Credit rating
A key pillar in Stedin Group's financial policy is to maintain good access to the available sources of financing, including the money and capital markets. It is important to that end that existing and potential capital providers have proper insight into Stedin Group's creditworthiness.
Stedin Holding N.V. and Stedin Netbeheer B.V. each have a credit rating with the rating agency Standard & Poor’s (below: S&P). This rating consists of a long-term rating with outlook and a short-term rating. The outlook indicates the expected change in the long-term rating for the coming years.
The most recent rating awarded by S&P in July 2019 is A- with a stable outlook for the long term and A-2 for the short term. This rating is unchanged from 2018.
The most important ratio for Stedin Group is the ratio of Funds from Operations (below: FFO) to the net debt position for freely available cash and cash equivalents (Net debt), which is a customary ratio in the market for the sustainability of debt. S&P applies a multi-year average of this ratio as part of its assessment of the credit rating. Stedin Group presents this figure only at year-end 2019 and 2018.
The calculation of this ratio follows the figures in these financial statements, supplemented with the adjustments applied by S&P. These analytical adjustments are made in order to enhance the comparability of the figures as well as the financial position between Stedin Group and other businesses. The main adjustment concerns the perpetual subordinated bond loan as an instrument with a 50% equity component and a 50% debt component (by contrast to IFRS, where it is part of equity in its entirety). In addition, pension liabilitiesare included in the S&P definition of debt.
A change was made in the calculation method by S&P during 2019, while Stedin Group started applying IFRS 16 as from 1 January 2019. Before the change in the calculation method, the comparative figures for 2018 were adjusted, with the reported ratio changing from 12.2% to 11.7%. This difference is mainly due to temporarily higher tax paid in 2018. Due to the application of IFRS 16, as discussed in section 2.4 Effects of the adoption of new IFRS Standards, lease liabilities are recognised in non-current interest-bearing debt. The S&P adjustment for leases has therefore been eliminated and on balance has little effect on the ratio.
The calculation is set out in the table below:
x € 1 million | 2019 | 2018 |
|---|---|---|
EBITDA* | 489 | 509 |
-/- Interest paid | -70 | -84 |
-/- Tax paid | -16 | -54 |
-/- S&P adjustments** | -9 | -9 |
+ S&P correcties - leases** | - | 18 |
S&P - Funds from Operations | 394 | 380 |
- | - | |
Non-current interest-bearing debt | 2,913 | 2,548 |
Current interest-bearing debt | 5 | 496 |
Lease liabilities | 87 | - |
-/- Cash and cash equivalents | -72 | -169 |
IFRS - Net debt | 2,933 | 2,875 |
+ S&P adjustments** | 263 | 264 |
+ S&P adjustments - leases** | - | 98 |
S&P - Net debt | 3,196 | 3,237 |
- | 0 | |
FFO / Net Debt – S&P adjusted | 12.3% | 11.7% |
- * Profit before income tax adjusted for depreciation, amortisation, net interest payable, profit of group entities sold, revaluations and share of minority interests.
- * These adjustments are published by S&P on behalf of Stedin Group for 2018.
Current and non-current interest-bearing debt, interest paid and tax paid in accordance with these financial statements. Lease liabilities are part of non-current interest-bearing debt and are presented separately for comparative purposes.
The ratio FFO/Net Debt rose to 12.3% in 2019, from 11.7% in 2018. The increase in the FFO by € 14 million was largely driven by lower taxes paid, despite the lower operating profit (EBITDA). The net debt position (Net Debt) at year-end 2019 was € 42 million lower than in 2018 due to the application of IFRS 16 referred to above. Total interest-bearing loans outstanding decreased by € 126 million. The sales proceeds from Joulz Infradiensten B.V. and Joulz Meetbedrijf B.V. were used in order to repay existing loans as well as to finance the cash flow from regular business operations.
Tax paid in 2019 was € 37 million lower due to a refund in 2019 for prior years as well as temporarily higher payment of taxes in 2018. The lower operating profit of € 20 million was attributable to lower regulated rates for metering services as well as the sale of the business units Joulz Energy Solutions, Joulz Infradiensten B.V. and Joulz Meetbedrijf B.V. Revenue from metering services was consequently lower by € 33 million in total compared with 2018, while total regulated revenue was virtually unchanged from 2018. This reduction, which is a policy of Stedin and Enduris, is of a temporary nature with the aim of more closely aligning rates for customers with the actual costs of realising the roll-out of smart meters in the medium term.
S&P adjustments can be viewed in the S&P rating report of July 2019 (which is available via the Investor Relations website) on the basis of figures in the 2018 financial statements. For the most recent rating reports, see our website: http://www.stedingroep.nl/investor-relations.
