Finance

Sustainable corporate operations require ongoing responsible and solid financing

GRI 201-1, GRI 203-1, GRI 203-2

Extensive investment in the network and demand continues

50Hertz as the main company of the Eurogrid Group, whose shares are held by Eurogrid International NV/SA, 80 percent by Elia Group NV/SA and 20 percent by Selent Netzbetreiber GmbH, whose shares are held by KfW Bankengruppe, has already invested around € 3.1 billion in the expansion of our grid and the construction of grid connections of offshore wind farms (OWP) in the last 5 years. As planned, we will exceed this amount in the coming years. In line with the long-term planning horizon of these investment measures, we have developed a sustainable financing strategy based on the following guiding principles:

• We finance our investments conservatively, i.e. we refrain from speculative approaches in the selection of financing instruments and their collateralisation as well as in maturity transformations (taking into account the "golden financing rule").
• In specific terms, the structure of the overall financing thus depends on the volume of the individual investment projects and the corresponding time commitment of capital for the investment measures.
• Only standard financial instruments whose economic and legal effects can be assessed by us are used.
• We primarily use public capital markets to create transparency about our financing conditions.
• Sustainable value creation from the company's activities contributes to the overall financing. We also measure the debt servicing capacity of 50 Hertz on this Basis.
• By means of a new dividend policy, we agreed with the owners on the goal of securing a sustainable financing structure through financial cornerstones.
• These sustainable financing principles were given a solid investment grade by both Standard&Poors (BBB+) and Moody's (Baa1).

The BBB+ rating awarded by Standard & Poors with a stable outlook was also confirmed in the 2019 financial year. Our sustainability rating from the Sustainalytics agency was published in 2019 with a further improved score. Most recently, 50Hertz successfully placed a EUR 750 million bond on the market at favourable conditions in 2016. This bond financing was extended in the same year by an agreement with a consortium  of banks to provide a syndicated long-term loan of EUR 150 million. Thanks to an excellent financial situation resulting from successful business operations, it was possible to dispense with further financing in 2019.

Strong liquidity and cash flows

A strong balance sheet with rock-solid key figures

The sustainable financing strategy is supported by the solid balance sheet. Shareholders and management take the interests of our debt investors into account when making management decisions, in particular through the dividend policy mentioned above.

The reported non-current assets are largely covered by equity and long-term financing. With this stable starting basis, the prerequisites for a positive rating have been created in order to secure access to the capital market in the future and to be able to implement our financing strategy. Future growth is to be financed 40 percent from internal financing and 60 percent via the capital market.

In the context of the sustainable business activities of 50Hertz, we are evaluating a financing opportunity via the dynamically developing market for so-called "Green Bonds".

Solid balance sheet structure in EUR million

Stable result also in 2019

In the 2019 reporting year, the Eurogrid Group generated earnings after taxes of almost EUR 178 million. This good result underlines the earning capacity of 50Hertz, with which both operating expenditure and debt service from interest payments on borrowings and increasing depreciation and amortisation could be serviced from the growing assets. We have invested the additional funds in our grid.

Consolidated income statement in EUR million

The total turnover representing the total output contains the turnover from the pay-as-you-go systems handled by the TSO, whose liquidity is also managed outside the actual grid business. The entire apportionment systems have an effect on 50Hertz without affecting the result: The sales are offset by corresponding expenses. The revenue recognized in profit or loss is made up of various components that have different effects on the total amount.

Grid revenues depend decisively on the regulatory framework, which is determined by the Federal Network Agency by setting a so-called revenue cap for a period of 5 years. If the recognised influencing factors for this revenue cap are too narrowly defined, the resulting reduction in earning power could jeopardise further growth of 50 Hertz. The reduction in the return on equity from 7.39% to 5.64% (after tax), which will apply from 2019 as a result of the requirements of the German Incentive Regulation Ordinance (ARegV), has led to a significant decline in earnings, which could not be offset by the additional investment activity and efficiency efforts.

Overview of the Eurogrid Group and outlook for 2020

The economic situation of the Group is largely characterised by the regulatory framework resulting from the grid operation of 50 Hertz.

The positive result in 2019 reflects the revenue effect of the ongoing investment activity of the Eurogrid Group. Unlike in the previous year, there were no significant one-off effects in 2019. The earnings development reflects in particular the lower return on equity for the new regulatory period.

In 2020, a significant increase in investment activity to approximately EUR 680 million is planned. The resulting additional financing requirements are to be met by issuing a Green Bond, among other things. Regardless of the efficiency measures, grid operation costs are expected to rise in 2020 due to the energy transition. Accordingly, earnings after taxes in 2020 are expected to be lower than in the previous year.

Debut Green Bond of EUR 750 million successfully issued

Eurogrid GmbH, the parent company of the transmission system operator 50Hertz, is securing liquidity for the further grid expansion necessary for the energy transition with the issuance of its debut Green Bond in the amount of EUR 750 million. This will finance the grid connections Ostwind 1 and 2 of the offshore wind farms northeast of Rügen with a capacity of around 1.5 gigawatts. The corporate bond with a term of 12 years and an interest rate of 1.113 percent was issued yesterday on the regulated market with the support of BNP Paribas, Rabobank and UniCredit Bank from the circle of Eurogrid core banks. The subscribers come from Germany and, almost without exception, from other European countries, with a focus on Great Britain, France, the Benelux countries and Scandinavia. Like all public bonds, these securities are listed on the Luxembourg Stock Exchange. 

The projects Ostwind 1 and 2 projects are in line with the EU Action Plan on Climate Change. The EU's aim is to increase the number of households and businesses that can be supplied with electricity produced by wind energy, thereby avoiding CO2 emissions. The Green Bond complies with the principles of the International Capital Markets Association (ICMA). An independent evaluation of the Green Bond is carried out by the second party opinion provider and ESG-rating agency Vigeo Eiris.

The Ostwind 1 project is already in operation and connects the "Viking" and "Arkona" wind farms via two offshore platforms with the Lubmin substation in the Bay of Greifswald. In the Ostwind 2 project, the nearby wind farms "Arcadis Ost 1" and "Baltic Eagle" will be connected to the German extra-high voltage grid. 50Hertz plans to jointly build two further offshore platforms together with the wind farm operators and three 220 kV AC submarine cable Systems.