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| Name | Symbol | Market | Type |
|---|---|---|---|
| Nie Fin.6.375% | LSE:46RT | London | Bond |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
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TIDM46RT TIDM35LK
This announcement is in respect of NIE Finance PLC's bonds
* GBP350,000,000 2.5 per cent Guaranteed Notes due 2025 (ISIN XS1820002308);
and
* GBP400,000,000 6.375 per cent Guaranteed Notes due 2026 (ISIN XS0633547087)
each unconditionally and irrevocably guaranteed by Northern Ireland
Electricity Networks Limited.
In accordance with Listing Rules 17.4.7 and 17.3.4, the Report and Financial
Statements for the year ended 31 December 2018 for each of Northern Ireland
Electricity Networks Limited and NIE Finance PLC have been uploaded to the
National Storage Mechanism and will shortly be available for inspection at :
http://www.morningstar.co.uk/uk/NSM and are available on Northern Ireland
Electricity Networks Limited's website at http://www.nienetworks.co.uk/about-us
/investor-relations
Northern Ireland Electricity Networks Limited's Report and Accounts follows
below:
Contact for enquiries:
NIE Networks Corporate Communications - telephone 0845 300 3356
2018 AT A GLANCE
- Continued focus on the health and safety of staff, contractors and the
general public
- Renewable generation connected to the electricity network reached over
1.6GW with 200MW connected during 2018
- Continued focus on customer service through the "Think Customer" initiative
with a 7% reduction in customer complaints
- Successful response to network damage resulting from adverse weather
conditions with 98% of affected customers restored within 24 hours on average
- Significant reduction in Customer Minutes Lost (CML) with CML arising from
both planned and fault outages at a record low during the year
- Continued investment in the network in line with the RP6 price control
- Facilitation of full connections market opening on 28 March 2018
- Replacement of 43,000 meters under the meter recertification programme
- Operating profit of GBP109.1m and profit after tax of GBP55.0m
- Over GBP151m contributed to the Northern Ireland economy through employment
of circa 1,200 people and payments to local businesses and authorities
- Secured GBP350m financing to fund current investment under the RP6 price
control
- Commenced innovation projects and market engagement aimed at facilitating
greater access to distribution networks, as key steps in enabling Northern
Ireland's transition to a low carbon energy system
GROUP STRATEGIC REPORT
The directors present their annual report and financial statements for Northern
Ireland Electricity Networks Limited (NIE Networks or the Company) and its
subsidiary undertakings (the Group) for the year ended 31 December 2018.
The Board of directors of the Group who served during the year are outlined in
the Group Directors' Report on page 22.
NIE Networks' subsidiary companies are NIE Networks Services Limited and NIE
Finance PLC.
The Group financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRS Interpretations
Committee (IFRS IC) interpretations as adopted by the European Union and with
the Companies Act 2006 applicable to companies reporting under IFRS.
The Company financial statements have been prepared in accordance with FRS 101
- Reduced Disclosure Framework and the Company has taken advantage of certain
disclosure exemptions allowed under this standard.
The financial statements of the Group and the Company have been prepared under
the historical cost convention, as modified by the revaluation of financial
derivative instruments at fair value through profit or loss.
Ownership
NIE Networks is part of the Electricity Supply Board (ESB), the vertically
integrated energy group based in the Republic of Ireland (RoI). NIE Networks
is an independent business within ESB with its own Board of Directors,
management and staff.
Business Model
Principal Activities and Regulation
NIE Networks is the owner of the transmission and distribution networks in
Northern Ireland and the distribution network operator. SONI Limited (SONI), a
separate company owned by EirGrid plc, is the transmission system operator and
is responsible for transmission system design and planning. The Group's
principal activities are:
- constructing and maintaining the electricity transmission and distribution
networks in Northern Ireland and operating the distribution network;
- connecting demand and generation customers to the transmission and
distribution networks; and
- providing electricity meters in Northern Ireland and providing metering
data to suppliers and market operators to enable wholesale and retail market
settlement.
NIE Networks is a regulated company and its business activities are regulated
by the Northern Ireland Authority for Utility Regulation (the Utility
Regulator). Under its Transmission and Distribution licences NIE Networks is
required to develop, maintain and, in the case of the distribution system,
operate an efficient, co-ordinated and economical system of:
- electricity transmission - the bulk transfer of electricity across the high
voltage network of overhead lines, underground cables and associated equipment
mainly operating at 275kV and 110kV; and
- electricity distribution - the transfer of electricity from the high
voltage transmission network and its delivery to consumers across a network of
overhead lines and underground cables operating at 33kV, 11kV and lower
voltages.
NIE Networks manages the assets of the transmission and distribution networks
on an integrated basis.
The transmission and distribution networks comprise a number of interconnected
networks of overhead lines and underground cables which are used for the
transfer of electricity to around 880,000 consumers via a number of
substations. This network ensures that electricity produced by generators is
delivered to consumers through their nominated supplier. NIE Networks does not
generate, buy or sell electricity, or send any bills to electricity consumers
(apart from charges for new connections to the network).
During the year an estimated 7.8TWh of electricity was transmitted and
distributed to consumers in Northern Ireland. There are 2,200km of
transmission lines, 47,000km of distribution lines and over 300 major
substations. NIE Networks' transmission system is connected to that of RoI
through a 275kV interconnector and to that in Scotland via the Moyle
Interconnector. There are also two standby 110kV connections to RoI.
