Financially healthy

^{* The developments around the capital reinforcement by the Dutch State in 2023 led to an adjustment of the FFO/Net Debt target from 12% to 10% during 2023.}

Financial developments

Dutch State has joined as shareholder

In 2023, the Dutch State and the Shareholders’ Committee of Stedin Group reached an agreement on the State joining Stedin as a shareholder. With the consent of the States General and Stedin’s shareholders, the participation of the Dutch State became a fact on December 8. The Dutch State reinforced Stedin’s equity by contributing € 500 million in exchange for an 11.9% equity stake. The € 500 million in additional capital will enable us to keep making the investments needed to reinforce and expand the electricity grid.

Dialogue with (as yet) non-shareholding municipalities and provinces

After a period of exploratory talks, the province of Zeeland intends to take a decision to reinforce Stedin’s equity by contributing € 5 million. The province of Utrecht has indicated its intention to pay an equity contribution of € 15 million. If these intentions should be converted into an actual equity contribution, this will broaden our shareholder base from the second quarter of 2024. With the provinces of Zeeland and Utrecht as shareholders, all the regions in our service area will be represented. This will foster the successful cooperation required to achieve the task we are facing in all these regions. Stedin’s current shareholders will take a decision on this at the end of March 2024. Several municipalities in the service area have also expressed an interest in becoming shareholders, and discussions with these municipalities are still ongoing.

More financial headroom as a result of CBb ruling

In July 2023, the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven, CBb) ruled that the ACM had to adjust the method decisions for electricity and gas for the current regulation period (2022-2026) on a number of points. These method decisions are used for calculating the tariffs we are allowed to charge our customers. As a result of the CBb ruling, future tariffs are expected to increase. These adjustments will create more financial headroom for grid managers. In order to prevent tariff shocks for households and businesses, the ACM decided to spread out this additional income for the regional grid managers over a period of three years. Stedin factored the first advance into its tariffs for 2024, as did the other regional grid managers.

Capital requirement

Because of the capital injection by the State and the potential capital reinforcements by the province of Zeeland, the province of Utrecht and various municipalities, the fact that Stedin obtained the status of a ‘Government Related Entity’ (see below under ‘Credit rating’) and the expected additional financial headroom created by the CBb’s ruling, a significant part of our capital requirement for the coming years has been met. Any (remaining) capital requirement existing in the future will be determined in any case before the start of the new regulation period in 2027.

Green bonds

Timely and sufficient availability of funding on the most favourable terms continues to be a key precondition for achieving our strategy.

The European capital market offers us the opportunity to raise funding on favourable terms and to attract sustainable investors. This is in line with our aim to finance our operations by issuing green bonds. Until the end of 2023, Stedin issued € 1.5 billion in green bonds. We invest this capital in the management, expansion and reinforcement of the electricity grid in order to facilitate the energy transition.

Financial performance

Credit rating

The long-term objective of Stedin Group is to retain its A- credit rating with a stable outlook, as issued by Standard & Poor’s (S&P). In anticipation of a possible capital contribution, an framework agreement was arranged early in 2023 between the Dutch State and the three grid managers Alliander, Enexis and Stedin. After reviewing this framework agreement, S&P awarded all three grid managers the ‘Government Related Entity’ status. Obtaining the ‘Government Related Entity’ status made it possible to downwardly adjust our annual FFO/Net Debt target associated with retaining an A- rating to 10% (previously 12%). On 8 February 2024, S&P reaffirmed Stedin’s credit rating of A- with a stable outlook.

FFO/Net Debt ratio

At 14.0 the FFO was significantly higher than in 2022 (2022: 9.5) and higher than our target of 10%. In 2023, this ratio was affected by two major developments in particular. The FFO was higher, driven by an increase in operating revenue which in 2023 included compensation for higher costs of network losses incurred in both 2022 and 2023. In addition, the net debt decreased as a result of the issue of shares worth € 500 million.

Solvency

As at 31 December 2023, our solvency ratio was 45.4% (2022: 39.7%). This development has also led to a change in Stedin Group’s financial policy. The long-term aim is to maintain a minimum annual solvency ratio of 35% instead of 40%. The joining of the Dutch State as a shareholder has had a positive impact on our solvency. 

Financial results

Stedin Group achieved a net profit of € 170 million in 2023 (2022: €81 million). The additional tariff headroom received in 2023 was sufficient to absorb the increase in energy costs and costs charged by TenneT.

Net revenue and other income

Net revenue and other income in 2023 was €1,770 million. This was €437 million more than in 2022. The increase was mainly due to higher transmission revenues as a result of an increase in our tariffs. The tariff increase relates primarily to the additional tariff headroom we received in 2023 on account of a rise in energy prices, the knock-on effect of the relatively high inflation rate in 2022 and increased costs of TenneT. These cost increases are passed on to consumers via the grid managers’ tariffs. Higher energy prices have a direct impact on the costs of the network losses occurring during the transmission of gas and electricity. To ensure that the higher network losses do not reduce the scope for investments in projects that are important for the energy transition, the Netherlands Authority for Consumers and Markets (ACM) in 2022 decided to allow the regional grid managers to pass on an advance charge in the tariffs for 2023 to cover these losses. Metering revenue fell by €25 million compared with 2022 on account of lower metering tariffs.

Total operating expenses

In 2023, total operating expenses increased by €280 million (23%) to €1,477 driven by the increase of €95 million in costs of network losses, the increase of €93million in TenneT’s transmission costs, the increase of € 71 million in personnel expenses and the increase of €29 million in other operating expenses. This was partly offset by an increase of the capitalised own production by €33 million. Finally, depreciation charges increased by €11 million compared with 2022.

Due to the soaring energy prices, which had been partly fixed in the previous year, the costs for network losses increased considerably. The grid manager is responsible for the purchasing of energy that is made available on the grid but not registered as sold to customers. This lost energy is known as network loss. The losses have both physical and non-physical causes, such as heating of cables, leakage currents, vacancy and fraud. In its energy purchasing strategy, Stedin tries to limit the effect of short-term fluctuations in energy prices, which improves the quality of financial forecasts. Unfortunately, we are unable to prevent long-term price increases. Therefore, in addition to its purchasing strategy, Stedin also focuses on other measures to minimise network losses. For example, it is implementing process optimisations with several of its internal departments.

The increased energy prices and high inflation rate also have a knock-on effect on the transmission costs charged by TenneT, the wages and salaries of our own employees and the fees of hired-in workers. 

The rise in depreciation charges can be largely attributed to the increase in investments in property, plant and equipment. 

Income tax

The profit before income tax for 2023 amounted to €228 million (2022: € 109 million). The tax expense increased by €30 million in 2023 to €58 million, partly due to the higher profit before income tax. In 2023, the effective tax rate, expressed as a percentage of profit from continuing operations before income tax, was 25.6% (2022: 25.5%). Deferred tax assets and liabilities were measured as at 31 December 2023 on the basis of the current tax rate of 25.8%.

Cash flows / financing

This year, the increased investments led to a negative cash flow after operating and investing activities of € 262 million (2022: € 297 million negative). In 2023, the negative cash flow was financed through an issue of shares worth € 500 million to the Dutch State. As a result, the total cash flow from financing activities increased to €397 million (2022: €217 million). The total cash flows for the year resulted in €188 million in cash and cash equivalents as at year-end (2022: €53 million).