66

27

1

237

Annual depreciation and impairment

-

39

10

6

1

56

Translation differences

-

-

-

-

-

-

Disposals

-

-

-1

-

-

-1

Reclassification other

-

-

-

-

-

-

At 31 December 2017

-

182

75

33

2

292

Carrying amount

At 1 January 2016

161

76

17

58

3

315

At 31 December 2016

160

56

17

46

3

282

At 31 December 2017

506

327

41

94

8

976

Goodwill

In 2017, the structure of the cash-generating units was changed and in consequence the allocation of goodwill to one or more cash-generating units or groups of cash-generating units was revised. Where applicable, this reallocation was based on the relative value method in line with IAS 36 ‘Impairment of Assets’. The goodwill was €506 million at 31 December 2017 (31 December 2016: €160 million) and consisted mainly of €122 million of goodwill relating to the group of cash-generating units in the Netherlands, €208 million relating to the Belgian cash-generating unit (including newly-acquired goodwill of €185 million from the acquisition of Eni Gas & Power N.V. – ‘Eni’) and €159 million of goodwill relating to the German cash-generating unit (from the acquisition of LichtBlick Holding A.G. – ‘LichtBlick’).

An impairment analysis was performed on this goodwill which showed that the recoverable amount of this cash-generating unit or group of cash-generating units (value in use) was higher than their carrying amount. The following assumptions were used to establish the value in use: the value in use of the cash-generating units was based on expected future cash flows for five years as in the Group’s long-term plans (based in part on historical figures) and thereafter extrapolated on the expected life of the assets of these cash-generating units, which is generally longer than the five-year period; long-term growth of 1.0% was taken into account. The pre-tax discount rates, which reflect the risks of the activities of the relevant cash-generating units, were 6% - 8% (in 2016: 6% - 7% for all cash-generating units). These discount rates are based on the weighted average cost of capital (WACC), whose parameters are derived from data from a peer group and market information. The calculation of the value in use of these assets is sensitive to the following assumptions: the discount rate, the growth figure applied for extrapolating cash flows beyond the five-year plan and the average life of the assets. Of these factors, the discount rate is the most sensitive and an increase of 0.5 percentage points would reduce the value in use of the total cash-generating units by some €0.2 billion but would not lead to impairment for any of the cash-generating units.

Customer databases

Customer databases relate to REMU N.V. (acquired in 2003), Oxxio (acquired in 2011), Dong Energy Sales (acquired in 2014) and LichtBlick and Eni (acquired in 2017).

Concessions, permits, trade names and other rights

Concessions, permits, trade names and other rights consist mainly of the capitalised trade name of LichtBlick and permits granted for existing wind farms in Belgium and the United Kingdom.

Business combinations

There were seven acquisitions in 2017, relating to the energy business LichtBlick Holding AG, the energy business and wind activities of Eni Gas & Power N.V., the wind energy activities of De Wolff Verenigde Bedrijven B.V. and also to four small solar farms, which in view of their materiality, are not addressed further below; their total opening balance sheet figures are reported in ‘Other acquisitions’ below.

Acquisition of LichtBlick

The Group concluded the acquisition of a 50% holding in LichtBlick Holding AG (‘LichtBlick’) on 28 February 2017, following the approval of the German competition authorities. LichtBlick is a leading green energy company based in Hamburg. It has some 450 employees and provides renewable energy to over 620,000 customers. There is a strategic and cultural fit between the two companies. The new partnership reinforces the Group’s strength in the western European energy market offering investment opportunities, combined experience in the main energy markets and a large customer base.

The Group has also obtained the right to purchase the remaining 50% holding in the company in the period to the end of 2018. Consequently, the Group has gained control according to IFRS and has consolidated LichtBlick’s figures in full since the acquisition date. Since that date, the Group has been entitled to 100% of LichtBlick’s results, and interest will be paid on the holding not yet acquired. The contingent liability for the remaining purchase price of the holding still to be acquired is not presented as a non-controlling interest but has been recognised as ‘Interest-bearing debt’ in current liabilities.

If the Group does not exercise its right to purchase the remaining holding, it can be required to do so during January 2019 for the remaining purchase price less a discount. A provisional purchase price of €0.2 billion has been paid in cash for the shares already acquired. If the Group decides to purchase the remaining holding, this is expected to involve an investment of some €0.2 billion. This figure has been determined from agreements on a provisional price that depends on LichtBlick achieving certain results in the financial years 2017 and 2018.

The purchase price for the shares in LichtBlick was finalised in the second half of 2017 on the settlement of specific items in the final balance sheet (in particular working capital). All the other contractual provisions on the purchase price have been settled. Consequently, the acquisition has been recognised ‘definitively’ in the 2017 financial statements. The goodwill arising from this business combination was justified mainly by the strategic and cultural fit between the two companies and possible synergy gains from the further development of energy-saving solutions for customers. The goodwill is not tax deductible. The fair value of the trade and other receivables acquired was €50 million. Their gross contractual value was €51 million, of which €1 million was assessed as uncollectible at the acquisition date.

The costs related to this transaction were some €6 million, of which €3.5 million was charged to the 2017 result (Other operating expenses). Since the acquisition date, LichtBlick has contributed a total of some €564 million to the Group’s revenues and a profit after tax of about €8 million.

Acquisition of Eni

Eneco concluded the acquisition of two 100% holdings in Eni Gas & Power N.V. and Eni Wind N.V. (‘Eni’) on 10 July 2017 following the approval of the Belgian competition authorities. Eni is an energy company that also fits Eneco’s ‘everyone's sustainable energy’ strategy and is based in Vilvoorde, Belgium. It has about 150 employees and supplies energy to more than 400,000 households and some 30,000 business customers. Along with Eni, Eneco will serve more than a million connections in Belgium, a significant step in its ambition to make the Belgian energy supply more sustainable. Both companies also complement each other in terms of innovative and sustainable energy services for retail and business customers. With the acquisition of Eni, Eneco is growing further towards being a sustainable, innovative player in the western European energy market.

The purchase price for the two Eni companies was €0.3 billion in cash. This acquisition does not involve a variable portion of the purchase price (earn out) or deferred payment. The assessment of the fair value of the identified assets and liabilities had not been completed on the reporting date and may alter the allocation of the purchase price to the assets and liabilities to a limited extent. Consequently, the acquisition has been recognised ‘provisionally’ in the 2017 financial statements. The goodwill arising from this business combination was justified mainly by the strategic alliance that will arise with Eneco’s existing customer activities in Belgium as well as the synergy gains from further integration of the two companies and strengthening of the market position. The goodwill is not tax deductible. The fair value of the trade and other receivables acquired was €144 million. Their gross contractual value was €168 million, of which €24 million was assessed as uncollectible at the acquisition date.

The costs related to this transaction were some €3 million (Other operating expenses). Since the acquisition date, Eni has contributed a total of some €238 million to the Group’s revenues and, due to seasonal influences and integration costs, a loss after tax of about €7 million.

