30. Financing policy and risks associated with financial instruments

General

The financing policy of Enexis Groep is aimed at securing the independent financing of Enexis by providing timely, permanent, and sufficient access to capital and money markets while optimising the financing structure, costs, and risks. The execution of the financing policy is laid down in the Treasury Charter, which contains the Treasury Department's objectives, task description, mandate, reporting, risk management, and organisational and administrative frameworks for financing.

Enexis Groep's funding takes place through external funding raised by Enexis Holding N.V., which funding is then loaned inter-company to the group companies. As part of its business operations, Enexis Holding N.V. is exposed to several risks, including market, credit, solvency, liquidity, and process risks. One of the financing policy's objectives is to minimise the above-mentioned risks' effect on the financial results and equity position. Enexis Holding N.V. can use financial instruments and derivatives for this purpose.

Market risk

Market risk relates to changes in the value of cash flows and financial instruments due to changes in market interest rates, foreign exchange rates, and market prices. Enexis Holding N.V. and its group companies do not hold any financial instruments for trading purposes.

Market risk consists of interest rate risk, foreign exchange rate risk, and commodity price risk:

Interest rate risk

The interest rate risk partly consists of the risk that the interest component in the regulatory return will be lower in the future. This will have a dampening effect on Enexis’ income. The compensation for interest expenses may also be lower than the interest payments in existing loan agreements. At the same time, there is also a risk that the interest rates to be paid for future financing will be higher than the current market interest rate. Furthermore, there is a risk that a financial instrument's value will change due to fluctuations in market interest rates.

The basis for the interest rate risk policy is diversification. By means of diversification in refinancing, financing, and maturities of loans, interest rate fixing, and interest-typical maturity (fixed or floating), type of loan, and possibly geographical diversification over financing markets, availability is ensured and the interest rate risk is reduced.

Within the adopted policy, Enexis Holding N.V. has the option to use derivatives to hedge specific risk positions, including but not limited to the interest rate risk. As in 2023, Enexis Holding N.V. did not use derivatives to hedge interest rate risks in 2024, nor did it have any derivatives outstanding.

Receivables

Enexis limits the interest rate risk on receivables in two ways:

• By matching the maturities of the receivables, including the financial assets such as short-term deposits, with the liquidity forecast; and

• By agreeing on contractual interest rates beforehand about the financial assets until the expiry date of the concluded contracts. Only part of the surplus cash and cash equivalents may be invested with a short horizon or at a floating interest rate to ensure diversification and flexibility.

Borrowed capital

Interest-bearing loans had the following maturities, interest rates, and maturity dates at year-end 2024:

The fair value of the interest-bearing loans (excluding lease liabilities and Euro Commercial Paper) amounted to €3,251 million at year-end 2024 (year-end 2023: €2,685 million). The fair value of listed bonds is based on their listed prices, and the fair value of other loans, including the convertible hybrid shareholders’ loan, is based on the calculation method using the Euro Utility (A) BFV yield curve as of 31 December 2024. A markup for the subordinated and illiquid character of the loan is taken into account in the calculation of the fair value of the convertible hybrid shareholders’ loan. The fair value of the interest-bearing loans has increased due to the listed green bond of €500 million issued in 2024. 

At year-end 2024, all interest-bearing loans were fixed-interest loans.

The bonds concern ‘level 1’ financial instruments. For Enexis Holding N.V., this means that the fair value is based on listed prices in an active market. The other loans, including the convertible hybrid shareholders’ loan, concern ‘level 2’ financial instruments. This means that for Enexis Holding N.V., the fair value is based on discounting the nominal cash flows at applicable market discounting curves.

Foreign exchange rate risk

Enexis may be exposed to foreign exchange rate risk when issuing financial instruments and when making purchases in currencies other than the euro. Enexis Holding N.V.'s policy is to hedge most of the exchange rate risk directly when issuing financial instruments in foreign currencies.

The total amount of cash and cash equivalents, receivables, and liabilities held in foreign currencies was minimal at the end of 2024, which means that foreign exchange rate risks and sensitivity to foreign exchange rate fluctuations were not material. As in 2023, Enexis Holding N.V. did not use derivatives to hedge foreign exchange rate risks in 2024, nor does it have any derivatives outstanding to hedge foreign exchange rate risks.

Commodity price risk

Enexis is mainly exposed to fluctuations in energy prices. Grid losses are set off by means of the purchase of energy. The energy price risk is largely limited by repeatedly fixing the price several years in advance by purchasing forward contracts so that the forecast volume has already been purchased physically at the beginning of the year.

The forward contracts are concluded for own use and therefore do not qualify as derivatives in accordance with IFRS 9. Therefore, the forward contracts have not been recognised in the balance sheet at year-end 2024 (2023: not recognised either). For more information about the long-term financial liabilities in connection with forward contracts, see note 32 ‘Off-balance sheet commitments and assets’.

As the regional grid operators receive compensation in the regulation method for their efficient costs and investments, including a reasonable return, this higher cost level of distribution losses will also lead to an increase in future tariffs and, thus, an increase in revenue. Therefore, the financial consequences for Enexis are expected to be limited.

Credit risk

Credit risk is the risk of incurring a loss if a counterparty is unable or unwilling to fulfil its obligations. Most of the activities of Enexis Holding N.V. and its group companies are regulated. The debtor risks in regulated markets are lower than those in liberalised energy markets. For all low-volume consumer debtors with regard to due grid payments, the energy suppliers collect the receivables and bear the debtor risk with regard to the end customer. However, Enexis Netbeheer B.V. runs a debtor risk regarding the energy suppliers. 

The maximum credit risk is, in principle, equal to the carrying amount of the receivables and current assets.

Liquidity surpluses are placed, at market terms and conditions, with financial institutions and investment funds that are subject to the supervision of a central bank or legally appointed supervisor and with Dutch national or regional grid operators that satisfy the specified minimal rating requirements or with the Dutch government in securities guaranteed by the Dutch government. In addition, Enexis aims to spread investment risks by observing counterparty limits in combination with minimum rating requirements.

Solvency and liquidity risk

Solvency risk

Solvency risk is the risk that Enexis' equity or capital base is insufficient to allow it to meet its obligations in the long term. We aim for at least an A credit rating profile (A/A2 with a stable outlook) for both Enexis Holding N.V. and Enexis Netbeheer B.V. This objective is monitored on the basis of the defined minimum financial ratio as set out in the section ‘Capital Management’. This credit rating profile ensures that Enexis Holding N.V. has good access to international capital markets.

Liquidity risk and contractual term analysis

Liquidity risk

Liquidity risk concerns the risk that Enexis Groep will not be able to meet its short-term payment obligations.

As a minimum, Enexis Holding N.V. aims for an ‘adequate’ liquidity profile in accordance with the current definitions applied by rating agency S&P for regulated grid operators, which includes liquidity requirements always being covered for a year in advance with a safety buffer of 10%. Enexis Holding N.V. regularly evaluates and adjusts its liquidity profile for the long, medium and short term.

To hedge the liquidity risk, Enexis Holding N.V. also has a committed Revolving Credit Facility (RCF) available. In October 2024, the existing RCF of €736 million was replaced by a new RCF of €1,000 million. The new facility was agreed with the same group of 7 banks and has a maturity of 5 years.

Enexis Holding N.V. did not use this RCF in 2024; however, Enexis retains this facility for any unforeseen liquidity requirements. To retain the RCF, Enexis Holding N.V. has contractual obligations to the participating banks.

In addition to an availability fee, these obligations mainly concern providing information to the banks involved, satisfying the usual financial covenants and other general covenants that are customary for these facilities, such as pari passu and negative pledges. There are no financial covenants tied to the RCF.

In addition, Enexis concluded a €90 million loan (facility) with the European Investment Bank (EIB) in 2024. This loan (facility) is conditionally available and can be used to finance the investment programme to expand the district heating and cooling system of Mijnwater Warmte Infra in the province of Limburg. Enexis can make drawdowns under this facility in the coming 3 years with a maximum term of 10 years. No drawdowns under this facility took place in 2024.

Enexis Holding N.V. had a consolidated positive cash balance of €46 million at the end of 2024 (year-end 2023: a positive net balance of €127 million). 

Contractual term analysis

The table below shows the contractual non-discounted cash flows at year-end 2024:

The contractual and non-discounted cash flows at year-end 2023 amounted to:

Process risk

Process risk consists of the risks associated with setting up the organisation, the procedures and the activities of the Treasury department of Enexis Holding N.V. These risks are hedged by an organisational segregation of duties between the front office and the back office, as well as by means of the adopted financing policy, the Treasury Charter, the Treasury Control Framework, and related internal assessments and internal audits.

Capital management

The capital managed by the company includes the share capital paid up by shareholders and the accrued general reserves.

The capital management of Enexis Groep is aimed at maintaining a financially healthy capital structure and at least an A credit rating profile (A2/A with a stable outlook) for Enexis Holding N.V. and Enexis Netbeheer B.V. to support the continuity of its operations and to be able to realise planned investments.

To maintain at least an A credit rating profile and a financially sound capital structure, a minimum value in the FFO / net interest-bearing liabilities is aimed for:

S&P's long-term rating for Enexis Holding N.V. and Enexis Netbeheer B.V. was upgraded to AA- with a stable outlook from A+ with a positive outlook in February 2024. Moody's long-term rating for Enexis Holding N.V. remains unchanged at Aa3 with a stable outlook. Enexis Holding N.V.'s short-term ratings are also unchanged: A-1 (S&P) and P-1 (Moody's).

By maintaining a minimum target for its credit rating profile, the statutory obligations on capital ratios and creditworthiness (as set out in the Decree on the Financial Management of Network Operators) are more than adequately met, as well as the financial covenants in the existing financing agreement.

Enexis Groep actively manages its capital structure, adjusting it in response to changing economic conditions and legal or regulatory requirements, while ensuring alignment with its targeted minimum credit rating. To maintain or adjust its capital structure, Enexis Groep may, under certain circumstances, change its dividend policy, return capital to shareholders or issue new shares.

Group funding

Group funding takes place within Enexis Groep, which means that Enexis Holding N.V. raises the necessary funds for the whole Enexis Groep on the external capital and money markets and, if required, uses credit facilities agreed with banks. All companies also have a current account relationship with Enexis Holding N.V., so inter-company receivables and liabilities can be offset internally.

Externally raised funds are lent to other group companies via inter-company loans and settled via the bank accounts or internal current accounts of the group companies and included in the joint cash pool. Interest and balance compensation is settled within the cash pools (notional cash pooling). The inter-company loans and the cash pool structure comply with the legal requirements for group financing of grid companies, according to which the grid operator may not provide security or assume liability for financing non-regulated activities. 

A distinction is made between regulated and non-regulated activities when determining the financing terms and interest rates of inter-company loans. Group funding for regulated activities is carried out on the basis of the same conditions and interest rates as financing obtained externally by Enexis Holding N.V., on the assumption that Enexis Holding N.V. and Enexis Netbeheer B.V., as grid operators with regulated activities, have equivalent creditworthiness and credit rating profiles. Group funding for non-regulated activities occurs according to conditions and at interest rates established on an arm’s length basis, resulting in a market interest surcharge on top of the standard market interest rates that corresponds to the estimated credit risk of the relevant company.

The financing of associated companies is also provided by Enexis Holding N.V. on an arm's length basis, at conditions and with a market interest rate surcharge on top of the standard market interest rates established for each associated company.

For the interest rates within the joint cash pool, a distinction is made between regulated and non-regulated activities by setting up two sub-cash pools. The regulated sub-cash pool comprises the bank accounts of grid operator Enexis Netbeheer B.V., and the interest calculation is based on the current account rate agreed upon by the bank. The non-regulated sub-cash pool comprises the bank accounts of the other group companies, including Enexis Holding N.V., with a market interest surcharge applied above the bank’s rate.

The benefits of the group funding and the cash pool are allocated to Enexis Holding N.V.