In addition to its core network activities, NIE Networks provides meters to
consumers and takes meter readings. It is responsible for managing market
registration processes and the provision and maintenance of accurate data to
support the operation of the competitive retail and wholesale electricity
markets.
Market Registration and Change of Supplier processes facilitate consumers
switching suppliers in a timely manner in accordance with retail market rules
and aggregated data is provided to the Single Electricity Market Operator on a
daily basis for settlement of the wholesale market.
The Group also provides connections to the network for customers requiring a
new electricity supply (demand connections) and those seeking to generate
electricity (generation connections). The market for greater than 5MW
distribution connections has been open to competition since May 2016. On 28
March 2018, NIE Networks successfully facilitated market opening for all new
connections, including those less than 5MW, in accordance with the framework
and principles agreed with the Utility Regulator. This required the completion
of a very significant work programme involving substantial IT development,
implementation of new processes and staff training to facilitate competition.
For 'contestable' elements of connections, customers can now choose whether to
accept a quotation from NIE Networks or to engage an accredited Independent
Connection Provider (ICP) to construct the connection.
Revenues
The Group derives its revenue principally through charges for use of the
distribution system and Public Service Obligation (PSO) charges levied on
electricity suppliers as well as charges for transmission services (mainly for
use of the transmission system) levied on SONI. Revenue through charges for
new demand and generation connections is received from the customer in
accordance with NIE Networks' Statement of Connection Charges, which is revised
at least annually.
Price controls
NIE Networks is subject to periodic reviews in respect of the prices it may
charge for use of the transmission and distribution networks in Northern
Ireland. Regulatory Period 6 (RP6) commenced on 1 October 2017 and will apply
for the period to 31 March 2024.
The RP6 price control sets ex-ante allowances of GBP720 million for capital
investment and GBP471 million in respect of operating costs (2018-19 prices).
Additional allowances in respect of major transmission load growth projects
will be considered on a case-by-case basis, for example, the North-South
Interconnector. The allowances will be adjusted to reflect 50% of the
difference between the allowances and actual costs incurred. NIE Networks'
Connections business is largely outside the scope of the RP6 price control
following the market opening to competition as referred to above.
The RP6 baseline rate of return of 3.18% plus inflation (weighted average cost
of capital based on pre-tax cost of debt and post-tax cost of equity) will be
adjusted to reflect the cost of new debt raised in RP6. This mechanism is new
for RP6, departing from the former approach of setting an ex-ante allowance,
and will align the cost of debt component of the return more closely with
prevailing market conditions at the time of drawdown of new debt.
Strategy
NIE Networks' strategic direction is determined primarily by obligations under
its Transmission and Distribution licences. Its vision is to be a
high-performing electricity networks company that makes a positive contribution
to the local community, leading the way to a low carbon future. Its mission is
to distribute electricity in a safe, reliable, efficient and environmentally
sound manner. The Group works to its stated values concerning safety,
employees, customer service, innovation, integrity, efficiency and community.
NIE Networks' strategic objectives are:
- the health and safety of employees, contractors and the general public;
- strong customer service performance by providing a reliable and effective
electricity service for Northern Ireland and an excellent experience for
customers engaging with the business;
- continued investment in Northern Ireland's electricity infrastructure to:
replace worn assets; facilitate increased customer demand; improve the
reliability of the network; and facilitate the connection of further renewable
generation;
- performance through people by ensuring a working environment that maximises
the potential of employees;
- delivery of better performance for stakeholders through a competitive and
transparent cost base;
- maintenance of a strong investment grade credit rating;
- enabling Northern Ireland's transition to an effective and affordable low
carbon energy system; and
- effective stakeholder engagement.
NIE Networks seeks to discharge its statutory and regulatory obligations in a
manner which meets these strategic objectives.
Financial Review
Financial Key Performance Indicators (KPIs)
Operating Profit
The Group's operating profit as reported in the financial statements was GBP
109.1m for the year to 31 December 2018, an increase of GBP14.2m on the previous
year. Group revenue of GBP275.8m has increased by GBP14.7m from the previous year
primarily reflecting timing differences in respect of PSO revenues. Excluding
PSO timing differences, operating profit has increased by GBP3.6m year on year
largely as a result of an increasing regulatory return (due to the Group's
increasing asset base). Group operating costs of GBP166.7m are largely in line
with operating costs of GBP166.2m in 2017.
FFO Interest Cover
The Group considers the ratio of FFO (funds from operations) to interest paid
to be one of the key internal measures of the Group's financial health. FFO
interest cover indicates the Group's ability to fund interest payments from
cash flows generated by operations and is a measure used by external reference
agencies when assessing the Group's credit rating. The ratio, as shown in note
6 to the financial statements, at 3.7 times for the year (2017 - 3.3 times) is
above the target level of 3.0 times.
Net Assets
The Group's net assets of GBP373.6m increased by GBP46.2m on the previous year
largely reflecting profit after tax of GBP55.0m together with re-measurement
gains (net of tax) of GBP15.5m on net pension scheme liabilities, partly offset
by a dividend paid to the shareholder during the year of GBP22.0m.
Cash Flow
Cash and cash equivalents increased by GBP19.2m during the year reflecting net
cash flows from operating activities of GBP90.7m together with net cash inflows
associated with the Group's re-financing of GBP59.3m, partly offset by investing
activity out flows of GBP108.8m (reflecting the Group's continued investment in
the network) and the dividend paid of GBP22.0m.
Cash flows generated from operating activities of GBP90.7m are GBP44.2m higher than
the GBP46.5m generated during 2017 reflecting the Group's increased operating
profit during the year together with a smaller reduction in trade and other
payables from that seen between 2016 and 2017. The large reduction in trade and
other payables from 2016 to 2017 reflected decreasing payments on account as
the pipeline of generation connections approached completion.