Acquisition of De Wolff’s wind energy activities

On 1 November 2017, Eneco acquired the wind energy activities of De Wolff Verenigde Bedrijven B.V., a pioneer in sustainable energy with considerable experience of onshore wind energy in the Dutch market. Under the agreement, the Group is taking over 17 wind farms, various wind energy projects under development and some service/maintenance companies. Consequently, Eneco’s total pipeline of new wind energy projects is also growing and so it can continue to meet its customers’ increasing demand for sustainable energy. The acquisition covers the purchase of 25 wholly-owned subsidiaries, four joint operations with shares between 50% and 86% and one associate with a 20% holding.

The provisional purchase price for the De Wolff businesses is €0.1 billion in cash including settlement of their net debt. It does not include the provisional purchase price for a wind farm under development that will be transferred to Eneco later. The provisional investment of €0.1 billion was determined from the arrangements for a provisional fee which depends on achieving certain progress on the wind energy projects under development. The final purchase price for the shares of all the acquired companies depends on establishing the final figures at 31 October 2017 and this had not been finalised on the reporting date. The settlement between the provisional and final figures may alter the allocation of the purchase price to the identified assets and liabilities to a limited extent. The part of the allocation to property, plant and equipment and intangible assets is also still being examined and so there may be a reallocation to intangible assets when determining the final figures. Consequently, the acquisition has been recognised ‘provisionally’ in the 2017 financial statements. The fair value of the trade and other receivables acquired was €7 million and this is also the gross contract value.

The costs related to this transaction were some €0.3 million (Other operating expenses). Since the acquisition date, the De Wolff wind energy activities have contributed a total of some €2 million to the Group’s revenues and made a small profit after tax.

Other acquisitions

Details of the other acquisitions are not provided in view of their materiality. These were four acquisitions with a total purchase price of €9 million, mainly being property, plant and equipment of €41 million, non-current liabilities of €28 million and no goodwill.

Pro forma group figures for 2017 including acquisitions

Had these acquisitions taken place on 1 January 2017, the Group’s revenues and result after tax for the full year would have been €4,028 million and €138 million respectively.

Opening balance sheet figures at fair value

The following tables show the fair value of the provisional amounts of assets and liabilities acquired and the provisional calculation of goodwill.

x € 1 Bn

LichtBlick

De Wolff

Eni

Total

Property, plant and equipment

-

0.1

-

0.1

Intangible assets

0.3

-

0.1

0.4

Trade and other receivables

-

-

0.1

0.1

Cash and cash equivalents

0.1

-

-

0.1

Deferred income tax liabilities

-0.1

-

-

-0.1

Trade and other liabilities

-0.1

-

-0.1

-0.2

Total fair value of net assets acquired

0.2

0.1

0.1

0.4

x € 1 Bn

LichtBlick

De Wolff

Eni

Total

Acquisition price (including cash and cash equivalents acquired)

0.2

0.1

0.3

0.6

Contingent liability

0.2

-

-

0.2

Fair value of acquired net assets

-0.2

-0.1

-0.1

-0.4

Goodwill (final resp. provisional)

0.2

-

0.2

0.4

Associates and joint ventures

The Group participates with one or more parties in businesses in the form of associates or joint ventures to perform shared operations.

The total movement in the carrying amount of the associates and joint ventures in 2017 was €51 million, consisting mainly of investments and reclassifications. Most of the investments in 2017 were participating interests in companies relating to the commercial smart energy activities for innovative energy services and products, including the purchases of a 34% interest in the Next Kraftwerke GmbH (a virtual power plant), a 7% holding in Thermondo GmbH (which specialises in the supply and installation of both gas and oil-fired central heating boilers and solar panels to individuals) and a 14% holding in ONZO Ltd. (a data analytics software company). In addition, both Eneco and Mitsubishi Corporation have a 50% holding in EnspireME GmbH, which is building a super battery to provide reserve capacity to the European electricity grid and examining the possibility of storing over-production of local wind power.

The reclassification is mainly the Norther N.V. wind farm under development that, after re-assessment of the criteria in IFRS 11 ‘Joint Arrangements’, is classified as a joint venture from 2017 (until 2016 it had been a joint operation under IFRS 11). Jedlix B.V. has also been reclassified as a joint venture in view of part of the interest having been sold, so that Eneco no longer has control of this business although it retains joint control.

The table below summarises the financial data of the associates and joint ventures, relating mainly to Greenchoice and Norther:1

Balance sheet information

At 31 december 2017

At 31 december 2016

Property, plant and equipment

402

57

Current assets

378

260

Non-current liabilities

429

37

Current liabilities

132

154

Net assets (100%)

219

126

Eneco’s share of net assets

62

38

Carrying amount of interest in associates and joint ventures (incl. acquired goodwill)

111

60

Profit or loss information

Revenues (100%)

401

425

Profit after income tax (100%)

-7

19

Total other comprehensive income (100%)

5

-

Total comprehensive income (100%)

-2

19

Groups total comprehensive income

-

5

Groups share of profit after income tax and total comprehensive income

-

5

Further to the above tables, the cash and cash equivalents of one joint venture were €142 million and the long-term interest-bearing debt was €355 million (both on 100% basis).

  1. These figures have been prepared using the most recently published/available financial information of these associates and joint ventures.

Deferred taxes

The table below shows the deferred tax assets and liabilities:

Assets

Liabilities

At 31 December 2017

At 31 December 2016

At 31 December 2017

At 31 December 2016

Property, plant and equipment

1

178

166

Intangible fixed assets

22

130

15

Cash flow hedges

4

10

Loss carry forwards

3

5

- 19

- 18

Losses at non-resident participating interests

16

18

Provisions

1

- 3

- 4

Total

27

5

306

187

Deferred tax assets and liabilities related to cash flow hedges have been recognised through equity. The regulations for preventing double taxation create the deferred tax liability presented for losses at non-resident permanent establishments.

Movements in deferred taxes during 2017 were as follows:

Net balance at 1 January 2017

Recognised in profit or loss1

Recognised in other comprehensive income

Other (including business combinations)

Net balance at 31 December 2017

Deferred tax assets

Deferred tax liabilities

Property, plant and equipment

- 166

8

- 19

- 177

1

- 178

Intangible fixed assets

- 15

30

- 123

- 108

22

- 130

Cash flow hedges

- 10

6

- 4

- 4

Loss carry forwards

23

- 1

22

22

Losses at non-resident participating interests

- 18

2

- 16

- 16

Provisions

4

- 1

1

4

4

Tax liabilities (assets) before set-off

- 182

38

6

- 141

- 279

49

- 328

Set-off of tax

- 22

22

Total

27

- 306

  1. This amount is included in the ‘Movements in deferred taxes’ as part of ‘Income tax on the result’. See note 10 ‘Income tax on the result from continued operations’.

