Notes to the 2019 semi-annual financial statements

1. Significant events in the first half-year of 2019

Impact of transition to IFRS 16

Initial application of IFRS 16 results in the following adjustments on 1 January 2019:

  • Tangible fixed assets – increase of € 106.3 million
  • Long-term and short-term lease liabilities – increase of € 106.3 million
  • Equity – no adjustments

Initial application of IFRS 16 has the following impact on the consolidated statement of profit and loss for the first half-year of 2019:

  • Depreciation expenses – increase of € 3.9 million
  • Interest expenses – increase of € 0.8 million
  • Other operating expenses – decrease of € 4.1 million

The net effect of initial application of IFRS 16 on the profit before tax over the first half-year of 2019 amounts to € 0.6 million negative.

Restructuring provision

A restructuring provision amounting € 43.3 million was recognised at year-end 2018. The provision relates to the voluntary severance plan for 240 employees. The provision was used in the first half-year of 2019 to cover severance expenditure. No remaining obligations exist as at 30 June 2019.

Dividend paid to shareholder

In the first half of 2019, the company distributed € 228.0 million in dividends to the Dutch State; the sole shareholder. This concerned the appropriation of result over the 2018 financial year in accordance with the resolution of the General Meeting of Shareholders.

2. Tangible fixed assets

Management assesses periodically whether there is an indication that fixed assets may be impaired.

Gas transport network in the Netherlands

Valuation of the gas transport network highly depends on the company’s income from regulated services. Currently, the Dutch regulator (ACM) is conducting several thematic and benchmark analyses regarding future regulation of GTS and regional network companies. The outcomes of these analyses are expected to be incorporated in the new method decision (for the period 2022 and beyond). Management review of the aforementioned events did not identify indications that the gas transport network in the Netherlands may be impaired as at 30 June 2019.

Gas transport network in Germany

Management review did not identify indications that the gas transport network in Germany may be impaired as at 30 June 2019.

BBL Company

Valuation of BBL Company’s assets is determined, among other things, by the market demand for transport capacity between the Netherlands and the United Kingdom. BBL Company offers different types of transport capacity. Developments in this area in the second half-year of 2019 include the auction of transport capacity through what is known as implicit allocation. Furthermore, technical modifications to the pipeline make it possible to book physical gas transport capacity from the United Kingdom to the Netherlands in the second half-year of 2019. Also, in the second half-year of 2019 a decision must be made with respect to the withdrawal or reinstatement of the Julianadorp interconnection point on 1 January 2021. Management review did not identify indications that BBL Company’s assets may be impaired as at 30 June 2019.

EnergyStock

Management review did not identify indications that EnergyStock’s assets may be impaired as at 30 June 2019.

Other tangible and financial assets

Management review did not identify indications that other tangible and financial assets may be impaired as at 30 June 2019.

3. Interest-bearing loans

The total interest-bearing loans as at 30 June 2019 amount to € 3,132.1 million (year-end 2018: € 3,142.9 million) and consist of € 2,550.0 million (year-end 2018: € 2,550.0 million) in long-term bonds and of € 582.1 million (year-end 2018: € 592.9 million) in private loans.

The movements in interest-bearing loans can be summarised as follows:

In millions of euros  
Principle amount as at 31 December 2018 3,250.0
Total repayments as at 31 December 2018 107.1
   
Remaining principle amount as at 31 December 2018 3,142.9
Premiums and discounts on loans to be amortized ‑6.0
Balance as at 31 December 2018 3,136.9
   
Movements first half year of 2019:  
Repayments 10.7
Private loans contracted and bonds issued -
Amortization of premiums and discounts on loans 0.5
   
Principle amount as at 30 June 2019 3,250.0
Total repayments as at 30 June 2019 117.9
   
Remaining principle amount as at 30 June 2019 3,132.1
Premiums and discounts on loans to be amortized ‑5.5
Balance as at 30 June 2019 3,126.6
   
Short term repayment obligations as at 30 June 2019 321.4
   
Long term repayment obligations as at 30 June 2019 2,805.2

In the first half of 2019, the company repaid € 10.7 million (first half of 2018: € 10.7 million) in long-term loans.

No securities have been provided by N.V. Nederlandse Gasunie to lenders for the interest-bearing loans and other facilities.

