Stedin Group has identified the following relevant market risks:

• foreign currency risk: the exposure to changes in value in financial instruments arising from changes in exchange rates;

• interest rate risk: the exposure to changes in value in financial instruments arising from changes in market interest rates;

• commodity price risk: the exposure to changes in value in financial instruments arising from changes in commodity prices. Stedin Group is faced with this type of risk mainly when purchasing for network losses and is sensitive to the effect of market fluctuations in the prices of various energy commodities, such as electricity and green certificates. The commodity price risk is part of the financial long-term planning and is to date not hedged by means of derivatives. However, Stedin has entered into long-term purchase contracts where prices for certain purchase volumes are fixed for the long term.

The table below shows the fair value and the book value of the loans portfolio that is subject to market risks. The loans include € 3.1 billion in fixed-rate loans (fair value risk). The other loans in the loan portfolio bear interest at variable rates that follow the development of market rates (cash flow interest rate risk).

The fair value of the bond loans was determined on the basis of the year-end closing rate. This value was measured in accordance with fair value level 1. The fair value of the other loans was determined using the present value method (‘income approach’). This was based on the relevant market interest rates for comparable debt. Consequently, the data for this measurement are covered by fair value level 2. The table does not include the perpetual subordinated bond loan, as this item is classified as equity under IFRS; see 22 Group equity for more details.

Currency risk

Foreign currency risk within Stedin Group relates mainly to borrowings denominated in currencies other than the euro. The foreign currency risks are risks in respect of future cash flows in foreign currencies and in respect of balance sheet positions in foreign currencies. To meet Stedin Group’s financing requirements, loans were taken out in 2009 in Japanese yen (JPY).

Companies included in the consolidation are not permitted to maintain substantial positions in foreign currencies without the Treasury department’s approval. Based on the aggregate foreign currency position and the associated limit set for open positions, the Treasury department determines whether hedging is desirable and determines the strategy to be followed.

Cash flow hedges for foreign currency risks

Stedin Group hedged the foreign currency risks arising from these loans for the entire term using cross-currency interest rate swaps. The main nominal values and rates of the derivative financial instruments as at 31 December 2023 are as follows:

As Stedin applies cash flow hedging to these borrowings and derivative instruments, the foreign currency exchange differences relating to the borrowings and changes in fair value of the derivatives are recognised in conjunction in the cash flow hedge reserve and any hedging ineffectiveness is recognised in conjunction in the income statement. Further details of the hedging relationship are provided below:

The hedging relationships did not lead to hedge ineffectiveness in the reporting period. In 32.4 Derivatives and cash flow hedge reserve a breakdown is provided of movements in the cash flow hedge reserve.

Interest rate risk

The interest rate risk policy is aimed at keeping the net financing expenses as much as possible in line with the development of the benchmarks used by the regulator ACM to determine the permitted income for Stedin Group.

The average interest rate is calculated as the weighted average of the monthly interest expense in 2023. If all other variables remain constant, it is estimated that a general increase of 1 percentage point in Euribor (for a period of 12 months) would lead to a decrease in profit before income tax of € 2.3 million (at 31 December 2022: € 2.0 million).

Cash flow hedge for interest rate risk

In the past, in anticipation of the issue of loans, Stedin Group entered into derivatives to hedge the interest rate risk during the term of the loan. The derivatives entered into for this purpose were settled at the balance sheet date.

Fair value hedge

Stedin Group applies fair value hedges to convert part of its fixed-interest loans into variable-interest loans to achieve effective alignment with the strategic allocation between variable-interest and fixed-interest loans. As at 31 December 2023, Stedin Group had no active hedging relationships for interest rate risk (2022: € - 29 million).

Commodity price risk

Stedin Group is faced with Commodity price risk mainly in connection with purchasing for network losses. Stedin Group is exposed to the effect of market fluctuations in prices of various energy commodities, such as electricity, gas and green certificates. To reduce sensitivity to short-term price fluctuations and increase cost predictability, a significant proportion of electricity and gas purchases have their price fixed one to three years in advance. In addition, frequent consultation takes place with a member of the Board of Management to facilitate timely intervention if required by the situation. The remaining commodity price risk is not hedged by derivatives.

The maximum credit risk is equal to the balance sheet value of the financial assets including derivatives. Stedin Group’s credit risk towards financial institutions mainly concerns cash and cash equivalents and derivatives for interest and currency hedging transactions. The Treasury policy takes account of limits for each counterparty and term in order to limit any concentration of credit risks and requires a minimum credit rating of A- equivalent Standard & Poor’s (S&P) and/or Moody’s and/or Fitch (for which purpose the lowest rating is decisive).

