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 2014

85

2,576

7,447

193

438

10,739

Investments

-

36

439

2

362

839

Acquisitions

-

29

-

-

2

31

Disposals

-

–9

–17

–12

–1

–39

Reclassification from / to assets held for sale

-

–23

–61

-

-

–84

Reclassification other

5

333

44

–1

–389

–8

Translation differences

-

11

-

-

8

19

At 31 December 2014

90

2,953

7,852

182

420

11,497

Investments

1

37

350

4

314

706

Acquisitions

20

27

-

-

-

47

Disposals

-

–19

–33

–21

-

–73

Reclassification from / to assets held for sale

-

-

–516

–1

–4

–521

Reclassification other

3

611

–87

–1

–528

–2

Translation differences

-

12

-

-

7

19

At 31 December 2015

114

3,621

7,566

163

209

11,673

Accumulated depreciation and impairment

At 1 January 2014

24

958

2,664

112

3

3,761

Annual depreciation and impairment

1

54

217

12

-

284

Acquisitions

-

2

-

-

-

2

Disposals

-

–11

–8

–8

-

–27

Reclassification from / to assets held for sale

-

–20

–25

-

-

–45

Reclassification other

-

–14

19

–7

–2

–4

At 31 December 2014

25

969

2,867

109

1

3,971

Annual depreciation and impairment

3

194

223

14

27

461

Disposals

-

–5

–22

–21

–1

–49

Reclassification from / to assets held for sale

-

-

–196

–1

-

–197

Reclassification other

1

38

–37

–2

-

-

At 31 December 2015

29

1,196

2,835

99

27

4,186

Carrying amount

At 31 December 2014

65

1,984

4,985

73

419

7,526

At 31 December 2015

85

2,425

4,731

64

182

7,487

Regulated networks

The regulated networks category relates 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).

Fair value of regulated networks

The information for measuring the regulated networks is covered by ‘level 1’ in the fair value hierarchy as specified in IFRS 13 ‘Fair Value Measurement’ (see Note 18 Derivative financial instruments). These measurement models use observable market prices, being the Standardised Asset Value tariffs set by the government.

At 31 December 2015, the carrying amount of the regulated networks at historical cost was € 3,685 million (31 December 2014: € 3,884 million).

Capitalised interest

During the reporting period, € 18 million (2014: € 13 million) of attributable interest was capitalised for property, plant and equipment as required by the relevant reporting standards. The capitalisation rate for interest in 2015 was 4.8% (2014: 4.5%).

Assets under construction

Assets under construction were mainly offshore and onshore wind farms, and standard investment in gas, electricity and district heating networks. In September 2015, the United Kingdom government refused consent for the development and construction of the Navitus Bay offshore wind farm in southern England. Consequently management decided to charge the entire amount of capitalised development costs against the 2015 result. This impairment has been recognised in ‘Depreciation and impairment of property, plant and equipment’.

