Alliander N.V. Presentation Half-Year Results 2020 30 th of July 2020
Credit profile Alliander • Largest regional energy network company in the Netherlands Leading network • 3.2 million electricity and 2.5 million gas connections company in NL • Natural monopoly status in its license areas • Strong and stable shareholder base with 100% of the shares held by provinces and local municipalities Stable public • Geographically, network coverage regions largely coincide with shareholders' base shareholders • Privatization not allowed by law • Low risk profile due to stable and proven regulatory environment Mature and • Well defined, mature and constructive regulation with 5 year regulatory period constructive • Total cost recovery for the industry is one of the basic regulatory principles regulatory regime • Over 85% regulated revenue from regional electricity and gas distribution Stable cash flow • Remaining revenue largely related to services offered to customers with regulated network activities profile • Strong financial profile with well-defined and disciplined financial policy Robust capital • Financial ratios well within financial policy framework structure • Proven commitment to stay within financial policy framework • Strong liquidity position with significant volume of undrawn facilities available • Recently affirmed ratings of Aa2/P-1/stable outlook by Moody's and AA-/A-1+/stable outlook by S&P • High quality assets; reliable grid with relative low annual outage duration in European context Operational • Focused capex program will ensure grid quality is maintained expertise • Highest ISS-ESG rating amongst utility peer group at Prime B (30-June-20) Sustainability • CO 2 neutral by 2023 leadership 2
Highlights 2020 The net profit decreased by €29m to €92m (2019: € 121m) • Financial Revenue €38m higher at € 990m (2019H1: € 952m) • Operational expenses higher at € 866m (2019H1: € 785m) due to higher transport cost, higher production and COVID -19 • Gross investment remained at same level with € 405m (2019H1: € 402m). Net investment amount decreased to € 327m • (2019H1: € 344m) Higher financing need due to increased negative free cash flow • Issuance of a third Green Bond of 500m, tenor 10 year, 0,375% coupon (June 2020) • • Cooperation with local and provincial authorities and other stakeholders to develop the Regional Energy Strategies (RES). Strategic • Acquisition of optical fiber network TReNT in Eastern part of the Netherlands • Changes in Electricity Act Regulatory • Method decision next regulatory period: consultation has started • More work done despite COVID-19. Operational • COVID-19 has led to delay in the smart meter offering, which will now carry on into 2021 • Increased workload due acceleration of energy transition • Shortage of technically skilled personnel • Decrease in electricity outage duration to 22.6 minutes in past 12 months (30-June-19: 23.5) • Appointment of Maarten Otto as of the 20 th of May to the Board of Directors as new CEO and successor of Ingrid Thijssen. Governance • Marlies Visser has been appointed as of the 1 st of May 2020 as Chief Operation Officer (COO). 3 3 Alliander half-year results 2020
Corpo porate Profile ile 4 Regulatory framework 7 Half-Year results 2020 10 Financing and policy 14 Miscellaneous 18
Dutch Climate Law and Climate Agreement Climate Law: secures both the Climate Agreement and long term ambitions Climate Law approved in Parliament. May 2019 June 2019 Presentation Climate Agreement 2030 2030 CO 2 emissions 49% lower compared to 1990 2050 2050 CO 2 emissions 95% lower compared to 1990. All electricity is generated CO 2 neutral Dutch ambitions for 2030 35 Terawatthour renewable electricity production on land New heating systems for 1.5 million homes 1.2 million charging points 5 Alliander half-year results 2020
Strategy of Alliander We have opted for a strategic route consisting of four pillars in order to continue to fulfill our social mission today and in 2030. What we work on every day ( mission ) A reliable, affordable energy supply, accessible to everyone under equal conditions. Excellent network management as a basis Transition plans, pro-active investment, thinking bigger and delivering faster Assist customers in making choices Better use of existing grid, stimulation of local energy exchange, market facilitation 2.0 Investing in new open networks 2 nd life gas network, heat networks, hydrogen Digitize Digital network operator, digital energy system, digital energy market 2020 2021 2025 2030 2050 6 6
