The historical cost principle is applied. In derogation from this, certain assets and liabilities, including derivatives and money market funds, are measured at fair value.

Impairment is present when the book value of an asset is higher than the recoverable amount. The recoverable amount of an asset is the higher of the sale price less costs to sell and the value in use. An asset’s value in use is based on the present value of the estimated future cash flows, calculated using a pre-tax discount rate that reflects the time value of money and the specific risks of the asset. The recoverable amount of an asset that does not independently generate a cash flow and that is dependent on the cash flows of other assets or groups of assets is determined for the cash-generating unit of which the asset is part.

A cash-generating unit is the smallest identifiable group of assets separately generating cash flows that are significantly independent of the cash flows from other assets or groups of assets. Cash-generating units are distinguished on the basis of the economic interrelationship between assets and the generation of cash inflows rather than on the basis of separate legal entities.

Goodwill is allocated on initial recognition to one or more cash-generating units in line with the way in which the goodwill is assessed internally by the management. Impairment tests are performed each year to assess the value of goodwill based on expected future cash flows.

An assessment is carried out annually for assets other than goodwill to assess whether there have been any events or changes that may indicate impairment. If there is evidence of impairment, the recoverable amount of the relevant asset or cash-generating unit is determined.

When the book value of assets allocated to a cash-generating unit is higher than the recoverable amount, the book value is reduced to the recoverable amount. This impairment is recognised in profit or loss. Impairment of a cash-generating unit is first deducted from the goodwill attributed to that unit (or group of units) and then deducted proportionately from the carrying amount of the other assets of that unit (or group of units).

Impairment previously recognised may be reversed through the income statement if the reasons for it no longer exist or have changed. Impairment is only reversed up to the original book value less regular depreciation. Impairment losses on goodwill are not reversed.

The financial statement items of Stedin are administrated in the currency of the economic environment in which Stedin Group operates. The euro (€) is Stedin Group’s functional currency and the currency in which the financial statements are presented.

Transactions in foreign currencies are translated into the functional currency (€) at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies on the reporting date are translated into euros at the exchange rate prevailing on the reporting date. Foreign currency exchange differences that arise on foreign currency transactions or translation of balance sheet items are recognised in the income statement.

Receivables and payables with a counterparty are netted if there is a contractual right and the intention to settle these on a net basis. In the absence of an intention or actual netted settlement, the existence of an asset or liability is determined for each contract.

Business segments are based on Stedin Group’s internal organisation and management reporting structure. The results of business segments are reviewed regularly by the Board of Management to make decisions about resources to be allocated to a segment and assess its financial performance.

Transfer prices for internal revenues and costs are at arm's length. The accounting policies of Stedin Group are also applied in segment reporting. The results of individual segments do not include financial income and expenses, the share of the results of associates and joint ventures or the tax expense.

Revenue comprises income generated in the ordinary course of business and includes revenue from Stedin Group’s regulated and non-regulated activities. In this context, Stedin Netbeheer’s activities in the electricity and gas domain are classified as regulated and are supervised by the Netherlands Authority for Consumers and Markets (ACM).

Net revenue

Net revenue concerns revenue from the supply of goods or services to customers. Revenue is recognised when, or as, the performance obligation is met by transferring goods or services to the customer. This transfer may take place:

• over a period of time; or

• at a moment in time.
  

It is inherent in the key services of Stedin Group that these are transferred to the customer during the period in which they are provided.  

The selling prices for transmission services are based on the rates as determined by the ACM. The rates for customer construction contributions have also been determined by the ACM. Selling prices that are not subject to price regulation are in line with the market as laid down in the relevant agreement between Stedin Group and the customer.

Adjustments in the selling prices can arise mainly as a consequence of failures in the grid for which customers are required to be compensated by law. These adjustments are deducted from net revenue. Variable revenue is recognised only to the extent that it is highly probable that this revenue will not be reversed in later years.