Intangible assets

Goodwill

Customer databases

Licences and software

Concessions, permits and rights

Development costs

Total

Cost

At 1 January 2014

170

180

90

245

4

689

Investments

-

-

2

1

-

3

Acquisitions

-

18

-

3

2

23

Disposal of consolidated entities

-

-

-

–19

-

–19

Translation differences

1

-

-

1

-

2

Disposals

-

-

-

-

–1

–1

Reclassification other

-

-

3

-

–2

1

At 31 December 2014

171

198

95

231

3

698

Investments

-

-

7

1

1

9

Translation differences

1

-

-

1

-

2

Disposals

–10

-

–14

–150

-

–174

Reclassification from / to assets held for sale

-

-

–1

-

-

–1

Reclassification other

–1

1

1

1

-

2

At 31 December 2015

161

199

88

84

4

536

Accumulated depreciation and impairment

At 1 January 2014

10

89

68

141

4

312

Annual depreciation and impairment

-

14

8

34

-

56

Disposal of consolidated entities

-

-

-

–7

-

–7

Disposals

-

-

-

-

–1

–1

Reclassification other

-

-

-

2

–2

-

At 31 December 2014

10

103

76

170

1

360

Annual depreciation and impairment

-

20

9

5

-

34

Disposals

–10

-

–14

–150

-

–174

Reclassification from / to assets held for sale

-

-

–1

-

-

–1

Reclassification other

-

-

1

1

-

2

At 31 December 2015

-

123

71

26

1

221

Carrying amount

At 31 December 2014

161

95

19

61

2

338

At 31 December 2015

161

76

17

58

3

315

Goodwill

In principle, goodwill is allocated to one or more cash-generating units which independently or in aggregate form a business segment. The goodwill of € 161 million at 31 December 2015 (2014: € 161 million) was fully attributable to the group of cash-generating units which form the Eneco Energy Company segment. An impairment analysis was performed on this goodwill which showed that the recoverable amount (in this case, value in use) of this group of cash-generating units 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 which make up the Eneco Energy Company segment was based on expected future cash flows for 5 years as in Eneco’s long-term plans (based in part on historical figures) and thereafter extrapolated on the expected life of the property, plant and equipment and intangible assets of these cash-generating units, which is generally longer than the five-year period; long-term growth of 1% was taken into account. The pre-tax discount rates, which reflect the risks of the activities of the relevant cash-generating units, were 6%-7% (2014: 6%-7% for all cash-generating units). The 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 5-year plan and the average life of the assets. Of these factors, the discount rate is the most sensitive and an adjustment of 0.5 percentage points would change the value in use by some € 0.2 billion but would not lead to impairment.

Customer databases

Customer databases relate mainly to DONG Energy Sales (acquired in 2014), Oxxio (acquired in 2011) and REMU N.V. (acquired in 2003).

Concessions, permits and rights

Concessions, permits and rights consist mainly of capitalised permits granted for existing and future wind farms in Belgium and the United Kingdom.

Business combinations

On 2 January 2015, Eneco acquired a number of electricity/district heating production sites and the associated heat distribution network in Utrecht from NUON/Vattenfall in a business combination subject to the rules of IFRS 3 ‘Business Combinations’.

The acquisition was effected by purchasing the entire share capital and associated control in a cash transaction completed in 2015. The final purchase price depends on settlement of specific items and had not been determined on the reporting date. The settlement may to some extent affect the allocation of the purchase price of some € 50 million (based on fair value) to the identified assets and liabilities and so the acquisition has been recognised provisionally in these 2015 financial statements. This acquisition fits Eneco’s strategy of having the entire supply chain under its control to achieve greater operational efficiency. Eneco will also be able to make innovations to the heating network. The acquisition reinforces Eneco’s market position.

The assets and liabilities were recognised on the acquisition date at their provisional fair value and consisted of some € 47 million of property, plant and equipment, € 7 million of inventory and € 4 million of current liabilities. This acquisition is very unlikely to lead to the recognition of goodwill. The costs related to this transaction were some € 0.7 million. The acquisition has been effectively recognised in Eneco’s consolidated figures from 2 January 2015. The acquisition has reduced the purchase cost of energy/heating and increased operating expenses. This acquisition is making a positive contribution to the profit after income tax.

Associates and joint ventures

Eneco Group participates with one or more parties in businesses in the form of an associate or joint venture to perform shared operations.

Movements in the value of associates and joint ventures1 were as follows in 2015:

2015

2014

Carrying amount at 1 January

58

49

Investments

1

-

Reclassification from assets held for sale

-

–5

Share in net profit of associates

7

11

Dividend received

–2

–1

Impairment

–1

-

Reclassification other

–2

4

Carrying amount at 31 December

61

58


  1. 1Non-material joint ventures which have been combined with the associates for presentation purposes.

The table below summarises the financial data of the associates and joint ventures:

At 31 December 2015 1

At 31 December 20141

Property, plant and equipment

17

13

Current assets

171

135

Non-current liabilities

2

1

Current liabilities

117

106

Net assets (100%)

69

41

Eneco’s share of net assets

39

36

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

61

58

Revenues (100%)

442

326

Profit after income tax (100%)

27

22

Total other comprehensive income (100%)

Total comprehensive income (100%)

27

22

Eneco’s share of total comprehensive income

7

11

Eneco’s share of profit after income tax and total comprehensive income

7

11

  1. 1These 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 2015

At 31 December 2014

At 31 December 2015

At 31 December 2014

Property, plant and equipment

-

413

419

Intangible fixed assets

-

15

16

Cash flow hedges

-

8

– 10

Loss carry forwards

5

4

– 19

– 15

Losses at non-resident participating interests

-

20

21

Provisions

-

– 6

– 7

Total

5

4

431

424

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 participating interests.