Future repayment obligations can be summarised as follows:

In millions of euros First half year Second half year Total
Repayment in      
2019   310.7 310.7
2020 10.7 10.7 21.4
2021 300.0 500.0 800.0
2022 500.0 125.0 625.0
2023 0.0 125.0 125.0
2024 50.0 125.0 175.0
After 2024     1,075.0
Total repayments     3,132.1

The company has a current account facility of € 45 million (year-end 2018: € 45 million), a committed credit facility of € 680 million (year-end 2018: € 680 million), a Euro Commercial Paper programme of € 750 million (year-end 2018: € 750 million) and a € 7.5 billion Medium Term Note (MTN) programme (year-end 2018: € 7.5 billion).

Under the MTN programme, € 5.0 billion (year-end 2018: € 5.0 billion) was available for new issues as at 30 June 2018.
 

4. Current financing liabilities

In millions of euros 30 June 2019 31 Dec. 2018
     
Repayments on long-term loans 321.4 321.4
Short-term loans third parties 370.0 343.0
Short-term loans joint ventures 15.0 13.3
     
Total current financing liabilities 706.4 677.7

Short-term loans third parties comprise deposit loans and commercial paper and have a duration of less than one year.

5. Employee benefit plans

The provision for pension liabilities solely relates to the pension plan of employees who joined Gasunie Deutschland before 2012. The plan is considered a defined-benefit pension plan. For all other employees in the Netherlands and Germany, the relevant pension plans are considered defined-contribution plans.

The provision for pension liabilities is the present value of the pension entitlements granted as at 30 June 2019 and amounts to € 103.7 million (year-end 2018: € 91.8 million). The increase in the pension liability can be attributed mainly to a lower discount rate.

Actuarial results taken directly to equity for the first half of 2019 totalled € 10.8 million negative (first half of 2018: € 0.4 million negative). As of 30 June 2019, the accumulated actuarial gains and losses taken directly to equity totalled € 37.4 million negative (year-end 2018: € 26.6 million negative).

The pension liabilities are measured annually in the second half of the year in accordance with IAS 19. An external actuarial specialist performs this calculation. As at 30 June 2019, management performed an indicative interim calculation based on the pension liability as at year-end 2018.

The assumptions underlying the measurement of the pension liabilities are as follows:

  • Inflation: 1.7% (year-end 2018: 1.7%).
  • Expected annual salary increase for employees: 2.7% (year-end 2018: 2.7%).
  • Expected pension increase for retirees: 1.7% (year-end 2018: 1.7%).
  • Discount rate: 1.3% (year-end 2018: 1.8%)

6. Financial instruments

These semi-annual financial statements contain the following financial instruments:

  • Other equity interest
  • Interest-bearing loans
  • Other primary financial instruments

Gasunie applies the following hierarchy of valuation techniques to determine and measure the fair value of financial instruments:

Level 1: Based on quoted prices in active markets for an identical instrument;
Level 2:

Based on quoted prices in active markets for similar instruments, or based on other measurement methods, with all required key data being derived from publicly available market information; and

Level 3: Based on other measurement methods, in which all required key data is not derived from publicly available market information.

 

Other equity interests

Other equity interests consist of financial interests in Nord Stream AG (9.0%), PRISMA European Capacity Platform GmbH (12.7%) and Energie Data Services Nederland (EDSN) B.V. (12.5%). The book value of these interests as at 30 June 2019 totals € 475.1 million (year-end 2018: € 496.3 million). The decrease in fair value of € 21.2 million is taken directly to Gasunie’s equity (fair value reserve). The result from dividend payments by Nord Stream AG amounted to € 38.9 million (first half-year 2018: € 30.1 million). The dividend payment in 2019 relates to the appropriation of profit over the 2018 financial year. PRISMA European Capacity Platform GmbH and EDSN B.V. did not distribute dividend.

The fair value of other equity interests is based on the present value of the expected cash flows. In determining the discount rate, the risk profile (including credit risk) of the other equity interests has been taken into account. This is considered a level 3 valuation (year-end 2018: level 3).

In determining the fair value of other equity instruments, Gasunie applies a discount rate based on the risk-free interest rate plus an appropriate risk premium for credit and liquidity risk. This discount rate as applied by Gasunie varies between 4-7% after taxes, depending on the risk profile of the asset to be valued.

The valuation of the interest in Nord Stream AG is based on the present value of the expected future cash flows. A calculation model is used and this model is updated annually by Nord Stream AG based on the most recent business plan. This model is submitted for review and approval to the shareholders of Nord Stream AG, including Gasunie. The model is subsequently tested by the management of Gasunie on the basis of Nord Stream AG’s periodic financial reports. The projected cash flows are, among other things, based on contractual agreements. All things being equal, if the discount rate changes by 0.5% points, this will result in a change in the fair value amount of approximately € 21.0 million (year-end 2018: € 24.0 million).