Financial Risk Management
The main financial risks faced by the Group relate to liquidity, funding,
investment and financial risk, including interest rate and counterparty credit
risk. The Group's objective is to manage financial risks at optimum cost. The
Group employs a continuous forecasting and monitoring process to manage risk.
Capital Management and Liquidity Risk
The Group is financed through a combination of equity and debt finance.
Details in respect of the Group's equity are shown in the Statement of Changes
in Equity and in note 22 to the financial statements.
The Group's debt finance at the year end comprised bonds of GBP350.0m and GBP400.0m
(GBP348.1m and GBP398.7m respectively net of issue costs) which are due to mature
in October 2025 and June 2026 respectively. The GBP350.0m bond was raised during
the year.
During the year the Group repaid GBP289.0m of debt finance comprising a GBP175.0m
bond and GBP114.0m drawn on a Revolving Credit Facility (RCF) provided by ESB.
The Group has access to an RCF of GBP120.0m with ESB which remains undrawn at the
year end.
The Group's liquidity risk is assessed through the preparation of cash flow
forecasts. The Group's policy is to have sufficient funds in place to meet
funding requirements for the next 12 - 18 months.
The Group's policy in relation to equity is to finance equity dividends from
accumulated profits. In relation to debt finance, the Group's policy is to
maintain a prudent level of gearing.
NIE Networks' licences contain various financial conditions which relate
principally to the availability of financial resources, borrowings on an arm's
length basis, restrictions on granting security over the Group's assets and the
payment of dividends. The Group is in compliance with these conditions.
The Group maintained its strong investment grade credit rating from Standard &
Poor's during the year.
Interest Rate Risk
The GBP350.0m and GBP400.0m bonds are denominated in sterling and carry fixed
interest rates of 2.500% and 6.375% respectively.
Given that 100% of the Group's total borrowings carry a fixed interest rate,
the Group does not consider that it is significantly exposed to interest rate
risk.
Since December 2010, NIE Networks has held a GBP550m portfolio of RPI linked
interest rate swaps (the RPI swaps). The RPI swaps were put in place by the
Viridian Group (the Group's previous parent undertaking) in 2006 to better
match NIE Networks' debt and related interest payments with its
inflation-linked regulated assets and associated revenue. The swaps are
considered to be economic hedges for NIE Networks' regulated revenue and asset
base. As part of the acquisition of NIE Networks by ESB in 2010, the swaps were
novated to NIE Networks.
Following a restructuring in 2014, the swaps have a mandatory break period in
2022. At the same time that the restructuring took effect, and in order to
achieve a back to back matching arrangement, the Company entered into RPI
linked interest rate swaps with ESBNI Limited (ESBNI), the immediate parent
undertaking of the Company, which have identical matching terms to the
restructured swaps. The back to back matching swaps with ESBNI ensure that
there is no net effect on the financial statements of the Company and that any
risk to financial exposure is borne by ESBNI. Further details of the swaps,
including fair values, are disclosed in note 17 to the financial statements.
Credit Risk
The Group's principal financial assets are cash and cash equivalents, trade and
other receivables (excluding prepayments and accrued income) and other
financial assets as outlined in the table below:
Year to 31 December 2018 2017
GBPm GBPm
Cash and cash equivalents 30.4 11.2
Trade and other receivables (excluding prepayments and 51.6 55.2
accrued income)
Other financial assets - current and non-current 499.4 579.5
---------------- ---------------
581.4 645.9
======== ========
The Group's credit risk in respect of trade receivables from licensed
electricity suppliers is mitigated by appropriate policies with security
received in the form of cash deposits, letters of credit or parent company
guarantees. With the exception of certain public bodies, payments in relation
to new connections or alterations are received in advance of the work being
carried out. Payments received on account are disclosed in note 15 to the
financial statements.
Other financial assets comprise RPI linked interest rate swap arrangements
entered into with ESBNI as outlined above. The counterparty risk from ESBNI is
not considered significant given ESB's investment in the Group and ESB's strong
investment grade credit rating.
The Group may be exposed to credit-related loss in the event of non-performance
by bank counterparties. This risk is managed through conducting business only
with approved counterparties which meet the criteria outlined in the Group's
treasury policy.
Further information on financial instruments is set out in the notes to the
financial statements.
Going Concern
The Group's business activities, together with the principal risks and
uncertainties likely to affect its future performance, are described in this
Group Strategic Report. As noted in the section on capital management and
liquidity risk, the Group is financed through a combination of equity and debt
finance with new debt finance of GBP350m raised in September 2018 and an undrawn
GBP120m RCF provided by ESB.
