In principle, our financial policy is designed to allow us to maintain a solid A rating. This means that we are able to continue to invest in our networks and grow the business thanks to our financial position. This enables us to pursue our strategy and play a facilitating role in the energy transition. However, the information given earlier shows that our financial position, in particular, will come under pressure in the near future.
Alliander’s financial framework is formed by the FFO/net debt, interest cover, net debt/net debt plus equity and solvency ratios. These ratios, coupled with the norms against which they are measured, are crucial in obtaining and retaining a solid A rating profile on a standalone basis. In a departure from IFRS, when calculating the ratios, the subordinated perpetual shareholder loan and the convertible shareholder loan are treated as 50% equity and 50% debt capital.
Changes to the financial policy
The financial policy remained unchanged in 2021, with the exception of the following: on 31 May 2021 the financial policy was adjusted on a number of points to be able to make full use of the financing capacity available under an A rating profile:
- The minimum FFO/net debt ratio was reduced from 20% to 15%.
- The minimum required A rating profile no longer concerns the stand-alone rating: from now on this will pertain to the rating including any markup as a result of public shareholding.
In addition, as of 31 May 2021, the dividend policy was amended with regard to the considerations for calculating the dividend payout ratio. The aim of this is to bring the treatment of the periodic compensation for the existing hybrid bond loan in line with that for the convertible hybrid shareholder loan. To this end, the profit/loss after tax will be adjusted for periodic payments relating to loans that are recognised in equity.
Ratios on the basis of Alliander’s financial policy
31 December 2021
31 December 2020
Net debt/(net debt + equity)
As at 31 December 2021, the FFO/net debt ratio amounted to 25.8% (year-end 2020: 24.1%) compared with a required minimum of 15% in 2021 (2020: 20%). The higher ratio is due to the sharp increase in FFO in 2021 and a relatively limited increase in the net debt position. The increase in the net debt position was limited because, based on our financial policy, 50% of the newly agreed convertible shareholder loan counts as equity.
As at 31 December 2021, the interest cover ratio worked out at 17.2 (year-end 2020: 14.2). Alliander’s financial policy stipulates that this ratio should be a minimum of 3.5. The increase in 2021 is mainly attributable to the higher FFO due to higher revenue and other factors.
The ratio of net debt/(sum of net debt and equity) as at 31 December 2021 amounted to 36.7% (year-end 2020: 38.7%). Alliander’s financial policy stipulates that this ratio should not exceed 60%. The decrease in 2021 is mainly caused by the effect of the convertible shareholder loan, which strengthens our assets based on our financial policy.
The solvency ratio as at 31 December 2021 amounted to 53.8% (year-end 2020: 53.1%) compared with a required minimum of 30%. The increase compared with 2020 is mainly due to the increase in assets as a result of investment.
As part of the financial policy, the dividend policy provides for distributions of up to 45% of the profit after tax, adjusted for fair value movements, periodic payments relating to loans that are recognised in equity and exceptional items that did not lead to a cash flow, unless investments or financial criteria demand a higher profit retention percentage and/or unless the solvency ratio falls below 30% after payment of dividend. For more information, see the proposed profit appropriation for 2021.
The investment policy is consistent with the financial policy and is part of Alliander’s strategy. Elements of investment policy include compliance with regulatory requirements relating to investments in the regulated domain, such as safety and reliability, and the generation of an adequate return on investment. Ordinary investment proposals are tested against minimum return requirements and criteria as set out in the financial policy. Innovative schemes require specific Management Board approval. As well as quantitative standards, investment proposals must also satisfy qualitative requirements. It should also be noted that, in principle, investments in the regulated domain arise from a network operator’s statutory duties.
Alliander makes a major contribution to the prosperity of the Netherlands, indirectly through the considerable impact that the distribution of energy has for the Dutch economy and for the quality of life experienced through the permanent availability of energy. This is further explained in our impact model in the Contribution to Global Goals chapter. The dividend distributed to shareholders and payments to providers of capital and government authorities make an indirect contribution to social goals. The way these items are allocated and used is set out below.