Movements in deferred taxes during 2016 were as follows:

Net balance at 1 January 2016

Recognised in profit or loss1

Recognised in other comprehensive income

Disposal activities Network Group

Net balance at 31 December 2016

Deferred tax assets

Deferred tax liabilities

Property, plant and equipment

- 380

12

202

- 166

- 166

Intangible fixed assets

- 15

- 15

- 15

Cash flow hedges

- 31

20

1

- 10

- 10

Loss carry forwards

24

- 1

23

23

Losses at non-resident participating interests

- 20

2

- 18

- 18

Provisions

6

- 2

4

4

Tax liabilities (assets) before set-off

- 416

11

20

203

- 182

27

- 209

Set-off of tax

- 22

22

Total

5

- 187

  1. This amount is included in the ‘Movements in deferred taxes’ as part of ‘Income tax on the result’. See note 10 ‘Income tax on the result from continued operations’.

The table below shows the expiry periods for temporary differences available for relief at 31 December 2017:

Expiry periods for differences available for relief

Property, plant and equipment

1 - 50 jr

Intangible fixed assets

1 - 25 jr

Cash flow hedges

1 - 30 jr

Losses available for relief

1 - 10 jr

Provisions

1 - 10 jr

No deferred tax asset has been recognised on pre-consolidation and other losses of €7 million (31 December 2016: €95 million) since it is not certain whether sufficient taxable profits will be available in the future at the investments and permanent establishment, which are not members of the fiscal unity. The tax regulations in the relevant jurisdiction state that these losses can be carried forward indefinitely.

Derivative financial instruments

18.1 Financial instruments of the Group

The table below shows the fair value of derivative financial instruments:

Financial assets

At 31 December 2017

At 31 December 2016

Interest rate swap contracts

Currency swap contracts

11

10

Energy commodity contracts

238

231

CO2 emission rights

6

4

Total

255

245

Classification

Current

190

155

Non-current

65

90

Total

255

245

Financial liabilities

At 31 December 2017

At 31 December 2016

Interest rate swap contracts

3

10

Currency swap contracts

2

3

Energy commodity contracts

221

172

CO2 emission rights

1

Total

227

185

Classification

Current

181

129

Non-current

46

56

Total

227

185

18.2 Financial instruments recognised through the income statement

The table below shows the fair value of derivative financial instruments for which movements in fair value have been recognised through the income statement:

Financial assets

At 31 December 2017

At 31 December 2016

Interest rate swap contracts

Currency swap contracts

1

Energy commodity contracts

205

178

CO2 emission rights

6

4

Total

212

182

Classification

Current

180

139

Non-current

32

43

Total

212

182

Financial liabilities

At 31 December 2017

At 31 December 2016

Interest rate swap contracts

Currency swap contracts

1

Energy commodity contracts

209

169

CO2 emission rights

1

Total

211

169

Classification

Current

172

127

Non-current

39

42

Total

211

169

18.3 Financial instruments recognised in equity

The table below shows the fair value of derivative financial instruments for which movements in fair value have been recognised in equity through the cash flow hedge reserve:

Financial assets

At 31 December 2017

At 31 December 2016

Interest rate swap contracts

Currency swap contracts

10

10

Energy commodity contracts

33

53

CO2 emission rights

Total

43

63

Classification

Current

10

16

Non-current

33

47

Total

43

63

Financial liabilities

At 31 December 2017

At 31 December 2016

Interest rate swap contracts

3

10

Currency swap contracts

1

3

Energy commodity contracts

12

3

CO2 emission rights

Total

16

16

Classification

Current

9

2

Non-current

7

14

Total

16

16

These instruments are used in cash flow hedge transactions to hedge interest rate, currency and energy price risks.

18.4 Fair value hierarchy

The following hierarchy was used for the measurement of the financial instruments:

Level 1

Level 1 recognises financial instruments whose fair value is measured using unadjusted quoted prices in active markets for identical instruments.

Level 2

Level 2 recognises financial instruments whose fair value is measured using market prices or pricing statements and other available information. Where possible, the measurement method uses observable market prices. Level 2 energy commodity contracts are measured using market prices or pricing statements for periods in which an active market exists for the underlying commodities such as electricity, gas (title transfer facility), oil-related prices and emission rights. Other contracts are measured by agreement with the counterparty, using observable interest rate and foreign currency forward curve.

Level 3

Level 3 recognises financial instruments whose fair value is measured using calculations involving significant inputs that are not based on observable market data.

The hierarchy of derived financial instruments measured at fair value was as follows:

At 31 December 2017

Level 1

Level 2

Level 3

Total

Assets

Energy commodity contracts and CO2 emission rights

4

238

2

244

Interest rate and currency swap contracts

1

10

-

11

5

248

2

255

Liabilities

Energy commodity contracts and CO2 emission rights

26

195

-

221

Interest rate and currency swap contracts

-

5

-

5

26

200

-

226

At 31 December 2016

Level 1

Level 2

Level 3

Total

Assets

Energy commodity contracts and CO2 emission rights

1

229

5

235

Interest rate and currency swap contracts

1

9

-

10

2

238

5

245

Liabilities

Energy commodity contracts and CO2 emission rights

6

166

-

172

Interest rate and currency swap contracts

-

13

-

13

6

179

-

185

18.5 Cash flow hedging

Note Equity presents the movements in the cash flow hedge reserve.

The cash flow hedge instruments are derivative financial instruments that are subject to net settlement between parties. The table below shows the periods in which the cash flows from the cash flow hedges are expected to be realised:

At 31 December 2017

At 31 December 2016

Expected cash flow

Within 1 year

118

70

From 1 to 5 years

61

143

After 5 years

-

-7

Total

179

206

The total cash flow hedges recognised through the income statement in the future are recognised in the Cash flow hedge reserve after deduction of taxes. The table below shows the periods in which the cash flows from the cash flow hedges are expected to be realised:

At 31 December 2017

At 31 December 2016

Expected recognition in result after tax

Within 1 year

-2

11

From 1 to 5 years

8

21

After 5 years

4

-2

Total

10

30

Other financial assets

At 31 December 2017

At 31 December 2016

Other capital interests

5

-

Related party receivables

-

1

Other receivables

106

75

Total

111

76

Assets/liabilities held for sale

In 2016 the project portfolio was re-evaluated and it was decided to dispose of certain heating infrastructure and installations. Contracts have since been signed for the sale of most of the portfolio, with transfer in early 2018. There will be no further reduction in value from the carrying amount to expected fair value less costs to sell. Some projects are not being sold for the time being and have been reclassified from Assets held for sale to Property, plant and equipment without material impact on the 2017 figures.

Other financial assets included a total of €200 million under a financing agreement entered into on 27 January 2017 between N.V. Eneco Beheer (as lender) and the then Eneco Holding N.V. In 2017, it was decided to convert this financial asset into liquid assets and consequently it was reclassified to Assets held for sale.