On the basis of their assessment of the Group's financial position, which
included a review of the Group's projected funding requirements for a period of
12 months from the date of approval of the financial statements, the directors have a reasonable expectation that the Group will have adequate financial resources for the 12-month period. Accordingly the directors continue to adopt the going concern basis in preparing the annual report and financial statements . Operational Review Operational KPIs Throughout this Operational Review reference is made to the KPIs used to measure progress towards achieving operational objectives. Performance during the year is summarised below: KPIs - Year to 31 December 2018 2017 Health & Safety: Lost time incidents (number of) 2 1 Network Performance: Customer Minutes Lost (CML) - Planned CML (minutes) 41 62 - Fault CML (minutes) 53 57 Customer Service: Overall standards - defaults (number of) None None Guaranteed standards - defaults (number of) None 1 Stage 2 complaints to the Consumer Council (number 1 2 of) Connections: Customer demand connections completed (number of) 5,095 5,557 Renewable generation connected (MW): - Small scale (< 5MW) 24 71 - Large scale (> 5MW) 179 287 Sustainability: Waste recycling rate (%) 97 98 Health & Safety Ensuring the health, safety and wellbeing of employees, contractors and the general public continues to be the number one value at the core of all NIE Networks' business operations. The aim is to provide a zero-harm working environment where risks to health and safety are assessed and controlled. This is achieved by the promotion of a positive health and safety culture and adherence to legislation and recognised safety standards. The approach to safety is based on the principles of: Leadership; Competence; Compliance and Engagement. The health and safety management system is accredited to ISO 45001 standard and based on best practice guidance from the Health and Safety Executive for Northern Ireland (HSENI) and the Institute of Directors. NIE Networks continues to engage with various organisations including the HSENI, the NI Utilities Safety Group, the NI Roads Authority and Utility Committees, the NI Environment Agency and various Energy Networks Association (ENA) health and safety committees to share information and improve safety performance and learning. The target for lost time incidents continues to be set at zero: there were two incidents during the year (2017 - one) both of which occurred during non-operational activities. Safety Engineers are aligned with organisational structures on a 'Business Partner' relationship which facilitates integration of skills and allows influence and support. During 2018 the Safety Team continued to support all business units with particular focus on the following areas: - the reporting, analysis and investigation of "near miss" events which is key to reducing harm. The quality of reports continued to improve with an increase in reports detailing "unsafe acts". Each report is analysed by a team of Safety Engineers to ensure consistency and accurate follow-up, enabling further improvements in equipment and operational procedures to be identified and addressed; - formal incident investigation procedures with monthly reporting to the Health and Safety Management Committee; - three external ISO audits were completed with zero non-conformances identified including transition to the new ISO 45001 standard; - continued programme of formal safety training for employees and contractors including: safety seminars delivered to all staff to increase risk awareness and perception, the publication of a monthly Safety newsletter and contractor management Safety Improvement Plans implemented; - a further 18 employees attained certificates in Construction Health and Safety from the National Examination Board in Occupational Safety and Health (NEBOSH) bringing the total within the Group to 90 employees; - over 4,000 site safety inspections completed, the focus of which was to provide coaching and recognition, and to encourage good site behaviours while ensuring compliance was achieved. In line with the Leadership and Engagement principles these were completed by a range of staff including the Managing Director, Executive Committee members, Business Unit Managers and front-line Managers; - continued focus on identifying the causes of road traffic incidents including post-incident driver appraisals and training where required; and - a programme of health and wellbeing checks, health screening and lifestyle advice was made available to all staff to coincide with "European Health & Safety Week". Updates on safety performance are provided to each Executive Committee, Board and Health and Safety Management Committee meeting. This provides a level of regular assurance against objectives agreed in the annual Health, Safety and Wellbeing Business Plan. Network Performance and Customer Service The provision of a safe, reliable and responsive electricity service, which endeavours to meet the standards customers expect, and to deal with customers professionally, courteously and respecting their individual needs, is a key priority for NIE Networks. During 2018 NIE Networks continued to efficiently manage outages required for essential maintenance and development to minimise the occasions and length of time that customers are off supply. Performance of the distribution network is measured in its availability, the number of minutes lost per customer (CML). CML due to planned outages is the average number of minutes lost per customer for the period through pre- arranged shutdowns for maintenance and construction. The number of planned CML for 2018 was 41 minutes (2017 - 62 minutes). The average number of CML due to faults on the distribution network in 2018 was 53 minutes (2017 - 57 minutes). Both measures show an improvement on the previous year and are calculated excluding incidences where Severe Weather Exemptions have been applied as agreed with the Utility Regulator. The Utility Regulator sets overall and guaranteed standards of performance. The majority apply to services provided, for example the timely restoration of customers' supplies following an interruption, and prescribed times for responding to customers' voltage complaints. All of the overall standards were achieved. In 2018 there were no defaults against Guaranteed Standards of Performance for customer service activities delivered (2017 - one). During the year 94.2% (2017 - 91.5%) of electricity supplies were restored within three hours, within the regulatory standard of 87%. NIE Networks continues to test and confirm the robustness of its emergency response capabilities during severe weather events in order to effectively restore supply to all customers. The significant commitment from staff across the business helps to ensure that NIE Networks manages effectively this very important aspect of the business with every employee having an "escalation" role in addition to their normal day-to-day role. During the year there were four occasions (wind and gales in early and mid-January, gales in June and Storm Ali in September) where adverse weather caused damage to the network and affected thousands of customers' supplies. On each of these occasions on average 98% of affected customers were restored within 24 hours. The focus on reducing the number of complaints from customers continued in 2018 with the number of complaints received being 7% lower than in the previous year. Individual complaints received are analysed and assessed, based on the specific circumstances to determine whether or not the complaint was avoidable. The continued strong focus on customer service limits