Alliander sees that, alongside a sound financial policy, shareholders and other investors are increasingly focusing on sustainability. Alliander supports the significance of sustainability and so the company’s sustainability targets play a prominent role in the management of the business and external financing. For example, Alliander established a green Euro Commercial Paper (ECP) programme in July 2021 and set up a committed sustainability-linked credit facility with banks in December 2021. Together with the existing option of issuing green bonds, this has created a financing structure that gives Alliander financial incentives to invest in sustainability and conduct its business in a sustainable way. Our sustainability efforts have been rewarded with a sustainability classification of B+ by rating agency ISS ESG and a Low Risk classification by Sustainalytics. This puts us among the best-performing companies in our sector in terms of sustainability performance, according to these rating agencies.
Our financial stakeholders
Alliander pursues an active policy of maintaining an open and constructive dialogue with shareholders, bondholders, financial institutions, credit rating agencies, sustainability rating agencies, analysts, and the media. We try to provide all stakeholders with timely and accurate relevant information on finances, strategy, risks, sustainability and other matters, in reports, in press releases, and in meetings, as well as by other means.
All of Alliander’s shares are held directly by Dutch provincial and municipal authorities. A full list of the shareholders can be found on www.alliander.com. The authorised share capital of Alliander N.V. is divided into 350 million shares with a nominal value of €5 each. All the shares are registered shares. As at 31 December 2021, there were 136,794,964 issued and paid-up shares. Contact with shareholders primarily takes place during the shareholders’ meetings. The company and its shareholders also meet outside of the shareholders’ meetings. A summary of the various shareholder dialogue structures can be found on the Alliander website.
In December 2021, almost all shareholders participated in a convertible shareholder loan totalling €600 million.
Institutional investors in our bond issues, such as asset managers, insurance companies and pension funds provide a large part of our loan financing. These are mostly Europe-based professional players on the international financial markets. We keep existing and potential bondholders informed of the company’s financial position and results, as well as developments in the industry by actively engaging in Investor Relations activities in addition to complying with ordinary publication requirements. In this context, late in February 2021 we met with investors to discuss the 2020 figures. This discussion included various other topics such as the progress made in the energy transition, the increase in investments, measures to increase our financing capacity, the financial and dividend policy and the new regulatory period.
In December 2021, Alliander agreed a new committed back-up credit facility worth €900 million with seven banks, The facility runs until December 2026, with the option to extend it by one year in 2026 and 2027, up to December 2028 at the latest. This credit facility replaces the existing credit facility for €600 million. The fee paid for this facility depends in part on Alliander's performance in relation to a number of sustainability KPIs. As in previous years, no use was made of the credit facility during the past year.
A €300 million loan arranged with the European Investment Bank was drawn down in 2017 and 2018. The loan becomes repayable in full in 2031.
In order to retain ready access to the capital and money markets, it is important for existing and potential financiers to have an accurate picture of Alliander’s creditworthiness. Alliander uses credit ratings for this. Having a credit rating is also an obligation under the terms of the CBL contracts Alliander entered into at the end of the 1990s, of which one is still in effect, see note . Alliander has credit ratings from S&P and Moody’s. These ratings comprise a long-term rating with an outlook, and a short-term rating. The outlook is an indication of the expected change to the long-term rating over the next few years. In 2021, the long-term credit ratings of both S&P and Moody's were downgraded one notch. In line with this, S&P also downgraded its short-term credit rating by one notch. At year-end 2021, Alliander's credit ratings were as follows:
Standard & Poor's
A+ (stable outlook)
Aa3 (stable outlook)
During the reporting period, Alliander was in contact with the rating agencies on several occasions. Topics discussed included the upcoming regulatory period, the challenges presented by the climate objectives and the energy transition, the increase in investments, the issue of the convertible shareholder loan and the impact of COVID-19 on Alliander. The recent financial performance figures and forecasts that Alliander provided on these occasions were taken into account by S&P and Moody's when assessing Alliander's creditworthiness.