Given the relatively low interest in PRISMA European Capacity Platform GmbH and Energie Data Services Nederland (EDSN) B.V., a sensitivity analysis of the fair value calculation for these interests has not been included.

Interest-bearing loans

Interest-bearing loans (including repayment obligations on long-term loans) consist of private loans and bonds with a listing on the Amsterdam stock exchange.
 

The fair value of the private loans has been calculated by discounting the expected future cash flows against the current risk-free yield curve for the remaining time to maturity, taking into account credit and liquidity risk. The company’s own risk profile was taken into account. This is considered a level 3 valuation (year-end 2018: level 3). The fair value of the bonds is equal to the closing price as at the balance sheet date. This is classified as a level 1 valuation (year-end 2018: level 3).

The fair value of interest-bearing loans is summarised below:

In millions of euros 30 June 2019     31 Dec. 2018      
  Book value Fair value Difference Book value Fair value Difference  
               
Bonds  2,544.5   2,728.3   183.7   2,533.3   2,682.3   149.0   
Private loans  582.1   693.2   111.1   603.6   698.6   95.0   
Total  3,126.6   3,421.5   294.9   3,136.9   3,380.9   244.0   

Other primary financial instruments

Other primary financial instruments consist of trade and other receivables, cash and cash equivalents, current financing liabilities (excluding repayment obligations on long-term loans) and trade payables and other liabilities.

The carrying amount approximates the fair value given the short time to maturity for each of these instruments.

7. Segment information

Financial information is segmented in line with the group’s activities. The operating segments reflect the management structure of the group. The following segments are distinguished:

  • Gasunie Transport Services
    This segment covers network management in the Netherlands and is responsible for managing gas transport, developing the pipeline network and related assets, as well as promoting the market mechanism.
     
  • Gasunie Deutschland
    This segment covers network management in Germany and is responsible for managing gas transport, developing the pipeline network and related assets, as well as promoting the market mechanism.
     
  • Participations
    This segment focuses on an optimum utilisation of existing participations, developing projects for the energy transition and facilitating access to the new gas flows for north-western Europe using LNG connections and long-distance pipelines. This segment also includes jointly operated pipelines that connect the Gasunie transport network with foreign markets, such as the BBL pipeline to the United Kingdom.

The accounting policies used for these segments are the same as those applied to the 2019 consolidated semi-annual financial statements and the 2018 consolidated and company financial statements.

The revenues and results of a segment comprise both items directly related to the segments and items that can reasonably be attributed to the segments. Inter-segment transactions are performed at arm’s length.

Information on revenues and result per segment

In millions of euros Revenu     Segment result  
  First half of 2019 First half of 2018   First half of 2019 First half of 2018
Segments          
- Gasunie Transport Services  505.4  514.7   221.3 213.4
- Gasunie Deutschland 119.2 109.8   61.4 48.4
- Participations 75.7 67.8   25.7 25.8
Inter-segment adjustments ‑17.8 ‑20.9   0.1 ‑1.1
           
Segments total  682.5  671.4   308.5 286.5
           
Unallocated financial income and expenses       16.4 13.9
           
Result before taxation       324.9 300.4
           
Taxes       ‑70.8  ‑66.1 
           
Revenues and result after taxation for the half year  682.5  671.4   254.1 234.3

During the first half-year of 2019, the Gasunie Transport Services segment rendered inter-segment services of € 4.5 million (first half-year of 2018: € 7.5 million), the Gasunie Deutschland segment rendered inter-segment services of € 0.1 million (first half-year of 2018: € 0.1 million) and the Participations segment rendered inter-segment services of € 13.3 million (first half-year of 2018: € 13.3 million).

8. Segment revenues

The company categorises its revenues according to the way in which economic factors influence the nature, amount, timing and uncertainty of the cash flows. We have divided Gasunie's revenue into two categories. The first revenue category concerns revenue from regulated transport and related services. This revenue is controlled by the regulators in the Netherlands and Germany for a multi-year period. The second revenue category concerns non-regulated services. These revenues are the outcome of tariffs and volumes determined by market forces. Usually, these revenues are more volatile compared to revenues from regulated services. The revenue from non-regulated services is generated by the Participations segment. Revenue from inter-segment services between the company’s business unites has been eliminated.

The following table summarises the revenue per segment:

In millions of euros First half of 2019 First half of 2018
Revenue category    
Regulated services 624.6 624.5 
Other services 75.7 67.8
Inter-segment adjustments ‑17.8 ‑20.9
     
Segments total 682.5 671.4