Presentation Half-Year Results 2020 30 th of July 2020 Credit - - PowerPoint PPT Presentation

Alliander N.V. Presentation Half-Year Results 2020

30th of July 2020

Stable cash flow profile

Credit profile Alliander

Leading network company in NL Stable public shareholders Mature and constructive regulatory regime

• Largest regional energy network company in the Netherlands
• 3.2 million electricity and 2.5 million gas connections
• Natural monopoly status in its license areas
• Strong and stable shareholder base with 100% of the shares held by provinces and local municipalities
• Geographically, network coverage regions largely coincide with shareholders' base
• Privatization not allowed by law
• Low risk profile due to stable and proven regulatory environment
• Well defined, mature and constructive regulation with 5 year regulatory period
• Total cost recovery for the industry is one of the basic regulatory principles
• Over 85% regulated revenue from regional electricity and gas distribution
• Remaining revenue largely related to services offered to customers with regulated network activities

Robust capital structure

• Strong financial profile with well-defined and disciplined financial policy
• Financial ratios well within financial policy framework
• 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

Operational expertise

• High quality assets; reliable grid with relative low annual outage duration in European context
• Focused capex program will ensure grid quality is maintained

Sustainability leadership

• Highest ISS-ESG rating amongst utility peer group at Prime B (30-June-20)
• CO2 neutral by 2023

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Operational

Highlights 2020

Financial Strategic Regulatory

• The net profit decreased by €29m to €92m (2019: €121m)
• 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).
• Acquisition of optical fiber network TReNT in Eastern part of the Netherlands
• Changes in Electricity Act
• Method decision next regulatory period: consultation has started
• More work done despite COVID-19.
• 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)

3

Governance

• Appointment of Maarten Otto as of the 20th of May to the Board of Directors as new CEO and successor of Ingrid Thijssen.
• Marlies Visser has been appointed as of the 1st of May 2020 as Chief Operation Officer (COO).

Alliander half-year results 2020 3

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

Dutch ambitions for 2030 Climate Law: secures both the Climate Agreement and long term ambitions May 2019 2030 2030 2050 2050 Climate Law approved in Parliament. Presentation Climate Agreement CO2 emissions 49% lower compared to 1990 CO2 emissions 95% lower compared to 1990. All electricity is generated CO2 neutral June 2019 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

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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.

2020 2021 2025 2030 2050

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 2nd life gas network, heat networks, hydrogen Digitize Digital network operator, digital energy system, digital energy market

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Corporate profile 4 Regulator latory y framewor work 7 Half-Year results 2020 10 Financing and policy 14 Miscellaneous 18

Regulatory framework

Current regulation period Legislation Next regulation period

• Current 5-year price-control period runs from 2017-2021
• Gradually decreasing real WACC
• Allowed revenues have been set at the efficient level at the start of the current period
• Benchmark on average sector cost. In the long run the sector as a whole is able to cover

its total cost including capital cost

• 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) – 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
• rganization of expected expanding heat applications.
• Official process of consultation for the next regulation period has been started in September 2019.
• Solid fundamentals of existing methods will remain unchanged.
• 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 4,5% 4,2% 3,8% 3,5% 3,1% 2,8% 2016 2017 2018 2019 2020 2021

Regulated real WACC

Alliander half-year results 2020

Schedule publication ACM method decisions new regulation period

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Preliminary studies ACM Informal consultation (technical content) Formal preconsultation Study ACM parameters

2019 2020 2021 Today

View period

= ACM process = process w/stakeholders = formal decision/publication moment Final Method decision Draft Method decision Tariffs

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

• 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 (regulated) turnover for electricity and gas. This turnover increased by € 20m as a result of to the higher regulated tariffs which is partly compensated by the lower volumes of power transported in the business consumer segment due to the

• coronavirus. The revenues for the metering services increased with € 4mln due to

higher tariffs. Aside from that, revenues from non-regulated operations increased by €16m among other to Kenter, activities in Germany and the acquisition of TReNT.

• Reported purchase costs, costs of subcontracted work and operating expenses

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 transmission capacity costs (+ € 25m), higher costs of hiring contractors and material consumption as a result of the (maintenance)activities in the grid ( + € 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 absence.

• 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.