Electricity and gas transmission services
Electricity and gas transmission services concern transmission, connection and metering services. Stedin Group transmits electricity and gas via its grids to the customer’s connection. The distribution services are recognised during the supply period. The revenue from distribution services consists of a fixed periodic payment for the use and the availability of the grids as well as a payment per distributed volume. These services relate to performance obligations that are satisfied during a period. The revenues for the use and the availability of the grids are allocated to the supply period on a straight-line basis. Straight-line allocation represents the availability of the grid during the entire year under review. Volume-based payments are recognised in the income statement in the period in which the distribution service was provided. Amounts settled via subsequent costing in rates of subsequent years are accounted for as revenue in the year when the rate is actually realised on the basis of the services provided in that year.

Customer construction contributions received and reconstructions
In order to make distribution services for electricity and gas possible, Stedin Group will construct grid connections for new supply points. The customer pays a one-off fee as a contribution towards the construction costs for such a new connection. The connection is inseparably linked to the distribution services and forms an integral part of the fee for distribution services. Revenue from customer construction contributions is therefore recognised in equal amounts over the expected useful life of the connection point concerned according to the depreciation method (see 2.2.10 Property, plant and equipment for more information on depreciation method). Stedin Group also receives contributions for reconstruction work carried out on the grid. Like the customer construction contributions, these are recognised in equal amounts over the expected useful life of the grid. Customer construction contributions received in advance and reconstructions are contract liabilities. Within net revenue, contributions recognised over time are presented as part of ‘Infrastructure services and other net revenue’.

Infrastructure services and other net revenue
Infrastructure services and other net revenue includes revenue from construction, management and maintenance of technical infrastructure, customer-related contributions (including customer construction contributions recognised over time and reconstructions), rental income for transformers and revenue related to heat, steam, biogas and energy meter data processing.

Other income

Other income relates mainly to revenue from loss recovered from third parties and positive book results on disposals of property, plant and equipment.

Stedin Group sells transformers to third parties on an incidental basis. A book result on disposals, being the sale price less any book value of the asset sold, is recognised at the time the third party has obtained control over the asset concerned. Operating grants credited to the result are also recognised under other income.

Contract assets and liabilities

Contract assets relate to rights to consideration under contracts with customers that are not yet unconditional. These are presented as amounts to be invoiced under ‘Trade and other receivables’. Expected credit losses are recognised for the balance sheet item ‘amounts to be invoiced’ in the same way as for the trade receivables. Contract liabilities are obligations to transfer goods or services to a customer for which consideration has already been received or is due. These are presented as ‘Deferred revenue’ (non-current portion) and as part of ‘Trade payables and other liabilities’ (current portion).

The purchase costs for the compensation of technical and administrative network losses are recognised in the period in which they occur. The costs of materials and services from third parties are also included in this line item.

Financial income comprises interest income from the financial assets, including loans issued and cash and cash equivalents. This interest income is calculated on the basis of the effective interest method.

Financial expenses consist mainly of interest expense on interest-bearing liabilities, calculated on the basis of the effective interest method. The interest-bearing liabilities consist of borrowings and debt, except for the perpetual subordinated bond loan. The interest expense on the perpetual subordinated bond is recognised directly in group equity, in line with the classification of this instrument as equity. In addition, financial expenses also include other financing costs.

Where gains and losses on financial hedging instruments are recognised in the income statement, these are also accounted for under financial income and expenses.

Income tax comprises current taxes and deferred taxes and is determined on the basis of the tax laws and rates that are in force or have been substantially enacted at the balance sheet date. These amounts are recognised in profit and loss unless they concern items that are recognised either in other comprehensive income or taken directly to group equity.

Current tax is the amount of income taxes payable or recoverable in respect of the taxable result. Deferred taxes are recognised, subject to conditions, for temporary differences, tax loss carryforwards and tax credits. See 2.2.14 Current and deferred taxes for more information.

Property, plant and equipment is subclassified into the following categories:

• Land and buildings

• Networks

• Other operating assets

• Assets under construction

Land and buildings, networks, other operating assets and assets under construction

Property, plant and equipment is recognised at cost less accumulated depreciation and impairment. Cost comprises the initial acquisition price plus all directly attributable costs. Cost of assets constructed by the company comprises the cost of materials and services, direct labour and an appropriate proportion of directly attributable overhead costs.