the number of instances when customers are dissatisfied to the extent that they refer a complaint to the Consumer Council for Northern Ireland (CCNI) for review (Stage 2 Complaints). During the year, one Stage 2 Complaint was taken up by the CCNI on behalf of customers (2017 - two). Across NIE Networks there has been a focus on reviewing customer service activities in order to improve delivery in all areas. Identified improvements will continue throughout 2019 as part of the Group's "Customer Service Action Plan". NIE Networks won the Customer Engagement Award at the 2018 Contact Centre Awards in NI demonstrating the Group's commitment to providing the best possible customer service. Connections NIE Networks' Connections business provides safe, secure, reliable and timely electricity connections within Northern Ireland. Typically, connections work involves: connecting new or additional load, for housing, farms and businesses; altering the network; or connecting generators to the distribution network. More recently, customers have expressed interest in connecting energy storage devices to the network. The key areas of focus during 2018 were: - preparing for market opening in March 2018 in respect of new distribution connections less than 5MW; and - completing renewable generation connections in line with developers' requirements to meet accreditation deadlines for the Northern Ireland Renewables Obligation (NIRO) scheme. The market for greater than 5MW distribution connections has been open to competition since May 2016. On 28 March 2018, NIE Networks successfully facilitated market opening for all new connections, including those less than 5MW, in accordance with the framework and principles agreed with the Utility
Regulator. This required the completion of a very significant work programme involving substantial IT development, implementation of new processes and staff training to facilitate competition. For 'contestable' elements of connections, customers can now choose whether to accept a quotation from NIE Networks or to engage an accredited ICP to construct the connection. There are a number of accredited ICPs registered to complete the 'contestable' elements of connections in Northern Ireland. ICPs must adhere to NIE Networks' policies and technical specifications when completing the contestable works. NIE Networks has introduced new processes to carry out design reviews, inspections and asset adoption for any contestable elements of works carried out by ICPs. Further information in relation to Competition in Connections for customers and ICPs is available on NIE Networks' website at https://www.nienetworks.co.uk/ connections/competition-in-connections. A high level of renewable generation connections was also delivered during the year including, as outlined above, connections in line with developers' requirements to meet accreditation deadlines for the NIRO scheme. 179MW of large scale generation (typically 5MW - 40MW windfarms) was connected during the year, taking the total large scale generation connected to the network to 1,284MW (78% of total renewable generation capacity). A significant proportion of large scale generation was connected through clusters, including the construction during the year of a 90MW cluster at Drumquin in Co. Tyrone. Clusters are 110kV connection nodes established in the vicinity of a number of renewable generation projects to enable additional capacity to be connected in line with NIE Networks' licence obligation to develop the network in an efficient and economic manner. 24MW of small scale generation (typically 20kW - 5MW single wind turbines, anaerobic digesters, photovoltaic and hydro installations) was connected during the year, taking the total connected small scale generation to 284MW (17% of total renewable generation capacity). Total micro-generation connections (typically 4 - 12kW photovoltaic panels on domestic rooftops) to the network increased to 83MW (5% of total renewable generation capacity) including 1MW added during 2018. With over 1.6GW of renewable generation connected to the network by the end of 2018 and over 0.2GW of further capacity committed to be connected, the total connected renewable capacity is expected to reach more than 1.8GW by 2020. Due to capacity constraints on the transmission and distribution networks, NIE Networks initiated a joint consultation with SONI during 2018 on connecting further generation in Northern Ireland. A 'next steps' paper was published in June 2018 which resulted in a Connections Innovation Working Group being established. This group includes representatives from industry, the Utility Regulator, the Department for the Economy, SONI and NIE Networks. The aim of this group is to consider and progress appropriate solutions which facilitate the connection of further Distributed Energy Resources (DER) in Northern Ireland which are technically and commercially feasible for both the electricity system operators and for DER developers and operators of new and existing projects. Findings and outputs from the Connections Innovation Working Group are expected to be published before the end of 2019. The number of customer demand type connections completed during the year reduced, mainly reflecting a lower number of applications received in relation to connections for commercial premises and network alterations. During the year, the Connections business has also continued to deliver in relation to the outputs outlined in the NIE Networks RP6 business plan including: - strengthening customer service and account management for project developers seeking connections to the electricity network, including the establishment of an internal team to coordinate the delivery of connections on larger housing sites; and - ensuring information provided in documentation and online meets the needs of customers. To this end the Connections section of NIE Networks' website has been enhanced during the year including: applications which facilitate online payments and online customer feedback; an online portal tracking individual job status accessible to both the relevant customer and ICP; and, user friendly links to relevant customer information and online applications. The Connections business will continue to deliver in relation to these outputs to provide an excellent service to customers connecting to the network whilst facilitating competition in the connections market. Sustainability NIE Networks' Environmental Policy commits to protecting the environment and mitigating the impact of its activities upon the environment. The environmental management system is certified to ISO 14001. It is designed to ensure compliance with all relevant legislative and regulatory requirements and, where practical and economically viable, NIE Networks seeks to develop standards in excess of such requirements, introducing best practice solutions where possible. The annual environmental business plan sets out detailed steps to ensure the achievement of the key objectives of: minimising the risks of air and water pollution and land contamination; minimising the impact on local communities; enhancing energy and resource consumption efficiency and waste management practices whilst ensuring appropriate overall environmental management. During 2018 the Company continued to focus on each of the following areas: - managing environmental incidents and ensuring clean up procedures are followed where environmental incidents occur; - waste management targets with the recycling rate for all hazardous and non-hazardous waste (excluding excavation from roads and footpaths, civil projects excavation and asbestos removal) remaining high at 97% (2017 - 98%); - a continued reduction