Trade receivables

The table below shows the trade receivables:

At 31 December 2017

At 31 December 2016

Energy receivables

674

515

Other trade receivables

55

51

Less: impairments

-79

-66

Total

650

500

The table below shows the aged analysis of the outstanding receivables:

At 31 December 2017

At 31 December 2016

Prior to due date

504

367

After due date

- under 3 months

84

66

- 3 to 6 months

16

13

- 6 to 12 months

23

20

- over 12 months

102

100

Face value

729

566

Less: impairments

- 79

- 66

Total

650

500

The table below shows the aged analysis of the impaired receivables:

At 31 December 2017

At 31 December 2016

Prior to due date

1

2

After due date

- under 3 months

6

4

- 3 to 6 months

4

2

- 6 to 12 months

9

8

- over 12 months

59

50

Total

79

66

Movements in the impairment losses on receivables were as follows:

2017

2016

At 1 January

66

90

Additions through acquisitions

24

Additions through profit or loss

8

8

Withdrawals

- 19

- 20

Reversal of earlier write-offs

Disposal assets Network Group

- 11

Other movements

- 1

At 31 December

79

66

Other receivables

At 31 December 2017

At 31 December 2016

Prepayments and accrued income

182

142

Margin calls

52

18

Other receivables

10

836

Total

244

996

Other receivables at 31 December 2016 included a loan to Eneco Holding N.V. (see note 31 ‘Related party transactions’).

Cash and cash equivalents

Cash and cash equivalents comprised bank balances, cash and deposits of €465 million at 31 December 2017 (31 December 2016: €343 million). Term deposits and blocked accounts which are not freely available were €118 million at 31 December 2017 (31 December 2016: €65 million) and these are not at the free disposal of the Group.

Equity

At 31 December 2017

At 31 December 2016

Share capital

-

122

Share premium

2,781

-

Revaluation reserve

-

-

Translation reserve

-6

1

Cash flow hedge reserve

10

30

Retained earnings

-

2,773

Undistributed result for the financial year

81

192

Equity attributable to Eneco Groep N.V. shareholders

2,866

3,118

Non-controlling interests

3

3

Total equity

2,869

3,121

General

In preparation for the unbundling of Eneco into an energy company and a network company, there was an informal capital contribution on 30 January 2017 in which the then Eneco Holding N.V. (now Stedin Holding N.V.) contributed the entire issued share capital of N.V. Eneco Beheer to Eneco Groep N.V., which had been incorporated on 12 December 2016, with a total sum of €2,819 million. This amount was equal to the carrying amount of N.V. Eneco Beheer’s equity attributable to the then shareholder at 30 January 2017. This resulted in the payment of share premium of €2,781 million (including the result for January 2017 of €46 million) and a contributed cash flow hedge reserve of €38 million to Eneco Groep N.V.

N.V. Eneco Beheer’s results for the full financial year 2017 of €127 million after tax have been recognised by applying the pooling of interests method for Eneco Groep N.V.’s consolidated income statement.

The carry-over accounting method applied to the company financial statements is almost identical to the pooling of interests method except that the interest acquired is recognised in the company financial statements with retroactive effect to the date of the actual transaction under common control rather than the start of the reporting period. The result after tax from 30 January 2017 in the company income statement and the Undistributed result for the financial year in the company’s equity are the same, at €81 million.

Consequently, the result of €46 million for January 2017 in consolidated equity is transferred to the share premium to retain the link between the capital components in the company and consolidated equity.

Share capital

Eneco Groep N.V.’s authorised share capital is €0.2 million divided into 20 million shares with a nominal value of €0.01 each. At 31 December 2017, 4,970,978 shares had been issued and fully paid. There were no changes in 2017. Eneco Groep N.V. has only issued ordinary shares.

Translation reserve

Assets and liabilities of foreign group companies denominated in foreign currency and foreign-currency funding of those subsidiaries relating to long-term loans denominated in foreign currency, after tax, are translated into euros at the reporting date at the exchange rate prevailing on the reporting date. Foreign currency exchange differences arising on this are recognised in the translation reserve in equity. The results of foreign group companies are translated into euros at the average rate. The difference between the profit after income tax at the average rate and based on the exchange rate prevailing on the reporting date is recognised through equity in the translation reserve. If an investment in a foreign operation is ended or reduced, the related accumulated translation differences are recognised through the income statement. The translation reserve is not freely at the disposal of the shareholders.

The Group applies net investment hedge accounting to limit the translation gains and losses on its UK operations in the translation reserve and the income statement. The foreign currency exchange differences on the sterling loan has an opposite effect to the foreign currency exchange differences on the UK operations. Both the foreign currency exchange differences on the UK operations and the sterling loan are recognised through the translation reserve.

Cash flow hedge reserve

The cash flow hedge reserve recognises gains and losses in the fair value of the effective portion of derivative financial instruments designated as cash flow hedges for which the hedge transaction has not yet been settled. Consequently, the Group meets the conditions for cash flow hedge accounting. The cash flow hedge instruments are mainly energy, forward and swap contracts agreed with other market parties in order to cover the market price risks of purchasing and selling energy commodities. This reserve also recognises the effective portion of hedging with interest rate and currency swap contracts. The cash flow hedge reserve is not freely at the disposal of the shareholders.

The movements in the cash flow hedge reserve were as follows:

Energy commodities

Interest rate swap contracts

Currency swap contracts

total

At 1 januari 2016

94

- 4

90

Newly defined cash flow hedges in financial year

- 6

- 2

- 8

Movements in fair value cash flow hedges

- 45

1

- 44

Deferred income tax liabilities

17

2

1

20

Non-effective portion of cash flow hedges

6

6

Discontinued cash flow hedges

- 34

- 34

At 31 december 2016

38

- 7

- 1

30

Newly defined cash flow hedges in financial year

- 9

- 9

Movements in fair value cash flow hedges

- 7

6

0

- 1

Deferred income tax liabilities

8

- 2

0

6

Non-effective portion of cash flow hedges

2

0

2

Discontinued cash flow hedges

- 18

- 18

At 31 december 2017

14

- 3

- 1

10

Retained earnings

In January 2017, N.V. Eneco Beheer distributed a dividend of €351 million to Stedin Holding N.V. (shareholder of the energy and distribution companies until the unbundling) in connection with the unbundling arrangements. N.V. Eneco Beheer had a receivable from this shareholder which was reduced by means of this dividend.

Non-controlling interests

These are third-party shares in the equity of subsidiaries of which the Group is not the sole shareholder.

Provisions for employee benefits

Long-service benefits

Other

Total

Classification at 1 January 2016

Current

2

6

8

Non-current

32

2

34

At 1 January 2016

34

8

42

Addition

8

8

Withdrawals

- 2

- 5

- 7

Disposal activities Network Group

- 20

- 3

- 23

Other

- 7

- 7

At 31 December 2016

5

8

13

Classification at 31 december 2016

Current

1

5

6

Non-current

4

3

7

At 1 January 2017

5

8

13

Addition

1

6

7

Withdrawals

- 1

- 4

- 5

Release

- 2

- 2

Acquisitions

4

4

Other

At 31 December 2017

9

8

17

Classification at 31 December 2017

Current

7

7

Non-current

9

1

10

At 31 December 2017

9

8

17

Long-service benefits and pension liabilities

This provision covers the obligation to pay amounts on achieving a certain number of years of employment and on the retirement of employees.

