Stedin Holding N.V. (below: Stedin Group) is a public limited liability company under Dutch law with its registered office in Rotterdam, a holding company of subsidiaries, and is registered with the Chamber of Commerce under number 24306393.

Stedin Group's main activity is to ensure safe, reliable and affordable energy supply. The grid managers of Stedin Group, Stedin Netbeheer and Enduris, achieve this on the one hand by building and managing the electricity and gas networks and preparing them for the future and on the other hand by facilitating the energy market. Stedin Netbeheer operates in the provinces of South Holland and Utrecht as well as parts of the North-East Friesland and Kennemerland regions. Enduris operates in the province of Zeeland. The subsidiary DNWG Infra provides energy infrastructure services to business customers. Utility Connect is a joint operation with Alliander that focuses on data communication for smart meters.

Stedin Netbeheer and Enduris operate alongside five other Dutch regional grid managers in a regulated market. Each regional grid manager is a monopolist within its own service area. Regulation means that the work performed by the grid manager is set out in law, and that the rates are set by the Netherlands Authority for Consumers and Markets (ACM). The regulatory model encourages grid managers to perform as well as possible (in terms of efficiency and quality) by using a benchmark model.

More information on the composition of the Group is provided in note 3 Operating segments and the list 37 List of subsidiaries.

The consolidated financial statements have been prepared by the Board of Management of Stedin Group. The 2019 financial statements have been signed by both the Board of Management and the Supervisory Board of the company in the meeting of 23 March 2020, and will be presented for adoption to the General Meeting of Shareholders on 13 May 2020.

Unless otherwise stated, all amounts in this annual report are in millions of euros.

Strategy

In 2019, Stedin Group further implemented its strategy as revised in 2018, under which the Group focuses more on grid management as a core activity and accordingly decided to proceed to a phased disposal of all commercial activities.

Sale of Joulz Diensten

On 12 March 2019, Stedin Group and 3i Infrastructure signed a purchase agreement in the amount of € 310 million for the acquisition of Joulz Infradiensten B.V. (Joulz Infra) and Joulz Meetbedrijf B.V. (Joulz Meet). The shares were transferred on 30 April 2019. On 1 January 2019, prior to the sale, Stedin Groep Personeels B.V. legally split off the employees working for the benefit of the activities of the respective companies into Joulz Infradiensten B.V.

On 30 April 2019, the assets and liabilities held for sale were sold for € 310 million. The result from this transaction was € 251 million, which is accounted for under 'Share in result after income tax of associates' and the incoming cash flow under investment activities.

Incorporation of NetVerder B.V

As from 1 May 2019, this name covers the activities of the grid operator focused on energy infrastructures, other than natural gas and electricity. The law stipulates that grid management for gas and electricity must not be carried out by the same company that also manages the other energy infrastructure. These activities have consequently been transferred now to an independent brand within Stedin Group, NetVerder. They were formerly carried out under the banner of the Joulz brand. A new name was required due to the sale of the commercial (Joulz) activities.

Changes in corporate income tax rate

In December 2019, the Upper House of Dutch Parliament approved the bill to change the corporate income tax rate to 25% in 2020 and to 21.7% in 2021. This means that the deferred tax assets and liabilities will be settled with the tax authorities at higher rates in the future than anticipated in 2018 (22.55% for 2020 and 20.5% from 2021). The measurement of the deferred tax assets and liabilities as at 31 December 2019 reflects those higher rates. The negative effects on group equity and net profit are € -11 million and € -2 million respectively, and are explained in detail in note 18 Deferred tax assets and liabilities.

The consolidated financial statements of Stedin Group have been prepared in conformity with IFRS as applicable at 31 December 2019 and as adopted by the European Union (EU), and the definitions of Part 9, Book 2 of the Dutch Civil Code. IFRS comprises both the IFRS standards and the International Accounting Standards issued by the International Accounting Standards Board (IASB) as well as the interpretations of IFRS and IAS standards by the IFRS Interpretations Committee (IFRIC) as well as the Standing Interpretations Committee (SIC) respectively. Where necessary, the accounting policies of joint operations and associates have been aligned with those of Stedin Holding N.V. The consolidated financial statements have been prepared using the going concern and accruals concepts.

Amended IFRS standards and interpretations

The following amendments to IFRS standards that have been adopted by the European Commission with effect from the financial year 2019 are relevant to Stedin Group and have been applied where appropriate when preparing this annual report:

IFRS 16 Leases

IFRS 16 Leases changes the accounting for and presentation of leases in the financial statements. Stedin Group implemented the new standard with effect from 1 January 2019, opting to apply the modified retrospective approach. As a result, the comparative figures have not been restated.

The basis of measurement for the leases is stated in 2.2.11 Leases, while the effects of the adoption and application of IFRS 16 are included in note 2.4 Effects of the adoption of new IFRS Standards.

IFRIC 23 Uncertainty over Income Tax Treatments

The new interpretation of IFRIC 23 relates to uncertainty over income tax treatments under IAS 12. The following matters are addressed in this interpretation:

• collective tax treatments;
• assumptions for taxation authorities' examinations;
• determination of taxable profit (tax loss), tax bases, unused tax losses, and tax rates;
• effects of changes in facts and circumstances.