in energy usage across operational sites; and - improving the management of biodiversity working closely with Ulster Wildlife to produce a Wildlife Aware Guide for all staff and continual liaison with environmental stakeholders. In Business in the Community's 2018 Northern Ireland Environmental Benchmarking Survey, NIE Networks retained its top level Platinum Award. Network Investment In 2018 NIE Networks invested a total of GBP89.0m (2017 - GBP108.9m) (net of customer contributions) in the transmission and distribution networks. The investment was primarily related to the refurbishment and replacement of worn transmission and distribution assets to maintain reliability of supply and ensure the safety of the network. The reduction in investment from the prior year reflects an increased level of investment required during 2017 to successfully deliver the physical outputs specified in the RP5 price control which concluded on 30 September 2017. During the year 1,800km of transmission and distribution overhead lines were refurbished as part of an ongoing programme. Tree cutting is an essential ongoing programme of work to maintain the networks' resilience to storm conditions. Tree cutting was performed over 9,820km of overhead lines during 2018. Other key investments during the year included the completion of three 275/ 110kV substations at Kells, Castlereagh and Tandragee. During 2018 NIE Networks secured funding from the Utility Regulator of up to GBP 6.4m to pilot innovation projects. The objective of these projects is to develop cost effective alternatives to conventional network investment. The Group also issued a Call for Evidence in a bid to understand, from a Northern Ireland perspective, what changes are required to be made to its current functions as a Distribution Network Operator (DNO) to transition to a Distribution System Operator (DSO) in the future. Understanding this evolution will be a key focus for plans to decarbonise the energy system of the future and to this end, NIE Networks published a consultation document on the DNO / DSO Evolution in February 2019. Market Operations NIE Networks continued to achieve full compliance with its regulatory obligations in respect of customer appointments for metering work. Each year approximately three million visits to customer properties are made to take meter readings and, in 2018, NIE Networks continued to meet its regulatory standard to obtain actual meter readings from 99.5% of all customers once per year, therefore ensuring that electricity consumption is calculated accurately and minimising the number of estimated bills issued by electricity suppliers. NIE Networks also has certain obligations under the Trading and Settlement Code to provide aggregated meter data for the purposes of settlement of the wholesale Integrated Single Electricity Market. NIE Networks continued to be fully compliant with these obligations with no breaches of the Code since its introduction in 2007. A major programme to replace meters that have reached the end of their life cycle continued during 2018 with NIE Networks replacing 43,000 meters during the year. This programme has involved the replacement of circa 30% of customers' meters since it commenced in 2015. People NIE Networks' resourcing strategy is to use highly skilled employees for core strategic activities working in partnership with bought-in-services as appropriate. This ensures that knowledge and skills are retained, allows greater agility and flexibility to redeploy employees where needed and builds a strong culture of engaged employees motivated to deliver business objectives. Organisation management structures have continued to be streamlined creating development opportunities for all levels of employees. The number of employees at the end of 2018 was 1,180 (2017 - 1,273). Against the backdrop of the RP6 price control determination and cost reduction
challenges due to market opening in NIE Networks' Connections business,
management considered a range of cost reduction initiatives including a
restructuring voluntary exit arrangement under which 61 employees left the
business during 2017. In 2018 management, following a consultation with
employee representatives, implemented a further restructuring redundancy
programme under which 82 employees were selected for redundancy.
Training and Development
NIE Networks seeks to attract, develop and retain highly skilled people through
its apprenticeship, graduate, apprentice-to-graduate, scholarship and
sponsorship programmes. The Group's Technical Training Centre, which includes
Apprentice Training, continued to maintain its extremely high standards and
again achieved an "Outstanding" classification in its annual inspection by the
Education and Training Inspectorate. The Group's Technical Training Centre has
also received accreditation from the Institution of Engineering and Technology
(IET) for its apprenticeship programme.
NIE Networks is committed to a working environment which enables employees to
realise their maximum potential and to be appropriately challenged and fully
engaged in the business, with opportunities for skills enhancement and personal
development. Human Resources policies are aligned with key business drivers
including: performance and productivity improvement; clearly defined values and
behaviours; a robust performance management process; and a strong commitment to
employee development.
A strong focus on development continued during the year with a high percentage
of employees involved in a variety of training and development programmes and
initiatives which included leadership skills programmes, formal qualifications,
role enhancement, role changes, team development initiatives, coaching and
mentoring.
NIE Networks continues to promote the professional development of its engineers
through the IET Professional Registration Scheme and proactively encourages and
supports more employees to become IET members and Chartered Engineers. During
2018 four engineers and seven technicians achieved IET professional membership
at varying levels.
Equality and Diversity
NIE Networks is proactive in implementing and reviewing human resource policies
and procedures to ensure compliance with fair employment, sex discrimination,
equal pay, disability discrimination, race discrimination, sexual orientation
and age discrimination legislation. NIE Networks is committed to providing
equality of opportunity for all employees and job applicants with ongoing
monitoring to ensure that equality of opportunity is provided in all employment
practices. The Group uses outreach initiatives to actively seek female
applications in male dominated job roles.
Group policy is to provide people with disabilities equal opportunities for
employment, training and career development, having regard to aptitude and
ability. Any member of staff who becomes disabled during employment is given
assistance and re-training where possible.
Sickness Absence
The proactive management of absenteeism is to the mutual benefit of the
organisation and its employees. An employee health and wellbeing policy
covering stress management is in place, with specific policies on mental
health, alcohol and drug-related problems as well as support to stop smoking.
External occupational health and counselling services are available for all
employees.
The Health and Wellbeing Forum and champions across the business rolled out
various initiatives during the year to provide additional guidance and support
to enable employees to proactively manage their own health and wellbeing.
Sickness absence during the year was 3.25% of employee time, an increase of
0.15% from the previous year owing to long-term sickness absences.
