(hereinafter: 'Stedin Group') is a under law, with its registered office at , , a holding company of subsidiaries, and is registered with the Chamber of Commerce under number 24306393.

Stedin Group's main activity is to . 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 operates in the provinces of regions (Enduris). 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. TensZ and TeslaN are joint operations between Stedin Netbeheer and Enduris and TenneT, respectively, for maintenance, service and building high-voltage electricity grids.

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 notes 3 Operating segments and 37 Overview of subsidiaries.

The consolidated financial statements have been prepared by the Board of Management of Stedin Group.

Adoption of financial statements for preceding financial year
The 2020 financial statements have been signed by both the Board of Management and the Supervisory Board of the company in the meeting of 17 February 2021 and were adopted by the General Meeting of Shareholders on 25 June 2021.

Unless otherwise stated, all amounts in this annual report are in millions of euros. The historical cost principle is applied. In derogation from this, certain assets and liabilities, including property, plant and equipment and derivatives, are measured at fair value. Unless stated otherwise, these accounting policies have been consistently applied for all financial years included in these financial statements. The accounting policies applied in the financial statements are based on the assumption of the company’s continuity.

No events occurred in 2021 that represent a significant uncertainty for the equity and results as at the end of the financial year on 31 December 2021. For more details, see our annual report.

Coronavirus

The coronavirus crisis has had limited negative financial consequences for Stedin Group. For instance, we saw lower sales volumes at our customers, which adversely affected our net revenue and other income. We also had to contend with more frequent absence due to illness both of our employees and at our subcontractors, which led to some delays in operations.

Financing

In March 2021, Stedin issued a perpetual subordinated bond loan of €500 million at a coupon rate of 1.500%. Due to its equity classification, this instrument leads to a strengthening of the balance sheet and key ratios and is deemed to replace the €500 million subordinated bond loan issued in 2014 at a coupon rate of 3.25%. This hybrid loan was repurchased from the holders of the bond loan via a tendering process. The costs involved in this concern a premium to compensate for future interest payments of € 11 million.

In addition, in May 2021, Stedin redeemed USD and GBP bond loans for a total principal of €196 million; they were redeemed early at a premium of €38 million. This largely comprises future interest, which was paid in addition to the principal owing to the early redemption.

On 25 June 2021, Stedin agreed a capital contribution with its shareholders in the form of preference shares totalling €200 million.

In November 2021, Stedin issued a five-year green bond loan of €500 million at a coupon rate of 0.0%. To that end, Stedin updated a prospectus and its Green Finance Framework to the most recent laws and regulations.

Update on method decisions for new Regulation Period

On 20 September 2021, the Netherlands Authority for Consumers and Markets (ACM) published the method decisions for the 2022-2026 regulation period. The ACM stated in its press release that these method decisions gave the grid managers additional room to be able to facilitate the energy transition. In the opinion of the grid managers, the ACM has still not done enough, and the energy transition may be slowed down because of this method.

In the new method decisions, the ACM introduced several changes compared with the present method, which result in part of the ‘reasonable revenues’ no longer being pushed back. As a consequence, the grid managers need to provide less in the form of prefinancing. However, this is still not sufficient to cover the sharply rising costs for the energy transition.

Key points in the method decisions for Electricity and Gas:

Electricity:
The ACM has opted for a hybrid WACC (weighted average cost of capital) in which half of the projected inflation is already compensated during the regulation period. This yields a WACC that starts at 2.2% and tails off to 1.9% in 2026. Interim compensation will be provided for changes in the volume of electricity that is generated at decentralised locations. This represents earlier compensation for the costs that are incurred for this. The purchase costs for transmission are currently determined annually on the basis of TenneT's new rates. This means that increases in those rates can be passed on immediately rather than first needing to be pre-financed for two years by the grid managers.

Gas:
For gas, the ACM has switched to a nominal WACC in which the projected inflation is already immediately compensated during the regulation period. This yields a WACC that starts at 3.0% and tails off to 2.8% in 2026. From 2022, the ACM applies a declining balance method of depreciation for gas. This means that the depreciation periods are unchanged but that the amount of depreciation charged decreases over time. This method was chosen with a view to the expected decrease in the number of users of the gas grids.

The costs of the sector have risen in recent years. This cost increase is factored into the tariffs from 2022. Combined with the declining balance method of depreciation for gas, the total impact on income, including the decrease in the WACC, is limited for Stedin.

Network losses in 2021

The costs for network losses rose substantially in 2021, by €44 million compared with 2020. The lower gas production in the Netherlands led to higher imports and hence to greater dependency on the gas market. In combination with the lower gas inventories within Europe, the strong dependency on electricity prices and the short-term purchasing, in part, of gas and electricity by Stedin, this resulted in higher costs for network losses.

Changes in the corporate income tax rate

On the 2021 Budget Day (Prinsjesdag), the government announced an increase in the corporate income tax rate to 25.8% as from 2022. Calculations performed in 2020 still applied rates of 25% as from 2021, which were the future statutory rates in 2020 but were changed to 25.8% in 2021. This means that the deferred tax assets and liabilities are settled and measured at the rate of 25.8%. For the explanation, see 18 Deferred tax assets and liabilities.

Stronger together

Since the acquisition of DNWG Group by Stedin in 2017, we have worked towards combining the various entities within the group. Several transfers of entities took place within the Group in 2021. In 2021, the shares of Enduris were also transferred to Stedin Netbeheer so the entities can go forward from 1 January 2022, when the entities will merge, as a single grid manager: Stedin Netbeheer. The other entities with overlapping activities within the Group will also merge (DNWG Staff with Stedin Groep Personeels B.V., and TensZ with TeslaN) as from 1 January 2022. Stedin expects to achieve further synergies through those mergers to continue contributing to the energy transition.

The consolidated financial statements of Stedin Group have been prepared in conformity with IFRS as applicable at 31 December 2021 and as adopted by the European Union (EU) and with the provisions 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) and the interpretations of IFRS and IAS standards by the IFRS Interpretations Committee (IFRIC) and 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 have been adopted by the EU with effect from the financial year 2021:

• COVID-19-related rent concessions – amendment to IFRS 16;
• Extension of the temporary exemption from applying IFRS 9;
• Interest Rate Benchmark Reform - amendments;
• Various editorial corrections.

These amendments are not relevant for Stedin Group and therefore have no impact on Stedin's 2021 financial statements.

New or amended IFRS standards and interpretations relating to subsequent financial years

The following IFRS standards that have been adopted by the EU but are not mandatory for 2021 can be applied, where relevant, from 1 January 2021 or later:

• Amendments to IAS 1 – Classification of Liabilities as Current or Non-current;
• Amendments to IAS 8 – Definition of Accounting Estimates;
• Amendments to IAS 12 – Income Taxes;
• Amendments to IAS 16 – Property, Plant and equipment – Proceeds before Intended Use;
• Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract;
• Annual improvements to IFRS Standards 2018-2020 (IFRS 1, IFRS 9, IFRS 16 and IAS 41);
• Amendments to IFRS 3 – Reference to the Conceptual Framework;
• Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;
• Amendments to IFRS Practice Statement 2 – Making Materiality Judgements;
• IFRS 17 – Insurance Contracts.

These amendments to existing standards and the new IFRS standard are not relevant for Stedin Group and therefore have no impact on Stedin's 2021 financial statements.