There are some defined benefit pension plans as a result of the acquisition in Belgium in 2017 but as they are not material (some €5 million) no disclosures for defined benefit plans pursuant to IAS 19 ‘Employee Benefits’ have been presented.

The following actuarial assumptions were used for the provisions:

At 31 December 2017

At 31 December 2016

Long-service benefits (NL)

Discount rate at reporting date

1.1%

1.4%

Future salary increases

1,52%-2,10%

1.0%

Mortality table

GBM & GBV
2009-2015

GBM & GBV
2009-2014

Pension liabilities (BE)

Discount rate at reporting date

1,2% - 1,5%

Future salary increases

1,0% / schaal+0,5%

Mortality table

MR-5/FR-5
MR-5 (actief)/FR
MR (gepensioneerd)/FR

Expenditures from the provisions for employee benefits are made over the long term. The provisions are remeasured annually using current employee information and properly reflect the expected cash flows.

Other employee benefits

The other provisions for employee benefits include the obligations for salary payments in the event of illness and unemployment benefits since the Group bears this risk under the Unemployment Act. In view of their predominantly short-term nature, these provisions are measured at nominal value.

Other provisions

Decommissioning provision

Onerous contracts

Restructuring

Other

Total

Classification at 1 January 2016

Current

-

-

5

-

5

Non-current

67

-

3

12

82

At 1 January 2016

67

-

8

12

87

Addition

3

-

11

3

17

Withdrawals

-

-

-7

-2

-9

Disposal activities Network Group

-1

-

-4

-2

-7

Additions related to acquistions

4

-

-

-

4

Release

-3

-

-

-2

-5

Other

-5

-

-

-3

-8

At 31 December 2016

65

-

8

6

79

Classification at 31 December 2016

Current

-

-

7

-

7

Non-current

65

-

1

6

72

At 31 December 2016

65

-

8

6

79

Addition

7

8

4

3

22

Withdrawals

-

-

-7

-1

-8

Additions related to acquistions

5

-

-

5

10

Release

-1

-

-1

-

-2

Other

-

-

-

-

-

At 31 December 2017

76

8

4

13

101

Classification at 31 december 2017

Current

-

4

1

2

7

Non-current

76

4

3

11

94

At 31 December 2017

76

8

4

13

101

Interest in a range of 2.1% to 3.8% was added to the provisions in 2017 (2016: 0.6% to 2.3%). In view of its normally short-term nature, no interest is added to the restructuring provision.

Decommissioning

The decommissioning provision is of a long-term nature. The cash flows will generally occur after ten years and within twenty years. The amounts are the best estimate and are reviewed annually for expected future movements in the cost of removing assets.

Onerous contracts

Expenditures on onerous contracts will be incurred within two years. The provision fairly reflects the cash flows because of the relatively short period remaining for the contracts.

Restructuring provision

In 2017, €4 million (2016: €11 million) was added to the restructuring provision that relates mainly the integration of Eni with Eneco’s existing customer activities in Belgium.

Other

Expenditure on the other provisions is expected to be made over a longer period. The settlement date for these provisions is difficult to estimate. The current amounts are the best estimate on the reporting date.

Interest-bearing debt

At 31 December 2017, the Group’s interest-bearing debt related largely to financing wind farms and general financing.

At 31 December 2017

At 31 December 2016

Non-recourse

335

315

Other loans and liabilities

400

100

Total

735

415

See note 'Financial risk management' for details of the repayment periods.

At 31 December 2017

At 31 December 2016

Classification

Current

282

27

Non-current

453

388

Total

735

415

The main movements in the current and non-current interest-bearing debt in 2017 were recognition of a conditional liability in the balance sheet in connection with the possible purchase of the remaining 50% holding in LichtBlick Holding AG for €187 million (including a fixed interest charge of 6%) and entering into a GBP 100 million (€113 million) variable rate loan for a period of up to five years (22 June 2022), with possible early redemption. There was also an increase in interest-bearing debt as a result of acquisitions of €63 million (of which €62 million is non-current) and repayments of €48 million were made. See the consolidated cash flow statement for other movements in interest-bearing debt.

Collateral has been provided for the interest-bearing debt for financing wind farms and solar farms in the form of mortgages, pledges of shares in the legal entities, pledges of energy purchase contracts or grant contracts. The outstanding principal on these loans at 31 December 2017 was €335 million (31 December 2016: €310 million). No collateral has been provided for the other interest-bearing debt.

Green loans of €279 million and the conditional liability for the purchase of LichtBlick (31 December 2016: €100 million) were fixed rate at 31 December 2017 (fair value risk). Other loans are at market-linked variable rates. Repayment obligations for the first year after the reporting date are recognised under current liabilities.

The average interest rate in 2017 was 3.5% (2016: 3.4%). This was calculated as the weighted average monthly interest expense directly related to the interest-bearing debt, excluding other financial expenses.

The fair value of the loans at 31 December 2017 was €650 million (31 December 2016: €432 million) and was calculated using the income approach, based on relevant market interest rates for comparable debt. Consequently, the information for establishing value is covered by level 2 of the fair value hierarchy.

Trade and other payables

At 31 December 2017

At 31 December 2016

Trade creditors

715

623

Accruals and deferred income

331

162

Pension contributions

2

2

Other liabilities

293

277

Total

1,341

1,064

Classification

Current

1,224

954

Non-current

117

110

Total

1,341

1,064

In view of their nature, the carrying amount of trade and other payables is their fair value.

Operating leases

Costs and liabilities of operating leases

The Group has operating lease agreements for IT facilities and the vehicle fleet. There are also rental agreements for land and a number of business premises. A cost of €25 million (2016: €37 million) has been recognised through the income statement of which €25 million related to continuing operations (2016: €25 million) and €0 million to discontinued operations (2016: €12 million).

The minimum receivables from these leases fall due as follows:

At 31 December 2017

At 31 December 2016

Within 1 year

30

28

From 1 to 5 years

95

80

After 5 years

198

148

Total

323

256

Revenues from operating leases

Equipment and energy installations are leased for periods of 5 to 15 years while the assets concerned remain the property of the Group. The lease covers making the equipment available to users and maintenance. Revenues of €22 million (2016: €28 million), of which €22 million related to continuing operations (2016: €25 million) and €0 million to discontinued operations (2016: €3 million).

The minimum receivables from non-terminable lease agreements fall due as follows:

At 31 December 2017

At 31 December 2016

Within 1 year

18

21

From 1 to 5 years

56

64

After 5 years

35

40

Total

109

125

Contingent assets and liabilities

Contingent assets and liabilities other than guarantees are measured at present value, calculated using a discount rate that reflects current market assessments of the time value of money.

Energy purchase and sale commitments

The Group has energy purchase commitments of €6.1 billion (31 December 2016: €5.8 billion) under contracts relating to 2018 and later years. The purchase commitments comprise energy contracts for the company’s own use with various energy generators. There are sales commitments relating largely to the business market of €3.4 billion (31 December 2016: €3.0 billion) for 2018 and later years.