Employee Engagement
NIE Networks places considerable emphasis on employee participation and
engagement. The Employee Engagement Board ensures, through local
representatives of employee Focus Groups, that there is a strong focus on
continued engagement. Company wide employee forums focussing on the areas of
Health & Wellbeing, Digital Strategy and Innovation continue to grow.
Employee relations are positive and constructive. During 2018 the monthly
Employee Relations Forums, comprising management and trade union
representatives, have progressed a wide range of employee relations issues.
More formal meetings are held regularly between senior managers and
representatives of employees and their trade unions to discuss more complex
issues. There is a formal induction programme for all new-starts including
meetings with senior management. During the year employees were kept informed
of NIE Networks' objectives, plans, financial and operational performance and
their effect on them as employees through the monthly newsletter, monthly team
briefings and via presentations by the Managing Director. A significant
portion of staff have performance bonus arrangements which are substantially
aligned to the Group's financial and operational performance.
Investors in People
NIE Networks is accredited with Gold level Investors in People Sixth Generation
Standard.
Looking Forward
Key priorities for 2019:
- ensuring the health and safety of employees, contractors and the general
public will continue to be the top priority: achieving a zero-harm work
environment through implementation of injury and accident-free initiatives;
- delivering improved customer service through the continuing "Think Customer"
programme;
- ongoing focus on delivery against RP6 price control allowances and outputs;
- competing successfully in the open connections market;
- continued investment in employees to enhance NIE Networks' capability;
- maintaining a strong investment grade credit rating;
- engaging effectively with key stakeholders; and
- preparing the network for a low carbon future.
Risk Management
Risk Management Framework
The Board has overall responsibility for risk management and internal control.
The Board ensures that the Group's risk exposure remains proportionate to the
pursuit of its strategic objectives and longer term stakeholder value. It has
adopted a Risk Management Policy and Governance Framework to support its
oversight of risk throughout the Group.
The Board delegates responsibility for oversight of risk to the Audit & Risk
Committee in accordance with the Committee's Terms of Reference. The Audit &
Risk Committee retains overall responsibility for ensuring that enterprise
risks are properly identified, assessed, reported and controlled on behalf of
the Board in its consideration of overall risk appetite, risk tolerance and
risk strategy. As a regulated utility NIE Networks is prudent in its overall
management of the business and has a limited appetite for and tolerance of
risk.
The process of considering the Group's exposure to risk and the changes to key
risks has assisted the Board in its review of strategy and the operational
challenges faced by the Group.
NIE Networks' risk management framework provides clear policies, processes and
procedures to ensure a consistent approach to risk identification, evaluation
and management across the Group and includes appropriate structures to support
risk management and the formal assignment of risk responsibilities to
facilitate managing and reporting on individual risks.
The Risk Management Policy is reviewed annually by the Board and sets out the
high level principles and policy requirements that form the basis of risk
management within NIE Networks and also outlines the risk management roles and
responsibilities and the main organisational and procedural arrangements that
apply to support the effective management of risk. At Executive level, the
Risk Management Committee (RMC) oversees and directs risk management in
accordance with the approved policy. The RMC comprises a number of Executive
Committee members and senior managers and is chaired by the Finance Director.
The RMC considers risk assessments carried out by each business unit and the
risk status and mitigation strategies are reviewed biannually. The RMC reports
on its activities to the Executive Committee, Audit & Risk Committee and the
Board throughout the year.
The internal audit function reports to the Audit & Risk Committee, independent
of management, and provides independent assurance to the Audit & Risk Committee
on the adequacy and effectiveness of NIE Networks' system of governance, risk
management and control.
Principal Risks and Uncertainties
NIE Networks' principal risks remained consistent between 2017 and 2018,
although with some movement on the relative ranking of risks and some changes
to the key risk drivers. The Board agreed the principal risks and the detailed
risk plan following consideration and recommendation by the Audit & Risk
Committee. The principal risks and uncertainties that affect the Group along
with the main mitigating strategies deployed are outlined on the following
pages.
Risk & Risk Description Mitigating Strategies
HEALTH & SAFETY RISKS
Health & safety:
Exposure of employees, A comprehensive annual Health, Safety and Wellbeing
contractors and the general Business Plan approved annually by the NIE Networks
public to risk of injury and the Board which sets out detailed targets for the
associated potential liability management of health and safety. These targets are
and/or loss of reputation for NIE continually monitored as part of the Group's ISO
Networks. 45001 standard safety management framework.
Comprehensive safety rules, policies, procedures and
guidance reviewed and communicated regularly and
compliance monitored on an ongoing basis.
A strong focus on the inspection of work sites and
the reporting, reviewing and communication of near
miss incidents.
Ongoing programmes to increase public awareness of
the risks and dangers associated with electricity
equipment.
Ongoing engagement with GB Distribution Network
Operators through the ENA in order to share best
practice and learning.
REGULATORY RISKS
Licence compliance:
Failure to comply with regulatory NIE Networks has a dedicated Compliance Manager to
licence obligations. monitor compliance with all regulatory licence
obligations and to report to the Utility Regulator on
financial and other regulatory matters.
FINANCIAL RISKS
Funding & liquidity: NIE Networks employs a continuous forecasting and
Inability to secure adequate monitoring process to ensure adequate funding is
funding at appropriate cost for secured on a timely basis.
planned investments in the event
that NIE Networks' credit metrics The Group sets its financial plans cognisant of the
were not maintained within Credit requirement to ensure adequate funding for its
Rating Agency investment grade activities and to maintain an investment grade credit
targets. rating with rating agencies.