Movements in deferred taxes during 2015 were as follows:

Net balance at 1 January 2015

Recognised in profit or loss1

Recognised in other comprehensive income

Other

Net balance at 31 December 2015

Deferred tax assets

Deferred tax liabilities

Property, plant and equipment

– 419

6

– 413

1

– 414

Intangible fixed assets

– 16

1

-

– 15

1

– 16

Cash flow hedges

10

– 18

-

– 8

24

– 32

Loss carry forwards

19

5

24

24

-

Losses at non-resident participating interests

– 21

1

– 20

-

– 20

Provisions

7

– 1

6

6

-

Tax assets (liabilities) before set-off

– 420

12

– 18

– 426

56

– 482

Set-off of tax

– 51

51

Net tax assets (liabilities)

5

– 431

  1. 1This amount is included in 'Movements in deferred taxes' as part of 'Income tax'. See Note 10 (Income tax).

Movements in deferred taxes during 2014 were as follows:

Net balance at 1 January 2014

Recognised in profit or loss1

Recognised in other comprehensive income

Other

Net balance at 31 December 2014

Deferred tax assets

Deferred tax liabilities

Property, plant and equipment

– 398

– 21

– 419

2

– 421

Intangible fixed assets

– 24

5

3

– 16

2

– 18

Cash flow hedges

8

1

1

10

10

Loss carry forwards

20

– 1

19

4

15

Losses at non-resident participating interests

– 26

5

– 21

– 21

Provisions

12

– 5

7

7

Tax assets (liabilities) before set-off

– 408

– 17

1

4

– 420

25

– 445

Set-off of tax

– 21

21

Net tax assets (liabilities)

4

– 424

  1. 1This amount is included in 'Movements in deferred taxes' as part of 'Income tax'. See Note 10 (Income tax).

The table below shows the expiry periods for temporary differences available for relief at 31 December 2015:

Expiry periods for differences available for relief after 31 December 2015

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 € 105 million (2014: € 95 million) since it is not certain whether sufficient taxable profits will be available in the future at the participations and permanent establishment, which are not members of the fiscal unity. The tax regulations state that this relief is only available against profits made in the years 2016 to 2021 (there is unlimited carry forward in Belgium). A loss of € 32 million (2014: € 32 million) has been recognised in the Netherlands for losses at non-resident participating interests. No deferred tax liability has been recognised since these losses can only be offset against future profits of those participating interests.

Derivative financial instruments

The table below shows the fair value of derivative financial instruments (full statement):

At 31 December 2015

At 31 December 2014

Assets

Liabilities

Assets

Liabilities

Interest rate swap contracts

5

7

Currency swap contracts

41

73

9

106

Energy commodity contracts

356

226

374

287

CO2 emission rights

8

1

9

1

Total

405

305

392

401

Classification

Current

221

164

248

225

Non-current

184

141

144

176

Total

405

305

392

401

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

At 31 December 2015

At 31 December 2014

Assets

Liabilities

Assets

Liabilities

Currency swap contracts

Energy commodity contracts

222

222

279

273

CO 2 emission rights

8

1

9

1

Total

230

223

288

274

Classification

Current

165

160

224

212

Non-current

65

63

64

62

Total

230

223

288

274

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:

At 31 December 2015

At 31 December 2014

Assets

Liabilities

Assets

Liabilities

Interest rate swap contracts

5

7

Currency swap contracts

41

73

9

106

Energy commodity contracts

134

4

95

14

Total

175

82

104

127

Classification

Current

56

4

24

13

Non-current

119

78

80

114

Total

175

82

104

127

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

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 curves.

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 2015

Level 1

Level 2

Level 3

Total

Assets

Energy commodity contracts

69

295

364

Interest rate and currency swap contracts

41

41

69

336

405

Liabilities

Energy commodity contracts

227

227

Interest rate and currency swap contracts

78

78

305

305

At 31 December 2014

Level 1

Level 2

Level 3

Total

Assets

Energy commodity contracts

59

324

383

Interest rate and currency swap contracts

1

8

9

60

332

392

Liabilities

Energy commodity contracts

1

287

288

Interest rate and currency swap contracts

113

113

1

400

401

Note 24 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 2015

At 31 December 2014

Expected cash flow

Within 1 year

132

64

From 1 to 5 years

203

298

After 5 years

– 99

– 61

Total

236

301

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 2015

At 31 December 2014

Expected recognition in result after tax

Within 1 year

28

– 1

From 1 to 5 years

27

19

After 5 years

– 36

– 53

Total

19

– 35

Other financial assets

At 31 December 2015

At 31 December 2014

Other capital interests

1

-

Related party receivables

7

10

Other receivables

34

52

Total

42

62

Assets/liabilities held for sale

At 31 December 2015

At 31 December 2014

Buildings

7

6

Assets for disposal

318

115

Total assets

325

121

Liabilities for disposal

18

1

Total liabilities

18

1

Total held for sale

307

120

The amount at 1 January 2015 included a property that was sold on 30 December 2015. After renovation, this property will be leased back for an initial period of 15 years.