The Group has commitments of €0.6 billion (31 December 2016: €0.7 billion) for the purchase of heat until 2042. The expected perpetual commitments for the sale of heat are €0.3 billion per year (31 December 2016: €0.3 billion).

Investment obligations

At 31 December 2017, the Group had entered into investment obligations with a total amount of €0.1 billion (31 December 2016: €0.2 billion).

Other contingent obligations

At 31 December 2017, there were other contractual obligations of €0.5 billion (31 December 2016: €0.5 billion), mainly under maintenance contracts.

Guarantees

The Group has issued group and bank guarantees of €0.4 billion (31 December 2016: €0.2 billion) to third parties. At 31 December 2017, N.V. Eneco Beheer had issued guarantees of €0.3 billion (31 December 2016: €0.1 billion). The remaining group guarantees have been issued by subsidiaries for which N.V. Eneco Beheer has issued a declaration of joint and several liability pursuant to Section 403(1)(f), Part 9, Book 2 of the Dutch Civil Code.

Fiscal unity

Eneco Groep N.V. is an autonomous taxpayer for corporate income tax and VAT purposes. In addition, the sole subsidiary, N.V. Eneco Beheer, heads a fiscal unity for corporate tax purposes which includes almost all of its Dutch subsidiaries and N.V Eneco Beheer is a member of a fiscal unity for VAT purposes covering most of the Group. All companies in a fiscal unity are jointly and severally liable for the tax obligations of the fiscal unity.

Corporate income tax

In connection with the unbundling of Eneco Group on 31 January 2017, the fiscal unity for corporate income tax purposes was dissolved on 31 December 2016 with respect to Eneco Holding N.V. (renamed Stedin Holding N.V.). Since 1 January 2017, the companies that were part of the dissolved fiscal unity have formed a new, company fiscal unity for corporate income tax purposes.

VAT

The fiscal unity for VAT purposes was also changed in 2017. With effect from 1 January 2017, Eneco Holding N.V. is no longer head of the Group fiscal unity. N.V. Eneco Beheer became head of the fiscal unity for VAT purposes.

Past liability under joint fiscal unities continues even after a change in that fiscal unity.

Cash pool

As a result of its participation in the Group cash pool, N.V. Eneco Beheer is jointly and severally liable, with the other participants, for deficits in the pool as a whole.

Legal proceedings

The Group is involved either as plaintiff or defendant in various legal and regulatory claims and proceedings related to its operations. Management ensures proper representation in these matters. The amounts claimed in some of these proceedings may be significant to the consolidated financial statements. Liabilities and contingencies in connection with these claims and proceedings are assessed periodically based on the latest information available, usually with the assistance of lawyers and other specialists. A liability is only recognised if an adverse outcome is probable and the amount of the loss can be reasonably estimated. The actual outcome of proceedings or a claim may differ from the estimated liability and, consequently, could have a material adverse effect on the financial performance and position of the Group.

Unbundling Protocol between the Network Group and the Energy Company1

For a period of six years from 31 January 2017, N.V. Eneco Beheer will indemnify Eneco Holding N.V. (renamed Stedin Holding N.V. from the unbundling date of 31 January 2017) and its associated companies for:

  • all liability, claims and costs suffered or to be suffered by Stedin Holding N.V. and its associated companies, if and to the extent that such liability, claims and costs relate to the activities of or companies in the group of N.V. Eneco Beheer and its associated companies, irrespective of whether the legal relationship for such claim arises from a relationship that relates to a period before or after the unbundling;
  • the right of recourse of third parties against Stedin Holding N.V. or an associated company relating to liabilities as referred to in the preceding paragraph; and
  • tax claims relating to N.V. Eneco Beheer and related companies.

Furthermore, for a period of six years from 31 January 2017, Stedin Holding N.V. will indemnify N.V. Eneco Beheer and its associated companies for:

  • all liability, claims and costs suffered or to be suffered by N.V. Eneco Beheer and its associated companies, if and to the extent that such liability, claims and costs relate to the activities of or companies in the group of Stedin Holding N.V. and its associated companies, irrespective of whether the legal relationship for such claim arises from a relationship that relates to a period before or after the unbundling;
  • the right of recourse of third parties against N.V. Eneco Beheer or an associated company relating to liabilities as referred to in the preceding paragraph, excluding any liability, claims, costs or right of recourse in respect of tax matters; and
  • tax claims relating to Stedin Holding N.V. and related companies.
  1. The Energy Company comprises: Eneco Groep N.V. (the new ultimate holding company of the Energy Company since 31 January 2017) and all its subsidiaries and other investments.

Related party transactions

The Group’s related companies (the shareholder and its subsidiaries which are not part of the Eneco Groep N.V group), associates, joint ventures and Board of Management are considered as related parties.

Sales to and purchases from related parties are on terms of business normally prevailing with third parties. Receivables and liabilities are not covered by collateral and are paid by bank transactions.

The table below shows the trading transactions with the principal related parties:

Sales

Purchases

2017

2016

2017

2016

Affiliates

5

83

1

56

Associates

31

66

7

Joint ventures

2

1

Receivables

Liabilities

At 31 December 2017

At 31 December 2016

At 31 December 2017

At 31 December 2016

Affiliates

6

838

25

56

Associates

1

8

1

Joint ventures

44

Note 'Remuneration Board of Management and Supervisory Board' provides details of the remuneration of members of the Board of Management and Supervisory Board.

If directors are energy customers of the Group, there is no other relationship than that of customer and supplier on normal arm's length terms and conditions. The Group applies the exemption from disclosures on related party transactions with government-related entities. The Municipality of Rotterdam has indirect significant influence. There is no relationship other than the shareholder relationship, except that of customer and supplier on normal arm’s length terms and conditions.

Financial risk management

Normal business activities involve exposure to credit, commodity market, foreign currency, interest rate and liquidity risk. The Group’s policy is designed to minimise the adverse consequences of unforeseen circumstances on its financial results.

The Board of Management is responsible for risk management and procedures and guidelines have been drawn up that are evaluated at least once a year and, if required, adjusted. In this context, it sets out procedures and guidelines and ensures they are complied with. Authority to commit the Group is specified in the Corporate Authority Manual. Mandates have also been drawn up for all business units and management, including the Group’s purchasing and trading department, the business units with energy and heating production and the sales channels, to manage the above risks such as commodity (electricity, gas, heating, emission rights and fuels) risks.

The Board of Management and senior business unit management regularly review the results, key figures such as changes in working capital and the trading position, the principal risks (or concentration of certain risks) and the measures to manage them. Stress tests are developed for the principal identified risks and incorporated in the long-term financial plan. This clarifies the impact of risk on operations. Senior business unit management reports to the Board of Management by means of an In Control Statement every year.

The internal Audit & Risk Committee, Commodity Risk Committee and Investment Risk Committee are in charge of the formulation and application of the company’s risk policy and advise the Board of Management accordingly.

Credit risk

Credit risk is the risk of a loss if a counterparty or its guarantor cannot or will not meet its obligations. For the purposes of managing this risk, a distinction is drawn between debtor risk and counterparty risk.