Financing costs

Financing costs directly attributable to the purchase, construction or production of an eligible asset are recognised in cost in accordance with IAS 23. If an asset comprises multiple components with differing useful lives, these components are recognised separately.

Subsequent expenditure

Expenses incurred at a later date are only added to the book value of an asset if and to the extent that the condition of the asset is improved compared to the originally formulated performance standards. Repair and maintenance costs are recognised as an expense in the period in which the costs are incurred. If an asset comprises multiple components with differing useful lives, these components are recognised separately. Costs incurred to replace components of property, plant and equipment that are replaced for the asset to be capable of operating in the intended manner are capitalised while simultaneously removing the book value of the replaced components.

Depreciation/amortisation

Depreciation is recognised in the income statement using the straight-line method based on estimated useful life, taking into account the estimated residual value. Specifically for gas-related assets (other than customer meters), the company applies a declining-balance method due to the expected decrease in the number of gas grid users, taking into account an estimated acceleration factor of 1.2 based on expected future usage (2022: 1.2), useful life and residual value. Usage, useful life and residual value are reassessed annually and any changes are recognised prospectively. Land, sites and assets under construction are not depreciated.

Change in accounting policy for the valuation of property, plant and equipment

Up to and including the 2022 financial statements, Stedin valued its networks and network-related assets in the regulated electricity and gas domain (regulated networks) on the basis of the revaluation model (fair value at the date of the revaluation less accumulated depreciation and impairment losses). With effect from the financial statements 2023, these regulated networks are valued based on the cost model in IAS 16 and are part of the asset category ‘Networks’ in order to improve Stedin’s comparability with the other regional grid managers.

The change in accounting policy has been recognised with retrospective effect from 1 January 2022 and has the following impact on the consolidated balance sheet as at 1 January and 31 December 2022:

Depreciation in 2022 decreased by € 50 million and the result after income tax and total comprehensive income for 2022 increased by € 37 million compared with the 2022 financial statements.

Stedin Group as lessee

Upon commencement of a contract, Stedin Group determines whether it is a lease or includes a lease component. A contract is a lease if the contract grants the right to exercise control over the use of an identified asset during a certain period, in exchange for consideration. With respect to each lease in which Stedin Group is the lessee, Stedin Group calculates a right-of-use asset and a corresponding lease liability, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases with a value of € 5,000 or less. Stedin Group recognises the lease payments for these leases on a straight-line basis as operational expenses in the income statement.

The lease liability is initially measured at the present value of the future lease payments, discounted by using the interest rate implicit in the lease. If this rate cannot be readily determined, the lessee uses the incremental borrowing rate. The incremental borrowing rate is based on the risk-free market interest rate, increased by a risk premium applying specifically to Stedin Group for a similar term and with a similar security as that which Stedin Group would have to pay in order to borrow the funds necessary to obtain a similar asset.

Lease payments that are included in the measurement of the lease liability comprise:

• fixed lease payments, less any rent reductions and/or investment contributions;

• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

• payments of penalties for terminating the lease, if it is reasonably certain that the lessee will exercise the option to terminate the lease.
  

The lease liability is subsequently increased each month to reflect the interest on the lease liability and decreased to reflect the lease payments.

Stedin Group remeasures the lease liability and the right-of-use assets whenever:

• the lease term has changed or the expectation of the exercise of an extension option, termination option or purchase option has changed;

• the lease payments change due to indexation, for instance; and/or

• a lease contract is modified.
  

On the commencement date, the right-of-use asset is measured at cost. This cost price consists of the amount of the initial statement of the lease liability, the initial direct costs incurred and the lease payments made on or before the commencement date, minus all the lease incentives received.

Stedin Group determines the lease period as the non-cancellable period of a lease, together with:

• periods covered by an option to extend the lease if Stedin Group is reasonably certain to exercise that option; and

• periods covered by an option to terminate the lease if Stedin Group is reasonably certain not to exercise that option.
  