Corporate profile 4 Regulator latory y framewor work 7 Half-Year results 2020 10 Financing and policy 14 Miscellaneous 18
Regulatory framework Regulated real WACC Current 5-year price-control period runs from 2017-2021 • Gradually decreasing real WACC • 4,5% 4,2% 3,8% Allowed revenues have been set at the efficient level at the start of the current period 3,5% • 3,1% Current regulation 2,8% Benchmark on average sector cost. In the long run the sector as a whole is able to cover • period its total cost including capital cost 2016 2017 2018 2019 2020 2021 The Ministry of Economic Affairs/Climate is still discussing topics in relation to new legislation that is to replace the existing E,G and H Acts: • – Integration of existing E and G legislation (Energy Act 1.0) Legislation – Market organization Heat (Heat Act 2.0) – Hydrogen – Enabling measures Climate Agreement Consultation of Heat Act is ongoing and Energy Act consultation is expected in the second half of 2020. Expectation is that legislation will not • come into force before 2022. Important for Alliander are 1) flexibility for necessary innovations in network management, 2) effect of changes in gas market and 3) market • organization of expected expanding heat applications. Official process of consultation for the next regulation period has been started in September 2019. • Next regulation Solid fundamentals of existing methods will remain unchanged. • period Focus of both regulator and grid companies is on necessary improvements/add-ons on existing method: • – usual discussion on level of WACC: the current low interest rates will have an impact on the WACC – a better method on forecasting future cost levels/tariffs: extrapolation of history is not always the best way in case of trend reversal – impact of an exponential increase of renewable energy (PV, wind) on our grids. – impact of the starting decrease in the number of connections on our gas grid – the duration of the regulation period. 8 Alliander half-year results 2020
Schedule publication ACM method decisions new regulation period Preliminary studies ACM Informal consultation (technical content) Formal preconsultation Study ACM parameters = ACM process Draft Method decision = process w/stakeholders View period = formal decision/publication Final Method moment decision Tariffs 2019 2020 2021 Today 9 Alliander half-year results 2020
Corporate profile 4 Regulatory framework 7 Half-Year ear result lts s 202 020 10 10 Financing and policy 14 Miscellaneous 18
Lower net results due to corona and higher transmission capacity costs Consolidated profit and loss statement Net turnover increased by € 38m to € 990m during the first half year of 2020 • compared to the first half year of 2019. This is mainly due to the higher 1 st half € million (regulated) turnover for electricity and gas. This turnover increased by € 20m as a 2020 2019 result of to the higher regulated tariffs which is partly compensated by the lower 990 952 Revenue volumes of power transported in the business consumer segment due to the 20 19 Other income coronavirus. The revenues for the metering services increased with € 4mln due to Total purchase costs, costs of subcontracted work and operating expenses -774 -693 higher tariffs. Aside from that, revenues from non-regulated operations increased -223 -220 by €16m among other to Kenter, activities in Germany and the acquisition of Depreciation and impairment of property, plant and equipment 131 128 TReNT. Own work capitalised Reported purchase costs, costs of subcontracted work and operating expenses • 144 186 Operating profit increased from € 693m during the first half year of 2019 to € 774m during the first half year of 2020. This increase of € 81m can be explained by the higher -19 -22 Financial income/(expenses) transmission capacity costs (+ € 25m), higher costs of hiring contractors and - 1 Result from associates and joint ventures material consumption as a result of the (maintenance)activities in the grid ( + € 125 163 Profit before tax 20m) and higher personnel costs (+ € 17m) due to the growth of the personnel and due the coronavirus which resulted that personnel used less leave of Tax -33 -42 absence. 92 121 Results after tax Taxes have decreased by € 9m compared to the first half year of 2019 due to • lower results. The reporting net income after tax amounts to € 92m during the first half year of • 2020 compared to € 121m in 2019. 11 11 Alliander half-year results 2020
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