Beneficial ownership of Stedin’s high-voltage networks in Utrecht was transferred to TenneT on 1 January 2015. Legal ownership was transferred on 17 November 2015 with the financial settlement (€ 43 million). A small book profit was realised on this transaction.

The assets for sale (and associated liabilities) at 31 December 2015 relate, on the one hand, to the expected sale of part of the gas and electricity networks of business segment Stedin and, on the other hand, to the expected sale of half of the 50% interest of business segment Energy Company Eneco in the Belgian offshore Norther wind farm (joint operation) under development.

The gas and electricity networks in the Noordoost Friesland, Amstelland, Kennemerland and Midden Limburg regions consist chiefly of property, plant and equipment. Under IFRS, assets held for sale must be measured at the lower of carrying amount and realisable value less cost of disposal. The carrying amount of these networks at 31 December 2015 was € 319 million. No indications of impairment have been identified. The revaluation reserve in equity includes € 39 million for these assets. The sale is expected before the end of 2016.

The Norther assets consist primarily of capitalised development costs for the construction of the wind farm. In January 2016 provisional agreement was reached with a potential investor who will purchase half of this investment. It is expected that this proposed transaction will be completed in 2016. The associated assets and liabilities are recognised at carrying amount in the balance sheet.

Trade receivables

At 31 December 2015

At 31 December 2014

Energy receivables

595

765

Other trade receivables

99

83

Less: impairments

–90

–101

Total

604

747

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

At 31 December 2015

At 31 December 2014

Prior to due date

445

584

After due date

- under 3 months

88

108

- 3 to 6 months

20

26

- 6 to 12 months

43

42

- over 12 months

98

88

Face value

694

848

Less: impairments

– 90

– 101

Total

604

747

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

At 31 December 2015

At 31 December 2014

Prior to due date

3

3

After due date

- under 3 months

5

10

- 3 to 6 months

6

10

- 6 to 12 months

17

20

- over 12 months

59

58

Total

90

101

Movements in the impairment losses on receivables were as follows:

2015

2014

At 1 January

101

115

Additions

16

26

Withdrawals

–26

– 32

Release

-

– 8

Other movements

–1

-

At 31 December

90

101

In view of their short-term nature, the carrying amount of trade receivables is their fair value.

Other receivables

At 31 December 2015

At 31 December 2014

Prepayments and accrued income

121

100

Margin calls

25

-

Other receivables 1

50

64

Total 1

196

164

  1. 12014 figures restated for comparative purposes following reclassification of construction contracts.

In view of their short-term nature, the carrying amount of other receivables is their fair value.

Cash and cash equivalents

Cash and cash equivalents comprised bank balances, cash and deposits of € 367 million at 31 December 2015 (2014: € 606 million). This included an amount of € 50 million at 31 December 2015 (2014: € 43 million) relating to term deposits and blocked accounts which are not freely available.

Equity

At 31 December 2015

At 31 December 2014

Share capital

497

497

Share premium

381

381

Revaluation reserve

779

821

Translation reserve

45

23

Cash flow hedge reserve

19

– 35

Retained earnings

2,928

2,791

Undistributed result for the financial year

196

205

Equity attributable to Eneco Holding N.V. shareholders

4,845

4,683

Perpetual subordinated bonds

501

501

Non-controlling interests

4

4

Total equity

5,350

5,188

Share capital

Eneco Holding N.V.’s authorised share capital is € 2 billion, divided into 20 million shares with a nominal value of € 100 each. At 31 December 2015, 4,970,978 shares had been issued and fully paid. There were no changes in 2015. Eneco Holding N.V. has only issued ordinary shares.

Share premium

Eneco Holding N.V. was incorporated in 2000. Shareholders then holding shares in N.V. Eneco acquired a shareholding in the company by contributing their interests in N.V. Eneco to Eneco Holding N.V. Insofar as the value of that interest exceeded the nominal value of the shares in Eneco Holding N.V. that excess value was taken to share premium. The share premium can be considered as paid-up share capital.

Revaluation reserve

The revaluation reserve relates to the measurement of networks and network-related assets at fair value. The difference between depreciation based on the revalued carrying amount and depreciation based on the original historical cost, less deferred tax, has been transferred from the revaluation reserve to retained earnings. The revaluation reserve is not freely at the disposal of the shareholders.