Consolidated profit and loss statement

11 11

€ million 1st half 2020 2019 Revenue 990 952 Other income 20 19 Total purchase costs, costs of subcontracted work and operating expenses

• 774
• 693

Depreciation and impairment of property, plant and equipment

• 223
• 220

Own work capitalised 131 128 Operating profit 144 186 Financial income/(expenses)

• 19
• 22

Result from associates and joint ventures

• 1

Profit before tax 125 163 Tax

• 33
• 42

Results after tax 92 121

Alliander half-year results 2020

More investment in networks, less in smart meters

• Gross investments € 3m higher than the first half year of 2019. Investment level increased due to higher investments in our electricity grid (+€ 32m) and gas grid (+€ 4m)

mitigated by lower investments in metering devices (-€ 29m) and other investments (e.g. buildings, IT -€ 4m). The lower investments in metering devices is caused by the lower target of the roll-out of smart meters.

• The difference of € 78m between gross- and net investments is caused by third party contributions (HY 2019: € 58m). In 2020 these contributions are higher due to the higher

volume of bigger clients that are connected to the grid.

Gross investment in PPE Third party contributions and net investments

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263 231 64 60 41 70 37 41 402 HY1 2019 HY1 2020 405

Buildings, ICT etc. Metering devices Electricity, regulated Gas regulated

327 344 78 58 HY1 2020 402 HY1 2019 405

Investment contributions third parties Net investments

in € million

Alliander half-year results 2020

Higher financing need

• The cash flow from operating activities decreases to € 215m compared to € 249m in the first half of 2019. The decrease is due to the lower result over the first half year of

2020 and the higher prepayment of corporate tax.

• The cash flow from investment activities amounts to € 391m and is € 47m lower compared to the first half of 2019. This is caused by the purchase of TReNT (€ 64m) and

partly compensated by the higher third party contributions.

• The dividend paid in 2020 regarding the net result of 2019 is € 36m lower compared to 2019 due to a lower net profit in 2019.
• The cash flow from financing activities amounts to € 491m. We issued debt for € 732m (including the €500m green bond), of which € 100m was put on short-term deposits

and € 315m is added to cash. These are the main factors of the € 313m increase of the net debt compared to the net debt at year-end 2019.

• On balance, € 315m was added to cash.

Dividend paid and reimbursement of bondholders

in € million

Cash flow from investment activities Cash flow from financing activities¹

13 13

215 249 HY1 2020 HY1 2019

Cash flow from operating activities

• 391
• 344

HY1 2020 HY1 2019 114 150 HY1 2020 8 150 HY1 2019 122 491 84 HY1 2020 HY1 2019

• 1. Including dividend paid and reimbursement of bondholders

Corporate profile 4 Regulatory framework 7 Half-year results 2020 10 Fi Financing ancing and poli licy cy 14 14 Miscellaneous 18

Financial policy

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Dividend nd policy cy

• FFO/Net debt: Minimum 20%
• FFO Interest cover: Minimum 3.5x
• Net debt/capitalization: Maximum 60%
• Solid A rating profile (on a stand alone basis)
• Comply with regulatory criteria for the network operators

Financi cial frame mewor work General ral princi nciples Financial policy Credit Rating/Debt providers Shareholders' equity Liquidity

• Part of overall policy and strategy
• Balance between protection of debt providers and shareholder returns
• Financial strength and discipline
• Flexibility to grow and invest
• No structural subordination
• Stable dividend
• Pay-out: 45% of after-tax profit, adjusted for incidental items, unless CAPEX from regulatory obligations
• r financial criteria require higher retained earnings
• Minimum solvency of 30%

Alliander half-year results 2020

Headroom FFO / Net debt ratio decreases1

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Interest coverage ² FFO / Net debt ³ Solvency ⁴ Net debt / capitalisation ⁵

13,4 13,3 14,4 30-jun-19 31-dec-19 min 3,5x 20-jun-20 28,3% 29,0% 24,5% 30-jun-19 31-dec-19 30-jun-20 min 20% 54% 56% 51% min 30% 30-jun-20 30-jun-19 31-dec-19 37% 37% 39% 30-jun-19 31-dec-19 30-jun-20 min 60%

1) Ratios based on figures with 'held for sale'-classification (IFRS 5) not taken into account. According to the principles of Alliander's financial policy the subordinated perpetual bond loan is treated as 50% equity. 2) Interest cover: 12-months profit after taxation adjusted for deferred tax asset movements and incidental items and fair value movements plus depreciation and net finance income and expenses, divided by net finance income and expenses adjusted for incidental items and fair value movements. 3) Funds From Operations: 12-months profit after taxation adjusted for deferred tax asset movements and incidental items and fair value movements plus depreciation of PP&E, intangible assets and deferred income. 4) Solvency: equity including period result less the expected dividend distribution of current financial year divided by balance sheet total less the expected dividend distribution for the current year and deferred income. 5) Net debt/capitalisation: net debt divided by the sum of net debt and equity .