Credit risk for receivables and contract assets

The credit risk policy is designed not to provide customers with any credit going beyond normal supplier credit as set out in the applicable conditions of supply. Measures in place to limit debtor risk are:

• credit limits or bank guarantees for business customers;

• in principle, receivables must be paid within 30 days in accordance with standard conditions of supply;

• receivables for which payment is overdue are monitored and active dunning is applied;

• recourse to debt collection agencies and different collection methods for current and former customers.

The credit risk on trade receivables can be subclassified into mainly low-use (regulated) and heavy-use customers.

Since the introduction of the suppliers model, the credit risk relating to retail consumers is borne by the energy suppliers, where the concentration risk has consequently grown. A range of risk-mitigating measures have been implemented for this, including periodic monitoring and reporting of the risk profile of the energy suppliers. Individual signals for potential bad debts and credit ratings are used to value credit risk on energy suppliers.

The credit risk for high-use customers, other receivables and contract assets is limited, as most receivables are limited in size and the concentration risk is also limited. For the assessment of risks in the various heavy-use portfolios, Stedin Group uses a simplified model that is based on Stedin's experience of receivables with the same risk profile, supplemented by expected developments of the debtors and the economic environment.

Trade receivables, amounts to be invoiced, prepayments and other receivables are as follows:

The breakdown of the outstanding trade receivables (including those to be invoiced, excluding prepayments and other receivables and accruals) and bad debts provision by age is as follows:

In the provision for expected credit losses, an amount of € - million (2022: € 3 million) concerns trade receivables that have been provided in full. The table below presents the movements in the bad debts provision in detail:

In 2023, an amount of € 4 million was written off for some receivables from energy suppliers that went into liquidation in 2021, for which provisions had already been recognised.

The cost of expected credit losses is recognised as part of other operating expenses.

Liquidity risk is the risk that Stedin Group is unable to obtain the required financial resources to meet its obligations in a timely manner. In that connection, Stedin Group regularly assesses expected cash flows over a period of several years. These cash flows include operating cash flows, dividends, interest payable and debt redemption, replacement investments and the consequences of changes in Stedin Group's credit rating. The aim is to have sufficient funds at all times to meet liquidity requirements. Great importance is attached to managing all the above risks to prevent Stedin Group from finding itself in a position in which it cannot meet its financial obligations. In addition, liquidity needs are planned on the basis of short, medium and long-term cash flow forecasts. The Treasury department compares this capital requirement against available funds.

Financing policy and available credit

The financing policy aims to develop and maintain an optimal financing structure, taking into account the current asset base, agreements and principles regarding regulation and the investment programme. The criteria for the financing policy are access to the capital market as well as flexibility at acceptable financing terms and costs. Financing is contracted centrally and apportioned internally. Subsidiaries are financed by a combination of equity and intercompany loans.

In June 2023, Stedin Group arranged a renewed revolving credit facility (RCF) of € 800 million with six banks for a term of 5 years. The term can be extended twice for a period of 1 year by mutual consent. The renewed RCF replaces the earlier RCF of € 600 million, which was due to expire in July 2024 and serves as a backstop facility. There were no drawdowns of the RCF during 2023.

Stedin Group also has a € 750 million Euro Commercial Paper programme, under which € 125 million had been withdrawn at 31 December 2023 (2022: € 150 million) and a € 3 billion Euro Medium Term Note programme, under which € 2.5 billion had been issued at 31 December 2023 (2022: € 2.5 billion).

Cash outflows

The table below shows forecasted nominal cash outflows and any interest arising from financial liabilities over the coming years. The cash flows from derivatives are based on the forecasted net cash outflows (see also 25 Interest-bearing debt for the terms).

’Trade and other liabilities include, in ‘contract liabilities’, deferred income of € 25 million (2022: € 23 million).

Derivatives

The derivatives were short term at the end of 2023. As in 2022, the derivatives fall under fair value level two. The cash flow hedging instruments applied are derivatives that are subject to net settlement between parties.

Cash flow hedge reserve

The movements in the cash flow hedge reserve are as follows:

The cash flow hedge reserve can be subclassified as follows by active hedging relationships and reserves for which the hedge has been discontinued, and the reserve will be reclassified to the income statement with the future cash flows.

Periods in which the cash flows from the cash flow hedges are expected to be realised:

The total cash flow hedges to be recognised in profit or loss in the future are recognised in the cash flow hedge reserve after deduction of taxes. Periods in which the income from the cash flow hedges is expected to be realised: