Report of the Supervisory Board

In this report, the Supervisory Board renders account on the performance of its activities in 2019.

During 2019, Stedin Group continued to strengthen its strategic role in the energy transition. Stedin is increasingly successful in coordinating the transition with its stakeholders and has a clear picture of its playing field. For example, Stedin is well represented in the developments concerning the Climate Agreement. The chair of the Board of Management has been appointed as a member of the advisory council of the Climate Agreement on Industry Infrastructure Task Force. His other positions include that of member of the Cyber Security Board Netherlands. We are seeing that the strategic choice for a ‘focus on grid management’ continues to demand considerable management attention for operations. In addition, specific attention was devoted this year to the strategic spearhead ‘Sustainable business operations’, particularly the objective ‘Financially healthy’.

From left to right: Theo Eysink, Pieter Trienekens, Hanne Buis, Doede Vierstra, Annie Krist, Dick van Well

Topics

Disposal of non-regulated activities

Besides regular topics, there were various developments in 2019 that are worthy of note. One of these was the sale of Joulz Diensten; the activities within that part of the organisation were no longer aligned with the strategy of Stedin Group, whose focus has shifted to grid management activities. The Supervisory Board was closely involved in this process. In a diligent manner, which was coordinated with the Supervisory Board, it was established exactly which activities this concerned, how these could be unbundled, how the interests of customers and employees could be respected, and which parties would be suitable takeover candidates. This process eventually resulted in a successful sale to 3i Infrastructure on 30 April 2019.

Treasury

Both the Audit Committee and the Supervisory Board regularly devoted attention to treasury-related matters, such as the issue of a green bond in the autumn. We are pleased with the B rating for sustainability that we were awarded by the leading rating agency ISS ESG. Stedin Group is therefore among the top performers within its sector in Europe. We are seeing that investors attach increasing value to sustainable business operations in all areas.

Remuneration policy

Some details of the remuneration policy adopted in 2018 were modified as from 1 January 2019 within the framework arising from the Executive Pay (Standards) Act (Wet normering topinkomens, WNT). The changes concern the fixedexpense allowance and a periodic recalibration of the mobility policy.

Shareholders and long-term financing

The governance agreements made in 2018 have also had an effect on the annual planning process and shareholders' involvement in that process. By contrast to prior years, shareholders are given an early opportunity to issue advice on the regulated portion of Stedin Group's annual plan. The advice of the General Meeting of Shareholders on the 2019 Stedin Group Annual Plan 2019, regulated domain, was put to the vote in the Extraordinary Meeting of Shareholders on 6 February 2019. Partly in response to the matters discussed at that meeting, the management decided to correct the proposal for the intended dividend for 2019 on a once-only basis in consultation with the Supervisory Board. More information on this topic is provided in the Profit appropriation section in the financial statements.

A joint working group was also established that focuses on long-term financing. In this working group, Stedin and a delegation of the shareholders examine the possibilities for ensuring that the energy transition can continue to be financed in the long term, each assisted by their advisers. The Supervisory Board sets great store by constructive consultation between Stedin and its shareholders. The financing or pre-financing of the energy transition in the current regulatory model is a financial challenge for grid managers and hence for Stedin Group as well. This challenge places great demands on the organisation as well as on its shareholders.

‘In this process, ‘transitioning together' is a necessity and a challenge.’

The Supervisory Board welcomes the way in which both the organisation and the shareholders are stepping up to assume their responsibilities in this process. The Supervisory Board is closely involved in this matter. The Supervisory Board attaches great importance to the working group's basic objective of retaining Stedin Group's present credit rating (A-) in the future as well. The adoption of this basic objective by the shareholders during their meeting in September provides a clear indication that the importance of an affordable energy transition is also endorsed on their part.

Other important topics

Other noteworthy topics that required attention from the Supervisory Board in 2019 included the developments in the fields of data, heat and hydrogen; the Climate Agreement; the Control Framework; the granting of a licence to Utility Connect and the 2020–2025 Stedin Group Vision. Safety was also regularly discussed. It is good to see that the many efforts which have been undertaken as well as the focus on safety are reflected in an improvement of the safety metrics LTIR and RIF.

With regard to sustainability, the Supervisory Board is proud that Stedin issued its first green bond in November. In the opinion of the Supervisory Board, this issue fits well into Stedin Group's strategy of contributing to the increased sustainability of our society.

The Supervisory Board would like to express its appreciation for the way in which Stedin acted following the gas explosion at Jan van der Heijdenstraat in The Hague. By immediately looking to contact those affected and being there for them, Stedin embodied its role in society. We very much regret the fact that people were injured.

The Supervisory Board is systematically updated on progress on the strategy of Stedin Group and its strategic KPIs, which relates to financial as well as non-financial KPIs and objectives.

'The future of the gas grid' was the subject of an in-depth session for the Supervisory Board on 28 June. This subject was considered in detail at a strategic level; for instance, in connection with the test beds for gas-free areas as designated by municipalities. Extensive information was also provided on the multidisciplinary approach to underground projects, which is one of the strategic initiatives. Lastly, there was an instructive tour of the in-house training school, the switching centre and the Innovation Lab.

Stedin Group pursues long-term value creation by directing and managing its material topics. The Supervisory Board monitors the way in which the Board of Management implements this aim. In 2019, the material topics of Stedin Group were recalibrated and prioritised by the Board of Management (see ‘Stakeholders and materiality’). In its meeting of 9 December, the Supervisory Board discussed this recalibration and endorsed the adoption as well as the prioritisation of the material topics.

Lastly, in December 2019, the Supervisory Board considered in detail the 2020 Annual Plan and the financial multi-year planning. The Supervisory Board sees numerous challenges facing the organisation; applying focus, making choices, and managing the strategic initiatives are regular topics of discussion between the Supervisory Board and the Board of Management.

The Supervisory Board feels that it is being sufficiently involved in the developments in the business and the challenges facing Stedin Group. The Supervisory Board would like to express its appreciation for this to the Board of Management and the employees.

Working method and meetings

Six regular meetings of the Supervisory Board were held in 2019, several of which were held by telephone. On several occasions, decisions were taken outside a regular meeting, which were always confirmed at the next regular meeting, as prescribed in the Supervisory Board terms of reference. The Supervisory Board held brief consultations, behind closed doors, before the regular meetings; as a standard procedure, there was always room for evaluation after the meeting in the presence of the CEO. In addition, the chairpersons of the Board of Management and the Supervisory Board held regular consultations on the main issues in 2019.

The full Board of Management attended the Supervisory Board meetings. In addition, various members of management attended Supervisory Board meetings as guests. If a Supervisory Board member was unable to attend a meeting, this was due to other commitments and the member concerned provided his or her input in advance.

Suzanne van Nieuwenhuijzen-Ruijtenberg serves as company secretary. She has delegated part of her duties with regard to the Audit Committee to Jaap Versluis, Manager Business Control. Some of the duties for the Selection, Remuneration and Appointments Committee were delegated to Elise Reedeker, Corporate Affairs department. The agendas of the Supervisory Board meetings were prepared by the company secretary, in consultation with the chairs of the Board of Management and the Supervisory Board.

Attendance rate of Supervisory Board members at meetings

Name

Supervisory Board meeting

Audit
Committee

Selection, Remuneration
and Appointments Committee

Pieter Trienekens

100%

100%

Theo Eysink

83%

100%

Dick van Well

83%

100%*

100%

Annie Krist

100%

100%

Hanne Buis

100%

100%

Doede Vierstra

100%**

  1. * During the fourth quarter of 2019, Dick van Well became a member of the Audit Committee.
  2. * Doede Vierstra became a member of the Supervisory Board on 20 September 2019.

Committees

The Supervisory Board has two committees: the Audit Committee as well as the combined Selection, Remuneration and Appointments Committee (SRA Committee). The committees prepare decision-making for the Supervisory Board in the area of responsibility concerned and advise the Supervisory Board. Decision-making takes place in a Supervisory Board meeting in which all members are present. All members of the Supervisory Board have access to the documents of the committees and the draft minutes of committee meetings are distributed in the next Supervisory Board meeting to be held, where they are discussed orally by the chair of the committee.

Audit Committee

The Audit Committee held four regular meetings in 2019. Those meetings are always attended by the CFO, the Internal Audit manager and the external auditor. The Compliance Officer attends as a guest at least twice a year. In addition to the regular topics, specific attention was devoted to long-term financing and treasury, the internal control framework and various internal audits.

On two occasions (in September and November 2019), the Audit Committee discussed the Internal Control Framework that Stedin is establishing. The Audit Committee welcomes the fact that this project has been initiated. It monitored this project during the year and saw that good progress was achieved. This topic will continue to require significant attention in 2020 as well.

Selection, Remuneration and Appointments Committee

The Selection, Remuneration and Appointments Committee held three live meetings in 2019 and one meeting by telephone. There were five formal moments of consultation with the delegation of shareholders, which concerned the amendment of the remuneration policy as well as the recruitment and selection of a new member of the Supervisory Board, who would also be the intended chair of the Supervisory Board. The remuneration of the Board of Management members and Supervisory Board members for 2019, which is in accordance with the adopted remuneration policy and which respects the limits of the Executive Pay (Standards) Act (Wet normering topinkomens, WNT), is described in the Remuneration report for 2019 section.

A new member of the Supervisory Board

The chair of the Supervisory Board was reappointed for one year, until 1 February 2020, in the General Meeting of Shareholders of 6 February 2019. With a view to the end of that period, the search commenced for a new member of the Supervisory Board, who would also take on the role of chair. This was done in consultation with the Works Council and – in accordance with the shareholders covenant – with a delegation from the shareholders' committee. The meetings with the shareholders' committee delegation were led by Supervisory Board member Dick van Well (who also chairs the Selection, Remuneration and Appointments Committee), assisted by the HR Director and the Administrative Affairs department. The composition of the Supervisory Board, also with regard to expertise and diversity, was emphatically considered in this recruitment process. In the person of Doede Vierstra, we believe to have found a worthy successor to Pieter Trienekens. Mr Vierstra was appointed in the Extraordinary Meeting of Shareholders on 20 September 2019, following which the Supervisory Board temporarily (until 1 February 2020) consisted of six members.

Self-assessment and education

The self-assessment of the Supervisory Board that took place at the end of 2018 with the support of an external consultant was a specific topic of discussion in 2019. The outcome of the self-assessment was discussed among the members of the Supervisory Board before the meeting of 6 February 2019. While the overall trend was positive, it was agreed to step up the focus on risk management and its follow-up as well as to tighten the focus in the company's strategy. Points requiring attention were also identified for individual Supervisory Board members, and a number of areas for improvement were designated that relate to the communication between the Supervisory Board and the Board of Management. Explanatory information on the outcome was provided to the Board of Management. Additionally, the members of the Supervisory Board and the Board of Management engaged in extensive discussions on various topics in the in-depth session at the end of June, assisted by the HR Director. The Supervisory Board would like to take this opportunity to express its appreciation for the process that was followed and the in-depth insights to which it led.

The new member of the Supervisory Board, Doede Vierstra, followed an induction programme after his appointment. In that connection, he spoke with various line managers and support department managers, and was given a tour of the Network Operations Centre (NOC). In an in-depth session, the Supervisory Board (also see above) was extensively updated on the future of the gas grid and Stedin Group's role. In addition, various Supervisory Board members individually engaged in walkabouts and/or held talks with employees in the organisation.

Independence of members of the Supervisory Board

The articles of association and the terms of reference of the Supervisory Board include provisions on the independence of Supervisory Board members.

The composition of the Supervisory Board is such that its members are able to operate independently and critically vis-à-vis one another, the Board of Management and any particular interests involved. With one exception, the members of the Supervisory Board are independent within the meaning of the Electricity Act and the Gas Act. This means that they have no direct or indirect ties with any producer, supplier or trader of electricity or gas. This does not apply to Annie Krist, who also serves as the CEO of GasTerra. Including this exception, Stedin therefore complies with the legal requirements under the Gas Act and the Electricity Act. With effect from 1 February 2020, all Supervisory Board members are independent under the provisions of the Corporate Governance Code; an exception used to be made for the chair (see the section Corporate Governance).

Ancillary positions are reported to the chair and the secretary of the Supervisory Board. None of the Supervisory Board members exceeds the maximum number of supervisory positions at large Dutch companies or major foundations. The topic of ‘ancillary positions’ was discussed last year in the Supervisory Board meeting on 20 September 2019.

No material transactions occurred in 2019 that involved potential conflicts of interests between the company and Supervisory Board members.

Contacts with shareholders

The good contacts with the shareholders were continued in 2019. Four meetings of shareholders, including extraordinary meetings, were held in 2019; room was deliberately made for informal contacts in connection with those meetings. Those meetings were always well attended by the members of the Supervisory Board. In June, Stedin organised a meeting in Rozenburg on hydrogen; again, this meeting was attended both by shareholders and by a delegation of the Supervisory Board. A detailed information meeting for shareholders about the energy transition took place in December 2019. At this meeting, Stedin Group provided insight into such matters as the challenges that it needs to coordinate with a view to the energy transition and the topic ‘Stedin in 2025’. This meeting was also attended by a delegation from the Supervisory Board.

The Supervisory Board welcomes the continuation of the good relationship and constructive cooperation with the shareholders in the past year, for which a sound basis had already been created in 2017 and 2018.

'Stedin in 2025' was the theme of the meeting with shareholders at Stedin's Keileweg location in Rotterdam. Alongside city councillors and civil servants with responsibility for sustainability and/or finance, we contemplated the ways in which we are currently working on the world of tomorrow.

Contacts with the Works Council

We set great store by a good relationship with the Works Council, as this helps us remainin touch with current developments and concerns within the organisation. To that end, the Supervisory Board, the Board of Management and the Works Council met twice in 2019 in what is known as the tripartite consultation. At the meeting in June, various new members of the Works Council (including its new chair) were introduced and Stedin Group's Vision for 2025 was jointly considered. The meeting in December focused on good leadership and the employee motivation survey. In addition, one meeting of the Works Council is attended by a Supervisory Board member each year. Furthermore, one of the members of the Supervisory Board also played a part in the external training programme for new members of the Works Council.

The Supervisory Board wishes to thank the employees, management, the Works Council as well as the Board of Management for their considerable involvement and commitment. Each and every day, our organisation is working on one of the most reliable grids in the world. Customer satisfaction continued to increase and the strategy of Stedin Group is increasingly taking shape, which are important indicators for the future.

Rotterdam, 23 March 2020

The Supervisory Board

Doede Vierstra (chair)
Hanne Buis
Theo Eysink
Annie Krist
Dick van Well