In this assessment, Stedin Group considers all relevant facts and circumstances that create an economic incentive to exercise the option to extend the lease or not to exercise the option to terminate the lease.

Variable leases that do not depend on an index or rate are not included in the measurement of the lease liability and the right- of-use asset. The related payments are recognised as an expense in the income statement.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components and instead account for any lease and associated non-lease components as a single arrangement. Stedin Group does not apply this simplification.

The right-of-use asset is periodically assessed, in accordance with IAS 36, to determine whether events or changes apply that may indicate impairment.

Leases are recognised in the balance sheet under right-of-use assets and lease liabilities. Depreciation on right-of-use assets is recognised in depreciation, and the interest expense is recognised in financial expenses in the income statement. Cash flows relating to the leases are shown separately in the cash flow statement.

Stedin as lessor

Stedin Group leases a number of business premises and transformers to third parties. The assets are recognised by Stedin Group in property, plant and equipment. Lease revenues are recognised in equal amounts through the income statement of Stedin Group as net revenue and other income over the term of the lease.

Depreciation/amortisation

Amortisation is recognised in the consolidated income statement using the straight-line method based on the estimated lease term of the right-of-use asset. The lease term is assessed when the lease contracts are changed and the lease term can be terminated or renewed, based on the lease contract.

The following useful lives are applied:

The acquisition price of a subsidiary is equal to the amount paid to acquire it. When this acquisition price exceeds the share in the fair value of the identifiable assets and liabilities on the acquisition date, the excess is recognised as goodwill. Any shortfall is recognised as a gain in profit or loss.

Goodwill is measured at cost less impairment. Goodwill is not amortised. Goodwill is allocated to one or more cash-generating units. Goodwill is tested for impairment annually.

Goodwill purchased on acquisition of subsidiaries is recognised in the balance sheet under intangible assets.

Other intangible assets comprise software, concessions, licences, rights and development costs. The related costs are capitalised if it is probable that these assets will generate economic benefits and their costs can be reliably measured. Other intangible assets have a finite useful life and are recognised at cost less accumulated amortisation and impairment.

Software

Software is capitalised at cost. Cost of customised software comprises the one-time cost of acquiring it. Costs of software maintenance are recognised as an expense in the period in which they are incurred.

Depreciation/amortisation

Amortisation is recognised as an expense on the basis of the estimated useful life from the time that the relevant asset is available for use. Other intangible assets are amortised using the straight-line method. The residual value of these assets is nil. Amortisation is presented in the income statement as a component of ‘Depreciation, amortisation and impairments of non-current assets’.

The following useful lives are applied:

Current tax assets concern amounts recoverable and current tax liabilities concern amounts payable to the Tax and Customs Administration. Current taxes are stated at nominal value.

Deferred taxes are calculated for temporary differences between the tax bases and book values of assets and liabilities, unless they fall within the scope of the initial recognition exception, as well as for unused tax losses and tax credits. Deferred taxes are measured using the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on applicable tax rates and tax laws. Deferred taxes are stated at nominal value.

Deferred tax assets for deductible temporary differences, tax losses carried forward and unused tax credits available for set-off are only recognised if, and to the extent that, it is probable that future taxable profit will be available against which unused tax losses and unused tax credits can be utilised.

Deferred tax assets for deductible temporary differences relating to investments in subsidiaries, joint operations, and interests in associates as well as joint ventures are only recognised if it is probable that the temporary difference will reverse in the near future and that future taxable profit will be available against which the deductible temporary difference can be utilised.

Deferred tax liabilities are recognised for all taxable temporary differences arising from investments in subsidiaries, joint operations and interests in associates and joint ventures, unless Stedin Group can determine the time at which the temporary difference will reverse and it is probable that the temporary difference will not reverse in the near future.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off tax assets against tax liabilities and if the deferred tax assets and liabilities relate to taxes levied by the same tax authority on the same fiscal unity.