Translation reserve

Assets and liabilities of foreign group companies denominated in foreign currency and 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. In addition, as a result of the application of net investment hedge accounting from April 2015, foreign currency exchange differences on attributed financial instruments are included with an opposite effect in this reserve. 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.

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, Eneco meets the conditions for cash flow hedge accounting. The cash flow hedge instruments are mainly 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 January 2014

41

– 5

– 68

– 32

Newly defined cash flow hedges in financial year

55

55

Movements in fair value cash flow hedges

24

– 30

– 6

Deferred income tax liabilities

– 7

8

1

Non-effective portion of cash flow hedges

– 6

– 6

Discontinued cash flow hedges

– 47

– 47

At 31 December 2014

60

– 5

– 90

– 35

Newly defined cash flow hedges in financial year

26

– 1

25

Movements in fair value cash flow hedesg

39

2

25

66

Deferred income tax liabilities

– 11

– 1

– 6

– 18

Non-effective portion of cash flow hedges

– 6

– 6

Discontinued cash flow hedges

– 12

– 1

– 13

At 31 December 2015

96

– 4

– 73

19

Perpetual subordinated bonds

On 1 December 2014, Eneco Holding N.V. issued perpetual subordinated bonds (‘Perpetual Fixed Rate Reset Securities’) with a total nominal amount of € 500 million at an annual interest coupon of 3.25% and an issue price of 99.232% resulting in proceeds of € 496 million. Directly attributable costs of € 3 million were deducted from this, so that € 493 million was added to group equity in 2014. The bonds are listed on the Euro MTF Market of the Luxembourg stock exchange.

The perpetual subordinated bonds are regarded as equity and are subordinated to all of Eneco Group’s creditors but have certain preference compared with the shareholders in the event of the company’s winding up. Eneco has no contractual obligation to redeem the loan. Any payment of current or deferred coupon interest is conditional and dependent on distributions to shareholders. Consequently, the bondholders cannot force Eneco to pay the coupon interest or to redeem all or part of the loan.

Non-controlling interests

These are third-party shares in the equity of subsidiaries of which Eneco Holding N.V. is not the sole shareholder.

Provisions for employee benefits

Long-service benefits

Other

Total

At 1 January 2014

29

2

31

Additions

5

5

Withdrawals

– 1

– 1

At 31 December 2014

34

1

35

Additions

1

7

8

Withdrawals

– 1

– 3

– 4

Reclassification

3

3

At 31 December 2015

34

8

42

Classificatiom

Current

2

6

8

Non-current

32

2

34

At 31 December 2015

34

8

42

Long-service benefits

This provision covers the obligation to pay amounts on achieving a certain number of years of employment and retirement of employees. The following actuarial assumptions were used for the provisions:

2015

2014

Discount rate at reporting date

1.8%

1.8%

Future salary increases

1.0% - 1.9%

1.0%

Mortality table

GBM & GBV 2005-2010

GBM & GBV 2005-2010

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 Eneco 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

Reorganisation

Other

Total

At 1 January 2014

55

26

23

19

123

Additions

8

1

20

6

35

Withdrawals

– 1

– 15

– 13

– 4

– 33

Release

– 7

– 1

– 3

– 11

Reclassification

1

1

2

At 31 December 2014

62

5

30

19

116

Additions

13

6

2

21

Withdrawals

– 5

– 20

– 3

– 28

Release

– 8

– 8

– 3

– 19

Reclassification

– 3

– 3

At 31 December 2015

67

8

12

87

Classification

Current

5

5

Non-current

67

3

12

82

At 31 December 2015

67

8

12

87

Interest in a range of 2.5% to 4.8% has been added to the provisions in 2015 (2014: 4.5%). 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.

Restructuring provision

In 2015, € 6 million (2014: € 20 million) was added to the restructuring provision that relates mainly to an earlier restructuring of the now defunct Joulz and a restructuring of the head office departments of the Energy Company Eneco.

Other

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

Interest-bearing debt

Interest-bearing debt was as follows:

At 31 December 2015

At 31 December 2014

Private loans

1,625

1,661

Green loans

101

103

Non-recourse / subordinated loans

117

136

Total

1,843

1,900

See Note 32 for details of the repayment periods.

At 31 December 2015

At 31 December 2014

Classification

Current

54

115

Non-current

1,789

1,785

Total

1,843

1,900

Collateral of € 119 million (2014: € 178 million) has been provided for the interest-bearing debt for financing wind farms in the form of mortgages of wind farms and pledges of shares in the legal entities, energy purchase contracts or grants for the construction of wind farms. No collateral has been provided for the other interest-bearing debt.