Debtor risk

Debtor risk is the risk that a debtor fails to pay a receivable. Most receivables are of limited size and there are a great number of debtors. There is, therefore, no concentration of risk.

Policy is designed not to provide customers with any credit going beyond normal supplier credit as set out in the applicable conditions of supply. Policy is also formulated at a decentralised level within the organisation. The effectiveness of that policy is monitored at the corporate level and adjustments are made as required.

Measures in place to limit debtor risk are:

  • an active debt collection policy;
  • credit limits, bank guarantees and/or margining (cash collateral) for business customers;
  • recourse to debt collection agencies and different collection methods for current and former customers.

The amount of a receivable is adjusted pursuant to a set procedure. The adjustment depends on the time that the receivable has remained outstanding and the probability that it will not be paid in full. There are also individual reviews for business customers.

Counterparty risk

Counterparty risk is the risk that a trading partner cannot or will not meet its delivery or payment obligations. This risk is primarily encountered in trading in energy commodities (including emission rights, green certificates and feedstock for our biomass power stations) and interest rate and foreign currency hedge transactions. The basis for the management of this risk is set out in the Counterparty Mandate and the Treasury Charter drawn up by the Board of Management.

The size of the counterparty risk is primarily determined by the replacement value of the future deliveries and the commodity delivered which has not yet been paid for. The replacement value is calculated each day for each counterparty based on current market prices for future deliveries. The risk position is measured against the risk tolerance. That tolerance is drawn up for each contract party on the basis of an assessment of the creditworthiness of that counterparty derived from a public or internal rating and/or alternative assessment methods.

Counterparty risk is limited by:

  • setting financial limits based on the financial strength of the counterparty; 
  • setting trading volume restrictions for each counterparty (position management);
  • use of standard agreements, in particular based on EFET and ISDA terms;
  • use of third-party margining and clearing;
  • use of bilateral margining agreements with counterparties;
  • executing risk-reducing transactions with counterparties leading to partly-offsetting positions;
  • requiring additional guarantees from counterparties, e.g. bank guarantees;
  • credit insurance taken if necessary to cover exposures exceeding the limits.

Third-party margining and clearing is in place for futures. This transfers the counterparty risk of a futures contract to a clearing bank. This bank is linked to a clearing house that facilitates settlement of futures transactions through exchanges such as ICE ENDEX (InterContinental Exchange European Energy Derivatives Exchange N.V.), EEX (European Energy Exchange A.G.) and the ECX (European Climate Exchange). Every day, the clearing house settles interim changes in market value with its clearing banks which in turn settle with the market parties concerned (margin calls). This neutralises counterparty risk for each party to the contract. Bilateral margining implies similar daily settlement directly with the counterparty to the transaction. The contract with the counterparty sets an initial minimum value (threshold). Bilateral margining is only applied if the threshold is exceeded.

The margining system creates liquidity risk and so risk policy is designed to monitor and match counterparty risk by forward trading and liquidity risk by margining. There is a system for monitoring internal limits using regular reports, to manage both risks.

The maximum credit risk is equal to the carrying amount of the financial assets, including derivative financial instruments.

Netting financial assets and financial liabilities

Where the Group meets the IFRS criteria for netting, financial assets and financial liabilities are netted and recognised net in the balance sheet. Transactions in derivative financial instruments use standardised terms and conditions and contract types such as the master netting agreements based on ISDA and EFET terms. Most of the Group’s contracts for derivative financial instruments meet netting criteria since there is a legally enforceable right to set off the recognised amounts and in addition all amounts relating to netted financial assets and financial liabilities are settled as a single sum.

The table below sets out only the financial assets and financial liabilities netted in the consolidated balance sheet in accordance with the criteria in IAS 32. As the table does not include all the financial assets and liabilities in the balance sheet, it is not possible to reconcile these figures with the net amounts presented in the balance sheet.

At 31 December 2017

Gross amounts of recognised financial assets

Gross amounts of recognised financial assets/liabilities offset in the statement of financial position

Net amounts of financial assets presented in the statement of financial position

Assets

Derivative financial instruments

1,046

801

245

Other financial instruments

840

657

183

1,886

1,458

428

Gross amounts of recognised financial liabilities

Gross amounts of recognised financial assets/liabilities offset in the statement of financial position

Net amounts of financial liabilities presented in the statement of financial position

Liabilities

Derivative financial instruments

1,012

801

211

Other financial instruments

1,097

657

440

2,109

1,458

651

At 31 December 2016

Gross amounts of recognised financial assets

Gross amounts of recognised financial assets/liabilities offset in the statement of financial position

Net amounts of financial assets presented in the statement of financial position

Assets

Derivative financial instruments

1,322

1,077

245

Other financial instruments

1,514

518

996

2,836

1,595

1,241

Gross amounts of recognised financial liabilities

Gross amounts of recognised financial assets/liabilities offset in the statement of financial position

Net amounts of financial liabilities presented in the statement of financial position

Liabilities

Derivative financial instruments

1,262

1,077

185

Other financial instruments

1,997

518

1,479

3,259

1,595

1,664

Financing instruments and counterparty risk when lending money

Management of financing instruments is set out the Treasury Charter drawn up by the Board of Management. Counterparty risk on borrowing money is very limited. The risk tolerance formulated in the Treasury Charter is taken into account when lending money. The risk position of a counterparty is measured against the risk tolerance. Risk tolerance is set for each contracting party using an assessment of the counterparty’s creditworthiness according to a public credit rating. Counterparty risk is further reduced by dispersion across a number of parties, predetermined limits for each counterparty and maximum lending terms.

The counterparty risk for financial instruments (swap contracts) is limited by:

  • the use of framework agreements on ISDA terms;
  • procedures for regular assessment of counterparty risk; and
  • margining as a result of the agreed credit support agreements.

The margining system based on credit support agreements creates liquidity risk. The risk policy is designed to monitor this through regular reporting.

Market risk

Market risk is the exposure to changes in value in current or future cash flows and financial instruments arising from changes in market prices, market interest rates and exchange rates.

Price risk

Price risks inherent in the energy generation, purchasing and supply portfolios are managed using a structure of mandates and limits adopted by the Board of Management using position limits, MtM limits, Value at Risk (VaR)1 measures and stop-loss limits. The limits that can best be applied to manage risks are determined for each business activity. The risk managers and energy traders are notified each day of the VaR, the MtM and positions in relation to the limit. Limit infringements are reported in line with escalation procedures.

The market price risk inherent in the commodity portfolios for purchasing and delivering to customers is initially limited by back-to-back transactions for purchase and sales obligations, for which derivative financial instruments are also used. Structured hedging strategies are used where back-to-back hedging is not possible, or only with excessively high transaction charges. In these cases, positions are hedged temporarily in other commodities, delivery periods and/or countries which have an historically strong correlation with the price risks to be hedged. Gas storage and other facilities under the company’s own and contracted positions are also used to respond to short-term fluctuations in demand and supply, for example, as a result of changes in the weather.

