Stedin Group achieved a net profit of €21 million in 2021 (2020: €42 million). The net result was in line with our expectations. We were able to offset the rising energy prices negatively impacting our costs for network losses.
The 2017 net result included €355 million that were directly connected with the unbundling of Eneco Group. The 2019 net result included €251 million related to the sale of Joulz Diensten.
The coronavirus crisis has had limited negative financial consequences for Stedin Group. For instance, we noted lower off take volumes at our customers, which adversely affected our net revenue and other income. We also had to deal with more frequent absence due to illness both of our employees and at our subcontractors, which led to some delays in operations.
Net revenue and other income
Net revenue and other income in 2021 was €1,279 million. This is €50 million more than in 2020, mainly due to a €62 million increase in transmission revenue driven by higher rates, partly offset by a €18 million decrease in metering domain revenue.
In the metering domain, the rates are set following the decision on rates (tariefbesluit) of the Netherlands Authority for Consumers and Markets (ACM). The rates include a reduction to compensate for excess returns achieved in previous years.
Total operating expenses
Total operating expenses increased by €55 million (5%) in 2021 to €1,155 million. This was mainly attributable to higher personnel expenses, partly offset by an increased allocation of personnel expenses to (capitalised) investments; increased transmission costs and costs for network losses; and higher depreciation and amortisation due to the higher level of investment and a revaluation of regulated assets. These increases were offset by lower ‘other operating expenses’, including a release of a provision and refunds of municipal sufferance taxes.
The costs for network losses rose substantially in 2021, by €44 million compared to 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.
Investments in property, plant and equipment and intangible assets in 2021 amounted to €687 million, an increase of 11% (2020: €620 million).
In 2020, investments were less than planned, as the volume of work carried out at customers was reduced by the coronavirus crisis. COVID-19 continued to have an impact on our activities in 2021, and we had to deal with more frequent absence due to illness of our employees and of subcontractors. Stedin nonetheless invested more than in 2020.
Investments in regulated networks increased from €613 million in 2020 to €667 million in 2021.
In 2021, the grid-driven investments in particular increased substantially compared to 2020, with a slight decrease in customer and meter-driven investments. In the Financially healthy section, we describe what we are doing to be able to finance those investments. In the Facilitating the energy transition section, we discuss the nature of the investments.
Financing, solvency and credit rating
The increased investments led to a negative cash flow of €191 million this year after operating and investing activities, further increased by the dividend payment. This has led to growing financing requirements. In combination with the financing activities of Stedin described below, this has ultimately resulted in a positive movement in cash and cash equivalents of €50 million.
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 results in a strengthening of the balance sheet and key ratios and replaces the €500 million subordinated bond loan issued in 2014 with a coupon rate of 3.25%. This hybrid loan was repurchased from the holders of the loan through a tendering process at a premium of €11 million. This largely comprises future interest, which was paid in addition to the principal.
In addition, in May 2021, Stedin early redeemed several loans denominated in USD and GBP. A principal amount of €196 million was redeemed, at a premium of €38 million. This largely comprised future interest, which was paid in addition to the principal.
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 with 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.
Our solvency on 31 December 2021 was 45.6% (year-end 2020: 43.0%). Stedin Group's policy is aimed at maintaining a solvency ratio of at least 40% in the long term. Stedin Group's goal is to retain the A- credit rating with a stable outlook, provided by Standard & Poor's (S&P). On 8 November 2021, Stedin's credit rating of A- with a stable outlook was reaffirmed by S&P.
The FFO/Net Debt ratio as at 31 December 2021 was 11.3% (year-end 2020: 12.0%). The FFO decreased, mainly due to the timing of tax payments and an increase in interest paid, including the premiums in respect of early redemptions. The net debt ratio (Net Debt) as at 31 December 2021 was higher compared to 31 December 2020, as a result of financing raised.
Profit before income tax was €32 million for 2021 (2020: €72 million).
The tax expense fell by €19 million in 2021 to €11 million, partly due to a lower profit before income tax. The effective tax rate (as a percentage of profit before income tax from continuing operations) in 2021 was 34.7% (2020: 41.2%).
In December 2021, the Upper House of Dutch Parliament approved the bill that includes an increase of the corporate income tax rate from 25% to 25.8% as of 2022. As a consequence of the increased tax rate, deferred tax assets and liabilities will be realised at 25.8% instead of 25% in the future. The measurement of the deferred tax assets and liabilities as at 31 December 2021 at this higher rate results in a negative effect of €3 million on the tax expense in 2021.