The private loans are predominantly loans from institutional investors and banks and included € 338 million in US dollars (2014: € 305 million), € 153 million in Japanese yen (2014: € 138 million) and € 102 million in pounds sterling (2014: € 96 million). The "green" loans were borrowed to finance specific sustainable energy infrastructure investments. Investors enjoy tax advantages on green loans and so the interest charges are below the market interest rate.

The credit facilities are explained in Note 32.

Repayment obligations for the first year after the reporting date are recognised under current liabilities.

Borrowings of € 1,726 million (2014: € 1,694 million) are fixed rate (fair value risk). Variable interest rates that track market rates apply to the other borrowings (cash flow/interest rate risk). Derivative financial instruments (interest rate swap contracts) have been used for certain variable interest rates.

The table below shows the average interest rate (excluding capitalised interest) and the fair value of the loans:

2015

2014

Average interest rate (excl. money market loans)

4.9%

5.2%

Average interest rate (total interest-bearing debt)

4.8%

4.5%

Fair value of loans

2,083

2,190

The average interest rate in 2015 was calculated as the weighted average monthly interest expense directly related to the interest-bearing debt, excluding other financial expense.

The fair value of the loans is estimated using the present value method (‘income approach’) based on relevant market interest rates for comparable debt. Consequently, the information for establishing value is covered by ‘level 2’ in the fair value hierarchy.

Trade and other payables

At 31 December 2015

At 31 December 2014

Trade creditors

712

863

Accruals and deferred income 1

348

454

Pension contributions

4

5

Other liabilities

674

659

Total 1

1,738

1,981

Classification

Current 1

1,300

1,562

Non-current

438

419

Total 1

1,738

1,981

  1. 12014 figures restated for comparative purposes following reclassification of construction contracts.

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

Eneco 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 € 54 million (2014: € 55 million) has been recognised through the income statement in this respect.

The minimum obligations under these agreements fall due as follows:

At 31 December 2015

At 31 December 2014

Within 1 year

54

54

From 1 to 5 years

176

159

After 5 years

208

167

Total

438

380

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 Eneco. The lease covers making the equipment available to users and maintenance. Revenues of € 30 million (2014: € 28 million) have been recognised through the income statement.

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

At 31 December 2015

At 31 December 2014

Within 1 year

27

31

From 1 to 5 years

91

90

After 5 years

68

60

Total

186

181

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

Eneco has energy purchase commitments of € 5.9 billion (2014: € 7.4 billion) under contracts relating to 2016 and later years. The purchase commitments comprise energy contracts for the company’s own use with various energy generators. There are sales commitments of € 2.6 billion (2014: € 3.0 billion) for 2016 and later years.

There are commitments of € 0.8 billion (2014: € 0.7 billion) for the purchase of heat until 2043. The perpetual commitments for the purchase of heat are € 0.3 billion per year (2014: € 0.3 billion).

Investment obligations

At 31 December 2015 Eneco had entered into investment obligations with a total amount of € 0.2 billion (2014: € 0.3 billion).

Other (contingent) obligations

At 31 December 2015 there were other contractual obligations of € 0.5 billion (2014: € 0.8 billion), mainly maintenance contracts.

Guarantees

Eneco has issued group and bank guarantees of € 0.4 billion (2014: € 0.2 billion) to third parties. Of these, € 0.3 billion (2014: € 0.2 billion) have been issued by Eneco Holding N.V. The remaining group guarantees have been issued by subsidiaries for which Eneco Holding N.V. 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 has formed fiscal unities for corporate income tax and VAT purposes. Eneco Holding N.V. and the subsidiaries in these fiscal unities are jointly and severally liable for the tax obligations of the fiscal unities. Stedin Netbeheer B.V. and its subsidiaries form a separate fiscal unity for VAT purposes.

Cash pool

Under its participation in the Group cash pool, Eneco Holding N.V., like the other participants, is jointly and severally liable for deficits in the cash pool as a whole.

Legal proceedings

Eneco 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.

Supreme Court ruling on unbundling

The Eneco Group includes companies that manage electricity and gas networks and companies that focus on generating, delivering and trading in electricity and gas. This is not permitted under statutory provisions known as the group prohibition (or forced unbundling).