Alliander half-year results 2020

Financial position

Gross debt (including CBL related financial lease obligation) 3,015 Cash and equivalents 468 Current financial assets 100 CBL investments 160 Total cash and investments 728 Net debt according to IFRS 2.287 50% of the perpetual loan 248 Net debt according to financial policy 2,535

1 Excluding € 228 m lease obligations

in € mln

Alliander N.V 2,841 Liander 174 Qirion Kenter Overig

Gross and net debt Location of gross debt (€ 3,015m) Maturity profile¹ Capitalisation

Capital Market Programs

• EMTN

3.000

• ECP

1.500 Back up credit facility:

• RCF

600

17 17

299 8 408 126 400 300 500 746 100 200 300 400 500 600 700 800

2023 2025 2020 2028 2021 >2030 2022 2024

9

2026 2027 2029 2030

500

1ste call option hybrid

Committed credit facility €600m (expiry: Jul-23)

Equity 3,700 Perpetual subordinated bonds 495 Subordinated shareholder loans 61 Loan EIB 300 CBL obligations 228 Medium term notes 1.990 Other 136 ECP 299 Total: l: 7.209

(Including 1,200 Green)

Corporate profile 4 Regulatory framework 7 Half-Year results 2020 10 Financing and policy 14 Miscel cellan aneo eous us 18 18

On the way to a CO2 neutral business in 2023

Climate te Neutra tral operat rations ns In 1HY 2020 Alliander's CO2 emissions fell by 37 kilotonnes, representing a reduction of some 7,5% compared with the same period last year. Alliander's climate-neutral operations objective by 2023 will be achieved via: 1. Saving energy and improving energy efficiency. 2. Using renewable energy where possible 3. Carbon offsetting the use of non-renewable energy by purchasing certificates of origin for renewable energy from newly built windfarms in the Netherlands

Alliander er's net CO CO2 emission ions own operatio ions

19 19

288 209 196 74 110 64 58 22 18 15 10

• 2

416 288 264 95 2017 2018 2019 2020 1HY Technical grid losses Administrative grid losses Mobility TOTAL

Alliander half-year results 2020

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Cross border leases

• Credit risk on investments
• Obligation to pay contractual termination value in case of Event of

default and/or Event of loss

• General and tax indemnities
• Posting additional L/C's in case of Alliander downgrade.
• Contractual termination value represents the amount needed to

safeguard the intended transaction return in case of early contractual termination

• Equity strip risk varies over time depending on the mark-to-

market value of investments relative to contractual termination value.

(1)

Contractual termination value Equity strip risk Equity investments Debt investments

1

Contractual termination values CBL contracts CBL related risks

3 leases 3 leases US leases 30 June 2020 31 Dec 2019

in USD million

Equity strip risk 68,2 139,6 Overview Letters of Credit 30 June 2020 31 Dec 2019

in USD million

Issued

• Additional L/C's at A3/A-

47,8 106,0 Additional L/C's at Baa1/BBB+ 25,1 24,7 CBL related risks Contractual termination values and coverage (in USD billion)

Equity strip risk

'We', 'Alliander', 'the company', 'the Alliander Group' or similar expressions are used in this presentation as synonyms for Alliander N.V. and its subsidiaries. Alliander N.V. holds the entire share capital of Liander N.V., Qirion B.V., Firan B.V., Kenter B.V. and Alliander AG among other entities. Liander refers to network operator Liander N.V. and its

• subsidiaries. In this presentation, the names of the various entities are also used without including the abbreviations for the legal structure.

Parts of this presentation contain forward-looking information. These parts may - without limitation - include statements on government measures, including regulatory measures,

• n Alliander's share and the share of its subsidiaries and joint ventures in existing and new markets, on industrial and macroeconomic trends and on the impact of these

expectations on Alliander's operating results. Such statements contain or are preceded or followed by words such as 'believes', 'expects', 'thinks', 'anticipates' or similar

• expressions. These prospective statements are based on the current assumptions and are subject to known and unknown factors and other uncertainties, many of which are

beyond Alliander's control, so that actual future results may differ significantly from these statements. This presentation has been prepared using the accounting policies applied in the preparation of the annual 2019 financial statements of Alliander N.V., which can be found on www.alliander.com. This presentation has not been audited.

Disclaimer

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Alliander half-year results 2020