The market price risk inherent in the company’s own ‘must run’ generation and long-term structured commodity purchase contracts is also limited through back-to-back transactions and structured hedging strategies as described above. The expected proceeds are weighed up against the costs and downward risk for controllable generation in the portfolio. It should be noted that there is no liquid energy trading market for exposures that lie further in the future and they are difficult or impossible to hedge.

The positions from the above activities that can be hedged in the markets are combined so that the Group’s current net exposure is clear. Management and strategic decisions on these positions take account of prevailing market conditions, along with the expected short and medium-term demand for and supply of energy by the Group. There is a residual risk in the above activities given the inherent existing imperfections between the positions to be hedged and available hedge instruments, limited market liquidity and movements between commodity prices (for example, between different commodities, delivery periods and/or countries).

The VaR (annual) in the price risk on total commodity positions (purchases, customer deliveries and generation portfolio positions) for the delivery year 2018 was €15 million at 31 December 2017 (31 December 2016, for the delivery year 2017: €16 million). This VaR was on average €15.5 million in 2017 (2016: €14.5 million). The VaR (10-day) for portfolio positions that can be hedged in the short term via the market was €1.2 million at 31 December 2017 (31 December 2016: €2.0 million). This VaR was on average €1.8 million in 2017 (2016: €1.7 million).

Foreign currency risk

Foreign currency risk is the exposure to changes in value of financial instruments arising from changes in exchange rates. The Treasury department is responsible for managing the Group’s other foreign currency risk. Companies included in the consolidation are not permitted to maintain open positions in foreign currencies in excess of €250,000 without the Treasury department’s approval. Based upon the aggregate foreign currency position and the associated limit set for open positions, the Treasury department determines whether hedging is desirable and the strategy to be followed. Foreign currency risk attaching to commodity-related financial instruments is managed in accordance with the price risk.

The sensitivity of the Translation reserve in equity to a 1% movement in the sterling/euro exchange rate in 2017 was €0.7 million (2016: €2.6 million).

Interest rate risk

Interest rate risk is the exposure to changes in value in financial instruments arising from changes in market interest rates. The Treasury department manages interest rate risk. The interest rate risk policy is aimed at managing the net financing liabilities through fluctuations in market interest rates. A specified range for the proportions of loans at fixed and variable interest rates serves as the base tool. The Group may use derivative financial instruments such as interest rate swap contracts to achieve the desired risk profile. If all other variables remain constant, it is estimated that a general increase of 1 percentage point in Euribor (for a period of twelve months) would lead to a decrease in profit before tax of €1.6 million (2016: €0.1 million).

  1. VaR represents the potential loss on a portfolio in the event of an adverse scenario over a given period, with a 95% confidence interval. VaR calculations are based on price history and include data such as correlations between products, markets and time periods. Retrospective testing is conducted to check the calculated VaR values and the model used is checked.

Liquidity risk

The Group is a capital-intensive business. Its financing policy since unbundling on 31 January 2017, is aimed at growing into an optimum financing structure taking into account its current asset base and investment programme while maintaining and further developing them. The criteria are access to the capital market and flexibility with acceptable financing costs and conditions.

Most financing for sustainable assets is drawn locally, to the extent this contributes to achieving the project and local financing can be obtained at acceptable financing costs and conditions.

In addition to its own generation, the Group also buys energy on standardised physical supply contracts and long-term structured purchasing contracts with third parties to source its energy supplies. Arrangements are made with counterparties on mutual guarantees and collateral. Their level depends in part on the creditworthiness of parties and the Marked-to-Market exposures resulting from price movements in the energy markets. A downgrading in the Group’s credit rating may, without further mitigation, lead to a significant increase in the capital requirement for providing collateral.

A specific liquidity risk arises from margining energy contracts through clearing houses and contracts with bilateral margin obligations. Risk limits have been set in the mandate to cover both the outstanding balance and price change sensitivity for the purposes of managing this. This risk is the subject of regular reports to business unit management and, in the event of a material change, to the Commodity Risk Committee and the Board of Management. The sensitivity of the margin call to a 1% change in prices was €0.7 million at 31 December 2017 (2016: €0.7 million). At 31 December 2017, the Group had deposited a total of €47 million (2016: €14 million).

Great importance is attached to managing all the above risks to avoid the Group finding itself in a position in which it could not meet its financial obligations and the necessary management reports, applications and back-up facilities have been set up for this. In addition, liquidity needs are planned on the basis of cash flow forecasts with a medium-term horizon. The cash flow forecasts incorporate operating and investing cash flows, dividends, interest payable and debt redemption. The Group specifically takes the periodicity of its cash flow into account, also allowing for sensitivity to weather influences. The Treasury department sets this capital requirement against available funds. A report is submitted to the Board of Management every month.

Uncommitted credit and guarantee facilities

Uncommitted credit and guarantee facilities totalling €435 million (2016: €439 million) have been agreed with a number of banks and €75 million of this had been drawn at 31 December 2017 (2016: €90 million). Eneco also has a €750 million Euro Commercial Paper programme which was set up in 2017 and which had not been drawn at the year end.

Committed credit and bridging facilities

From the unbundling date, 31 January 2017, Eneco had a committed Revolving Credit Facility (‘RCF’). The €500 million committed RCF was replaced in July 2017 by a €600 million committed RCF with a term of 5 years.

Cash outflows on financial instruments

The table below shows forecast nominal cash outflows and any interest arising from financial instruments over the coming years. The cash flows from derivatives are based on the prices and volumes in the contracts.

At 31 December 2017

Within 1 year

From 1 to 5 years

After 5 years

Total

Derivative financial instruments

7

10

17

Interest-bearing debt

282

284

168

734

Trade and other payables

1,224

34

83

1,341

Total

1,513

328

251

2,092

At 31 December 2016

Within 1 year

From 1 to 5 years

After 5 years

Total

Derivative financial instruments

3

13

7

23

Interest-bearing debt

40

238

179

457

Trade and other payables

954

15

95

1,064

Total

997

266

281

1,544

Capital management

The primary aim of the Group’s capital management is to maintain good creditworthiness and healthy solvency to support operations and minimise the cost of debt. The Group regards both capital and net debt as relevant elements of its financing and so of its capital management. The Group can influence its capital structure by altering the proportions of equity and debt. Net interest-bearing debt (excluding discontinued operations) is defined as long-term and current interest-bearing debt less cash and cash equivalents.

The Group monitors its capital using the Financial Management Framework. This includes the equity/total assets ratio which is regularly monitored by the Board of Management. At year-end 2017 it was 50.7% (31 December 2016: 61.5%).

Events after the reporting date

  • On 8 January 2018, Eneco decided to transfer half of its holding in the Borssele III & IV wind farm, which is under construction, to a Swiss investment company. Although this sale reduces Eneco’s holding from 20% to 10%, it has no consequences for the purchase contracts entered into.
  • On 27 January 2018, the financing agreement entered into in January 2017 between Stedin Holding N.V. and N.V. Eneco Beheer (as part of the unbundling agreement) was sold to a bank for €0.2 billion.
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