Hedge accounting

Derivatives are classified as hedging instruments if they are used to hedge the risk of fluctuations in current or future cash flows or fluctuations in the fair value of assets or liabilities. If the hedge can be attributed to a specific risk or to the full movement in the transaction associated with an asset, liability or highly probable forecast transaction or balance sheet item, the attributed derivatives are recognised as hedging instruments.

The positive book values of derivatives have been recognised as such under non-current and current assets. The negative book values of derivatives have been recognised under non-current and current liabilities.

Cash flow hedge accounting

Cash flow hedge accounting aims to mitigate volatility in future cash flows due to currency risk and interest rate risk. If the conditions for cash flow hedge accounting are met, the effective portion of movements in the fair value of derivatives is recognised in the Consolidated statement of comprehensive income as ‘Unrealised gains and losses on cash flow hedges’. The ineffective portion is recognised directly in the income statement. These changes (net of income tax) are then recognised in the cash flow hedge reserve in group equity or in the cost of hedging reserve. Components that could cause the hedge to be ineffective are excluded from the hedging relationship and amortised in the cost of hedging reserve over the term of the hedged instrument.

Amounts recognised in group equity are transferred to the consolidated income statement when the hedged asset or liability is settled or otherwise affects the result. When a hedging instrument expires or is sold, terminated or exercised, or when the conditions for hedge accounting are no longer met although the underlying future transaction has yet to take place, the accumulated result remains in group equity (in the cash flow hedge reserve) until the forecast transaction has taken place. If the forecast transaction is no longer likely to take place, the accumulated result is transferred directly from group equity to the consolidated income statement.

Pre-hedges

Pre-hedges comprise interest-rate derivatives that are entered into prior to entering into the loan to which the pre-hedge concerned relates. When entering into this type of derivative, Stedin Group enters into an obligation where the fixed interest is locked in in advance (‘interest rate swap’) with an effective date in the future (‘forward starting’) for a selected term. The reason for entering into such an obligation is to effect a financing arrangement at an interest rate close to the average market rate in a financial year, in line with the method used in regulation.

Cash flow hedge accounting is applied for these derivatives. Therefore, any net changes in market value of the derivatives are recognised in Stedin Group’s equity.

Fair value hedge accounting

Fair value hedge accounting is applied to mitigate the risk of changes in the fair value of the hedged positions. If the conditions for fair value hedge accounting are met, the change in the fair value of the relevant positions is recognised in the income statement in addition to the change in fair value of the derivative (including any ineffective portion). The ineffective portion is therefore recognised directly through the income statement.

When the hedge is terminated (due to early settlement of the derivative), the cumulative change in value in the balance sheet is amortised over the remaining term of the hedged instrument.

Other non-current financial assets are mainly long-term items with a term of more than one year, such as loans, receivables and prepayments to associates, joint ventures or third parties. Long-term receivables, loans and prepayments are measured at amortised cost using the effective interest method.

Assets/liabilities held for sale and operations to be disposed are classified as held for sale as soon it is expected that the book value will be realised by means of a sale rather than through continued use. This classification is only made if it is highly probable that the assets/liabilities or operations are available for immediate sale in their present condition and the sale is expected to be completed within one year.

Assets/liabilities held for sale are measured at the lower of the book value preceding classification as held for sale and fair value less costs to sell.

Inventories are recognised at the lower of weighted average cost and direct net realisable value. Cost of inventories is the purchase price including directly attributable costs incurred to bring the inventories to their present location in their present condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to sell. Impairment of inventories is recognised through the consolidated income statement if the book value exceeds the book value.

Trade and other receivables have a term of less than one year. This item also includes amounts at the reporting date that have yet to be invoiced for services supplied. On initial recognition, receivables are accounted for at amortised cost less impairment losses due to expected losses for bad debts in connection with credit risk.

The expected credit losses are estimated on the basis of the credit quality of the counterparty on the basis of individual estimates or estimates for a portfolio of similar receivables. For the assessment of risks in 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.