The Dutch Supreme Court issued a ruling on the forced unbundling of Dutch energy companies on 26 June 2015. The Supreme Court ruled that the provisions on the group prohibition in the Electricity and Gas Act, also known as the Independent Network Management Act, do not conflict with European Union legislation on the free movement of capital and freedom of establishment. The Supreme Court referred judgement on whether the forced unbundling is an infringement of the right to the protection of property (Article 1 of the First Protocol to the European Convention on Human Rights), which Eneco (and Delta) also invoked, to the Court of Appeal in Amsterdam. The Court of Appeal in Amsterdam must examine whether the Act is in contravention of that Article of the First Protocol. The referral proceedings commenced during 2015 but it is not known when the Court will deliver its judgement.

Consequently, pending the outcome of the legal proceedings, there is still uncertainty about whether the group prohibition is legally valid.

The Netherlands Authority for Consumers and Markets (ACM) has issued an ‘enforcement decree’ under which Eneco Holding N.V. must be unbundled by 31 January 2017 subject to a penalty of a default fine of € 4.5 million per week, up to € 90 million. Eneco Holding N.V. submitted an objection against this enforcement decree on 13 January 2016. The outcome of the objection process is not yet known.

At the same time, Eneco Holding N.V. is preparing an unbundling plan which it will submit to the ACM in the first half of 2016. Despite its continuing opposition to the group prohibition, Eneco has been forced to start preparations for an unbundling to meet the ACM’s enforcement decree.

Related party transactions

Associates, joint ventures and the company’s Management and Supervisory Boards are considered as related parties. Shareholders in Eneco with significant influence are also 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

2015

2014

2015

2014

Associates

125

144

17

22

Joint ventures

4

2

Assets

Liabilities

At 31 December 2015

At 31 December 2014

At 31 December 2015

At 31 December 2014

Associates

14

15

3

3

Joint ventures

2

1

1

6

Note 6 provides details of the remuneration of members of the Management and Supervisory Boards.

There is no other relationship between the members of the Management and Supervisory Boards and Eneco except that of customer and supplier on normal arm’s length terms and conditions. Eneco applies the exemption from disclosures on related party transactions with government-related entities. The Municipality of Rotterdam has 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, interest rate and liquidity risk. Eneco’s policy is designed to minimise the adverse consequences of unforeseen circumstances on its financial results. The aims formulated to this end are derived from the company’s strategic objectives. Procedures and guidelines have been drawn up in accordance with these objectives and are evaluated at least once a year and, if required, adjusted.

The Board of Management is responsible for risk management. In this context, it sets out procedures and guidelines and ensures they are complied with. Authority to commit Eneco is specified in the Corporate Authority Manual. Mandates have also been drawn up for all business units, including Eneco’s purchasing and trading department and 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.

The Supervisory Board exercises supervision over the course of business and risk management by conducting reviews of strategic plans, budgets, critical performance indicators, forecasts and results.

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, emission rights and interest rate and foreign currency hedge transactions. The basis for the management of this risk is set out in the Counterparty Mandate (part of the Eneco Energy Trade commodity 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);
  • the 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.

Where Eneco meets the IFRS criteria for netting, financial assets and financial liabilities are netted and recognised net in the balance sheet. Transactions in derived financial instruments use standardised terms and conditions and contract types such as the master netting agreements based on ISDA and EFET terms. Most of Eneco’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 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 2015

Gross amounts of recognised financial assets

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

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

Activa

Derivative financial instruments

1,483

1,119

364

Cash and cash equivalents

367

367

Other financial instruments

600

439

161

2,450

1,558

892

Gross amounts of recognised financial liabilities

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

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

Passiva

Derivative financial instruments

1,346

1,119

227

Current liabilities to credit institutions

Other financial instruments

813

439

374

2,159

1,558

601

At 31 December 2014

Gross amounts of recognised financial assets

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

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

Activa

Derivative financial instruments

1,053

690

363

Cash and cash equivalents

695

331

364

Other financial instruments

837

616

221

2,585

1,637

948

Gross amounts of recognised financial liabilities

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

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

Passiva

Derivative financial instruments

971

690

281

Current liabilities to credit institutions

331

331

Other financial instruments

1,135

616

519

2,437

1,637

800

Financing instruments

Management of financing instruments is set out the Treasury Charter drawn up by the Board of Management and Supervisory Board. 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;
  • 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

Exposure to market price risk on the commodity portfolios for purchasing and supply 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 countries, commodities and/or periods which have an historically strong correlation with the price risks to be hedged. These instruments are deployed within a conservative mandate and limit structure that includes on-going registration, monitoring and analysis of trading positions and market value.

The market price risk on the company’s own generation and long-term structured commodity purchase contracts is also limited through back-to-back transactions and structured hedging strategies as described above. 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.

