Estimates and assumptions
Preparing financial summaries requires making use of estimates and assessments. In the event of significant estimates there is, per definition, a large degree of uncertainty involved in making estimates. Due to the large degree of uncertainty in the estimates, actual results will often differ from the estimates and assumptions. The value-in-use calculation in connection with the goodwill impairment test (note 13) is an estimate involving a high degree of judgement and complexity. The management qualifies this estimate as significant. Detailed information about this estimate, including an explanation of the criteria applied and the sensitivity is provided in note 13. Intangible fixed assets.
Offsetting
Offsetting of asset and liability items takes place per counter party if there is a contractual right to offset the recognised amounts and there is the intention to offset. In the event that there is no right to offset amounts or no intention to settle asset and liability items at the same time, then the items are recognised separately.
Where the right exists to offset the asset and liability items based on a contract, this is disclosed in the relevant note. Further information is then also provided concerning the balances of the asset and liability item.
Presentation
The presentation of the income statement follows the classification in categories. The costs of transmission services and distribution losses are presented directly following revenue and other operating income. This is due to the relationship with revenue, as well as their distinction from other operating costs over which our organisation can exercise influence in the short term.
Valuation at fair value
An explanation of the fair values of interest-bearing liabilities is provided in note 31. Financing policy and risks associated with financial instruments. Fair value is the price that would be received when selling an asset or that would be paid to transfer a liability in a regular transaction between market participants on the valuation date. Valuation at fair value assumes that the sale of the asset or transfer of the liability takes place:
on the most important market for the asset or the liability; or, if that does not exist,
on the most favourable market for the asset or the liability.
Enexis Groep must have access to the most important or the most favourable market.
The fair value of an asset or a liability is determined using assumptions which market participants would take as the point of departure for the valuation of the asset or the liability, under the assumption that market participants act in their economic interest. Valuation of a non-financial asset at fair value takes account of a market participant’s ability to generate economic benefits by maximising and optimising the use of the asset or by selling it to another market participant who would maximise and optimise the use of the asset.
Enexis Groep applies valuation methods that are appropriate in the circumstances and for which there is sufficient data available to determine fair value using, as far as possible, relevant observable inputs and as few unobservable inputs as possible.
All assets and liabilities for which fair value is determined or disclosed in the financial statements are classified in the following fair value hierarchy, based on the input of the lowest level that is significant for the entire valuation:
Level 1: Fair value equals the listed prices on an active market.
Level 2: Fair value is based on parameters that are directly or indirectly observable on the market.
Level 3: Fair value is based on parameters that are not observable on the market.
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, Enexis Groep determines at the end of each reporting period whether, due to a reassessment, a change has occurred in the classification of the hierarchy (based on the input of the lowest level that is significant for the entire valuation).
When disclosing fair values, Enexis Groep has determined categories of assets and liabilities based on their nature, characteristics and risks, along with their level in the fair value hierarchy explained above.
Goodwill
Goodwill is the difference between the cost of the acquisition of the company less the balance of the fair value of the company’s identifiable assets and transferred liabilities. The costs of the acquisition of the company are valued at the total of the fair value on the acquisition date of the transferred compensation and the amount of the minority interests in the acquired entity. Goodwill is carried at cost less any impairment losses. Goodwill is assessed each year for impairment, or more frequently if events or changes in circumstances indicate that the carrying amount may be subject to impairment. An impairment of goodwill cannot be reversed.
Where goodwill is allocated to a cash-flow generating unit and forms part of the divested activities within this unit, the goodwill that pertains to the divested activities forms part of the book value of the activities when determining the book result of the divested activities. The goodwill divested under these circumstances is valued on the basis of the relative values of the divested activities and the part that remains in the cash-flow generating unit.
Impairments
During the financial year, an assessment is made to determine whether there is any indication that an asset may be impaired. If any such indications exist, an estimate is made of the recoverable amount of the asset. The recoverable amount of an asset is the highest of the fair value less the cost of selling the asset or its net realisable value.
An impairment loss is recognised if the carrying amount of an asset or of the cash-generating unit to which it belongs exceeds the recoverable amount of the asset concerned. Impairment losses are charged to the result.
An impairment is reversed if the assumptions used to determine the recoverable amount are deemed to have changed and to the extent that the remaining carrying amount of the asset is lower than the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised for the asset in previous years. The effects of reversing an impairment are credited to the result. Impairments of goodwill will not be reversed.
Financial instruments
Classification
All financial assets and liabilities are recognised at amortised cost. This classification depends on the business model used by Enexis to hold these financial assets and liabilities and the characteristics of the cash flows generated by them.