This interpretation became effective as from 1 January 2019. It has no immediate consequences for Stedin Group's financial statements.

While Stedin Group does not have a compliance agreement with the tax authorities, there is frequent consultation with the inspector, including consultation on uncertain positions. Stedin Group applies a policy of taking positions that are not designated as ‘aggressive’ in terms of the taxability of profits, deductibility of costs or later timing of taxation.

As soon as insights change following consultation with the inspector or Stedin and positions become less uncertain, it will result in recognition in the current tax position or reassessment of risks. The uncertain tax position is disclosed in the financial statements when a cumulative material uncertain impact can be expected to arise from it, i.e. before it is accounted for in the current tax position.

As there are no uncertain tax positions that may lead to a material uncertain impact, no additional disclosures are included in the financial statements.

New IFRS standards and interpretations relating to subsequent financial years

The following new IFRS standards are relevant to Stedin Group and have been adopted by the European Commission but are not mandatory for 2019. They will be applied from 1 January 2020:

Revised Conceptual Framework

The IASB has revised the Conceptual Framework. While the IASB also updated references in standards (which therefore now refer to the new Framework), it has not implemented consistent changes in standards to reflect the changes in the framework, such as the change in the definitions of assets and liabilities in the standards.

The new framework:

• reintroduces the terms 'stewardship' and 'prudence';
• introduces a new definition of an asset that focuses on rights and a new definition of a liability which is probably broader than the definition that it replaces, but which does not change the distinction between a liability and an equity instrument;
• removes references to expected flows of economic benefits from the definitions of assets and liabilities, which reduces the obstructions to identifying the existence of an asset or liability and places greater emphasis on reflecting measurement uncertainty;
• discusses measurement at historical cost and fair value, and provides some guidance on how the IASB would choose a measurement basis for a specific asset or liability;
• states that profit or loss is the primary performance indicator, and that the IASB will only use other comprehensive income in exceptional circumstances and only for income or expenses which arise from a change in the current value of an asset or liability;
• discusses uncertainty, derecognition, unit of account, reporting entity and combined financial statements.

Stedin Group will examine the potential consequences for the financial statements but does not expect the revision of the Conceptual Framework to have a significant impact on the financial statements.

Definition of material – amendments in IAS 1 and IAS 8

The IASB implemented the amendments in the definition of materiality in response to the concerns experienced by entities in making materiality judgements when preparing financial statements. The following amendments were introduced:

• The IASB introduced the amendments in IAS 1 and IAS 8 with the intention of making the definition of 'material' in IAS 1 easier to understand rather than altering the underlying concept of materiality in the IFRS standards.
• The concept of ‘obscuring’ material information with immaterial information has been included as part of the new definition.
• The threshold for materiality influencing users has been changed from ‘could influence’ to ‘could reasonably be expected to influence’.
• The definition of 'material' in IAS 8 has been replaced by a reference to the definition of 'material' in IAS 1. In addition, the IASB amended other standards and the Conceptual Framework, which contain a definition of 'material' or refer to the term ‘material’ in order to ensure consistency.

As it is not required to apply this amendment retrospectively, it has no impact on the financial statements of Stedin Group.

Interest Rate Benchmark Reform – amendments

The IASB published the 'Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)' as an initial response to the potential consequences of the IBOR reform for financial reporting.

Interbank offered rates (IBORs) are interest rate benchmarks such as LIBOR, EURIBOR and TIBOR, which represent the costs of obtaining unsecured loans in a specific combination of currencies and maturities as well as in a specific interbank loan market. Recent market developments have called into question the long-term viability of those benchmarks.

The published amendments relate to issues that affect financial reporting in the period prior to the replacement of an existing interest rate benchmark with an alternative interest rate as well as the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39 Financial instruments: recognition and measurement, for which prospective analysis is required. Both IAS 39 and IFRS 9 are amended because entities have an accounting policy choice upon the initial application of IFRS 9 regarding whether to continue applying hedge accounting in accordance with the requirements of IAS 39. There are also amendments to IFRS 7 Financial instruments: measures relating to additional disclosures concerning uncertainties arising from the Interest Rate Benchmark Reform.

The amendments in the Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7):

• modify specific hedge accounting requirements so entities will apply those hedge accounting requirements, assuming that the interest rate benchmark on which the hedged cash flows and cash flows of the hedging instrument are based is not altered as a result of the Interest Rate Benchmark Reform;
• are mandatory for all hedging relationships that are directly affected by Interest Rate Benchmark Reform;
• are not intended to provide relief for other consequences of Interest Rate Benchmark Reform (if a hedging relationship no longer meets the requirements for hedge accounting due to reasons other than those specified in the amendments, the discontinuation of hedge accounting is required);
• require specific disclosures on the extent to which the hedging relationships of the entities are affected by these amendments.

The amendments are effective for annual periods beginning on or after 1 January 2020, with early implementation being permitted. Stedin Group has applied these amendments with effect from 1 January 2019, which do not have consequences for the financial statements because there have been no changes to the market interest rate used for hedge accounting.