Price risks inherent to energy commodity trading portfolios and emission rights are managed using position limits, MtM limits, Value at Risk (VaR) measures and stop-loss limits. The limits that can best be applied to manage risks are determined for each business activity. VaR represents the potential loss on a portfolio in the event of a poor scenario over a 10-day period, at a 95% confidence level. 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. 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 immediately, in accordance with the Eneco Energy Trade commodity mandate. The VaR in the trading portfolio at 31 December 2015 was € 2.1 million (2014: € 2.3 million). The average VaR in 2015 was € 1.7 million (2014: € 2.2 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.

Loans were entered into in 2009 in US dollars, Japanese yen and pounds sterling to meet the group’s funding requirements. Eneco has hedged the foreign currency risk in the dollar and yen loans for their full term using cross-currency swap contracts. Before net investment hedging was applied (see Note 24 'Equity'), the foreign currency risk in the sterling loans was also hedged using cross-currency swap contracts. These were settled during the first half of 2015. As a result of the net investment hedge, the sterling loans (£75 million) have been allocated as a partial (‘natural’) hedge for the translation differences resulting from the net investment in the United Kingdom.

The sensitivity of the Translation reserve in equity to a 1% movement in the sterling/euro exchange rate in 2015 was € 3.3 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. Eneco 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 € 0.1 million (at 31 December 2014: € 0.1 million).

Liquidity risk

Eneco is a capital-intensive business. Its financing policy is aimed at the development and retention of an optimum financing structure taking into account its current asset base and investment programme. The criteria are access to the capital market and flexibility at acceptable financing costs.

Financing is drawn centrally and apportioned internally. Subsidiaries are financed by a combination of equity and intercompany loans.

A specific liquidity risk arises from margining through clearing houses and contracts with bilateral margin obligations. Risk limits have been set in the Counterparty Mandate to cover both the outstanding balance and price change sensitivity for the purposes of managing this. This risk is the subject of weekly reports to senior management and six-monthly reports to the Commodity Risk Committee, which includes two members of the Board of Management. The sensitivity of the margin call to a 1% price change was € 1.5 million in 2015 (2014: € 1.4 million). Another liquidity risk arises from the margining of the market value of the cross-currency swap contracts entered into with a number of banks. If the market value of these contracts exceeds the contractual limits, Eneco has to deposit the excess with these banks. At 31 December 2015, Eneco had deposited a total of € 0 million (2014: € 0 million).

Great importance is attached to managing all the above risks to avoid Eneco finding itself in a position in which it could not meet its financial obligations. In addition, liquidity needs are planned on the basis of long, medium and short-term cash flow forecasts. The cash flow forecasts incorporate operating and investing cash flows, dividends, interest payable and debt redemption. 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 totalling € 251 million have been agreed with a number of banks (2014 restated for comparative purposes: € 251 million). There is also a committed credit facility available up to an amount of € 1.25 billion up to October 2018 (2014: € 1.25 billion). This facility was not drawn during 2015. 

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 2015

Within
1 year

From
1 to 5 years

After
5 years

Total

Derivative financial instruments

158

50

99

307

Interest-bearing debt

137

1,177

1,119

2,433

Trade and other payables

1,300

91

347

1,738

Total

1,595

1,318

1,565

4,478

At 31 December 2014

Within
1 year

From
1 to 5 years

After
5 years

Total

Derivative financial instruments

492

251

54

797

Interest-bearing debt

201

1,228

1,190

2,619

Trade and other payables 1

1,562

130

289

1,981

Total 1

2,255

1,609

1,533

5,397

  1. 12014 figures restated for comparative purposes following reclassification of construction contracts.

Capital management

The primary aim of capital management at Eneco is to maintain good creditworthiness and healthy solvency to support operations and minimise the cost of debt. Eneco regards both capital (including the perpetual subordinated bonds issued in 2014) and net debt as relevant elements of its financing and so of its capital management. Eneco 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.

No changes were made to the aims, policy and processes for capital management in 2015.

Eneco monitors its capital using the ‘Financial Management Framework’, which sets out various ratios that have to be regularly monitored by the Board of Management. One of these ratios is equity/total assets. Eneco’s policy is to keep this above 45%. At year-end 2015, it was 54.0% (2014: 51.4%). Management within this Framework includes ratios relevant to the credit rating. In this context, the perpetual subordinated bonds issued in 2015 are classified by Standard & Poor’s as an instrument with 50% equity credit and a 50% debt component (‘intermediate basket’), which is in contrast to IFRS, under which the perpetual subordinated bonds are regarded entirely as equity.

Events after the reporting date

There have been no significant events since the reporting date that require further disclosure.

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