Receivables are written off when it is clear that the debtor will no longer be able to pay.

Cash and cash equivalents includes bank balances and money market funds. The money market funds held classify as cash equivalents and are measured at fair value (level 1).

The perpetual subordinated bond loan is classified as equity in the consolidated financial statements in accordance with the contractual conditions for the instrument.

The principal of the perpetual subordinated bond loan is presented at nominal value. The transaction costs paid are charged to retained profit when the loan is issued. As a result of the coupon interest payable annually (the payment of which is at the company’s discretion) and the associated tax effects, a portion of the result after income tax within equity is allocated to the perpetual bond.

Pensions

The pension liabilities of almost all business units have been placed with the industry-wide pension funds: Stichting Pensioenfonds ABP (ABP) and Stichting Pensioenfonds Metaal en Techniek (PMT). A limited number of employees have individual plans insured with various insurance companies.

The amount of the pension depends on age, salary and years of service. Employees may opt to retire earlier or later than the state retirement age, in which case their pension is adjusted accordingly. Retiring later than the state retirement age is only possible with Stedin’s consent. At ABP, employees can retire between 60 and the state retirement age plus 5 years. At PMT, this is between five years before and five years after the state retirement age.

The most important pension plans, which have been placed with ABP, are group plans in which several employers participate. Stedin’s share in these group plans is unknown. These plans are essentially defined benefit plans. However, as Stedin has no access to the required information and because participation in the group plans exposes Stedin to actuarial risks connected with present and former employees of other entities, these plans are treated as defined contribution plans, and the pension contributions payable for the financial year are accounted for as pension expenses in the financial statements. Pension contributions are indexed annually. There are no catch-up payments or discounts.

Other provisions for employee benefits

A provision is recognised for the obligation of Stedin Group to pay out amounts related to long-service benefits and on the retirement of employees. A provision is also recognised for the obligation of Stedin Group to contribute towards the health insurance premiums of retired employees, salary payments in the event of illness and the employer's risk under the Unemployment Insurance Act (Werkloosheidswet). Where appropriate, these liabilities are calculated at the reporting date using the projected unit credit method, using a pre-tax discount rate that reflects the current market assessment of the time value of money.

A provision is recognised when there is a present legal or constructive obligation that is of an uncertain amount or timing due to a past event, the settlement of which will probably lead to an outflow of resources.

Provisions that will be settled within one year of the reporting date, or that are of limited material significance, are recognised at face value. Other provisions are recognised at the present value of the expected expenditure. The specific risks inherent to the relevant obligation are taken into account when determining this expenditure. The present value is calculated using a pretax discount rate that reflects the current market assessment of the time value of money. The expected expenditure is determined based on detailed plans in order to limit the uncertainty regarding the amount.

On initial recognition, interest-bearing debt is carried at fair value less directly attributable transaction costs. Subsequent to initial recognition, interest-bearing debt is recognised at amortised cost using the effective interest method.

Trade and other liabilities are recognised at fair value when first shown on the balance sheet. They are subsequently carried at amortised cost. Liabilities with a term of less than one year are not discounted on initial recognition. In view of their short-term nature, trade and other liabilities are recognised at face value.

Government grants are not recognised until there is reasonable assurance that the grant will be received and that the grant conditions will be met. Investment grants are deducted from the cost of the asset. Operating grants are presented as part of other income.

If it cannot yet be stated with reasonable certainty that all conditions will be met, grants received are recognised as other liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value can be measured in various ways, and depending on the use of observable inputs, the value is classified into the following categories:

Level 1

Level 1 recognises financial instruments whose fair value is measured using unadjusted quoted prices in active markets for identical instruments.

Level 2

Level 2 recognises financial instruments whose fair value is measured using market prices or pricing statements and other available information. Where possible, the measurement method uses observable market prices. Contracts for derivatives are measured by agreement with the counterparty, using observable interest rate and foreign currency forward curves.

Level 3

Level 3 recognises financial instruments whose fair value is measured using calculations involving one or more significant inputs that are not based on observable market data.