Accounting on initial recognition
Purchases and sales of financial instruments are recognised on the transaction date. Enexis Groep no longer recognises a financial asset on the balance sheet if the contractual rights to the cash flows from the asset have expired or if Enexis Groep transfers the contractual rights to the receipt of the cash flows from the financial asset by means of a transaction, whereby all of the risks and rewards connected to the ownership of this asset are transferred. On initial recognition, assets are accounted for at fair value.
Financial assets and liabilities at amortised cost
This category of financial instruments comprises trade and other receivables, loans provided, deposits, borrowings and other financing obligations, as well as trade and other payables. These financial instruments are recognised initially at fair value. After initial recognition, they are valued at amortised cost price on the basis of the effective interest method.
Impairment
Any impairments are identified using either the generic or the simplified method.
The generic method applies the following model:
12 months’ expected credit loss; or
lifetime expected credit losses for financial assets where circumstances cause the credit risk to rise significantly. In this situation, all the expected credit losses for the lifetime of the asset are recognised; or
lifetime expected credit losses, with interest being calculated on the net liability less impairment.
The expected credit loss is determined on the basis of a long-term average credit loss rating derived from a risk profile allocated by credit rating agencies.
Loans granted to associates and joint arrangements, receivables from suppliers under the supplier model and all other receivables are assessed for possible impairment using the generic model.
The simplified method is applied to the other receivables. This involves immediately recognising the lifetime expected credit losses, determined on the basis of a historic series of average irrecoverable amounts (on the basis of historic debt collection data).
Leases
Enexis Groep as lessee
In accordance with IFRS 16, leases are recognised in the balance sheet as soon as Enexis Groep has the right of use of the asset. The paid lease instalments are split into financing expenses and a repayment of the outstanding liability, making use of a weighted-average marginal interest rate. The right-of-use of assets is then depreciated in accordance with the total expected term of the lease. The depreciation period can be shorter if the lease period is shortened, the contract will not be extended and the asset in question will not be purchased.
Assets and liabilities arising from leases are initially measured based on a present value model. Lease liabilities include the net present value of the following lease payments:
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payment that are based on an index or a rate and are measured on initial recognition based on the index or interest rate at the commencement date;
amounts expected to be payable by the lessee under residual value guarantees;
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease period reflects the lessee exercising that option.
Lease payments are discounted using the interest rate implicit in the lease, if this rate can be determined in a simple manner. If this rate cannot be determined in a simple manner, Enexis’s incremental borrowing rate will be used. The incremental borrowing rate is the interest rate that Enexis would have to pay for a credit facility that would be required to purchase a similar asset under comparable economic circumstances and terms and conditions.
At the commencement date, lease liabilities are measured at the present value of the lease payments that have not been made at that date. Right-of-use assets are measured at cost comprising the following:
the amount of the initial measurement of the lease liability;
all lease payments made at or before the commencement date less all lease incentives received;
all initial direct costs incurred by Enexis; and
an estimate of the costs to be incurred by Enexis for decommissioning and removing the underlying asset and for restoring the site where it is located, or for restoring the underlying asset to the condition described in the terms of the lease, unless those costs are incurred for producing inventories.
Extension and termination options
Enexis determines the lease period as the non-cancellable period of a lease, combined with:
the periods subject to an extension option if it is reasonably certain that Enexis will exercise this option;
the periods subject to a termination option if it is reasonably certain that Enexis will not exercise this option.
In determining the lease term, Enexis considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option.
Enexis Groep as lessor
Enexis has contracted operating leases for energy-related installations. Operating leases are leases that do not qualify as finance leases. The risks and rewards associated with the ownership of the underlying assets have not been transferred to Enexis Groep.
Assets that have been provided to third parties under operating leases are recognised within property, plant and equipment. Income from operating leases is recognised through the income statement over the term of the lease as other operating income within revenue.
Cash Flow Statement
The cash flow statement is prepared using the indirect method, with the change in cash and cash equivalents at the end of the year being based on the profit after taxes. Net cash and cash equivalents as included in the cash flow statement refer to cash and cash equivalents as stated on the balance sheet.
Segment information
Segments are reported according to the method used for internal reporting to the Chief Operating Decision-Maker (CODM). The Executive Board has been identified as the highest-ranking officer (CODM), with responsibility for the allocation of funding and assessing the performance of the segments. Internal reports are based on the same principles as those applied to the consolidated financial statements. An adjustment is made for non-recurring items and changes in fair value.