Credit risk in respect of receivables from licensed
Exposure to financial electricity suppliers is mitigated by appropriate
counterparty risk. policies with security received in the form of cash
deposits, letters of credit or parent company
guarantees.
NIE Networks conducts business only with Board
approved counterparties which meet the criteria
outlined in the Group's treasury policy.
The Group's treasury policy and procedures are
reviewed, revised and approved by the Board as
appropriate.
Pensions:
Increase in the deficit costs or "Focus" has been closed to new entrants since 1998.
ongoing accrual costs in the Since 1998 new members have joined the money purchase
defined benefit section of the section of the NIEPS ("Options").
Northern Ireland Electricity
Pension Scheme (NIEPS) ("Focus") The NIEPS trustees seek the advice of professional
not covered by regulatory investment managers regarding the scheme's
allowances. investments.
The deficit repair plan was updated in 2018 following
the conclusion of the latest triennial review of the
deficit as at 31 March 2017. The deficit repair plan
will be reviewed in line with the next triennial
review of the deficit as at 31 March 2020.
MARKET RISKS
Customer service:
Failure to meet standards for Stretching customer service standards are approved by
customer service resulting in the NIE Networks Board. Performance against these
damage to reputation. standards is monitored and reported on a monthly
basis.
Connections market share:
Risk of stranded costs arising NIE Networks continuously reviews and analyses its
from either a reduced market and/ cost base to ensure the Group delivers value for
or market share arising from customers. The Group also actively forecasts market
contestability in connections. movements to establish the likely impact on
connections activities and costs.
OPERATIONAL RISKS
Networks infrastructure failure:
Widespread and prolonged failure The risk is minimised through ongoing assessment of
of the transmission or the network condition and development of asset
distribution network. management techniques to inform maintenance and
replacement strategies and priorities. NIE Networks'
asset management practices are certified to ISO
55001, the internationally recognised standard for
asset management.
The network is strengthened through appropriate
investment, a reliability-centred approach to
maintenance and a systematic overhead line
refurbishment and tree cutting programme. NIE
Networks' strategy is to continue to maintain and
develop a safe and secure network to meet market
demands.
Emergency response:
Failing to respond adequately System risk assessments are completed regularly and
following damage to the weather forecasts actively monitored daily.
electricity network from adverse
weather conditions. There is a comprehensive Emergency Plan and Storm
Action Plan in place, each reviewed and tested
regularly with emergency simulations carried out at
least annually. Duty incident teams provide cover
365 days per year with arrangements in place for
access to external utility resources if required.
IT failure:
Major failure of IT Regular review of IT systems and their resilience.
infrastructure or IT systems
arising from a successful cyber Ongoing monitoring of technical performance and
attack or non-malicious failure. reliability.
Disaster Recovery and failover arrangements
documented and tested regularly.
IT Security Forum responsible for policies and
procedures and staff awareness training and
communication.
Governance structures are in place to ensure ongoing
compliance with the Network and Information Systems
Directive which became effective in May 2018.
Data loss:
Loss of data integrity or breach Data Protection Forum implements and monitors
of Data Protection Act. compliance with data protection policy and
procedures.
Governance structures are in place to ensure the
Group continues to be compliant with the new General
Data Protection Regulation which became effective in
May 2018.
Ongoing data protection training for all staff.
PEOPLE RISKS
Knowledge, skills and succession
management:
Inadequate resources with the NIE Networks' strategy is to attract, develop and
necessary knowledge and skills. retain highly skilled people through graduate,
apprenticeship, trainee and sponsorship programmes to
ensure that appropriate resources are in place to
meet the Group's regulatory obligations.
Failure to develop and retain
staff. Employee development is a key priority for the Group
with continued investment in staff training, skills
development and on-going performance improvement.
Focused employee development programmes are in place
to maximise the potential of staff and ensure
adequate succession planning.
Brexit
The Group does not foresee a significant risk to its activities arising from
the UK's withdrawal from the European Union due to the fact that its revenues
and costs are largely generated and incurred within the UK. However, the Group
continues to monitor Brexit developments and, in particular, the risks that
could arise in the event of a disorderly withdrawal.
Emerging risks
The risk management framework enables the Group to identify, analyse and manage
emerging risks to help identify exposures as early as possible. This is managed
as part of the same process to identify principal risks and is reviewed and
monitored in conjunction with principal risks.
High Impact Low Probability (HILP) risks
As a provider of critical national infrastructure, NIE Networks is acutely
aware of the potential impact of this category of risk for the Group. A full
review of HILP risks was undertaken in 2018 and agreed by the Board. The
review also considered the impact upon principal risks and mitigating
strategies.
Business Continuity
NIE Networks is responsible for the provision of critical infrastructure and
disruptions to certain services and operations are potentially damaging to the
economy, to society and to NIE Networks' business. The Group has in place a
robust set of business continuity plans and processes to ensure that responses
are well managed and executed. The exercising and testing of these plans is key
to ensuring NIE Networks' preparedness for a business continuity event.
On behalf of the Board
Paul Stapleton
Managing Director
Northern Ireland Electricity Networks Limited
Registered Office: 120 Malone Road Belfast BT9 5HT Registered Number: NI026041 Date: 12 March 2019 CORPORATE SOCIAL RESPONSIBILITY NIE Networks provides a vital service to every home, farm and business in Northern Ireland as part of its day-to-day work in delivering electricity supplies. Through its mainstream business activities and various specific initiatives, the Group seeks to make a positive impact on the communities in which it operates. Details of health and safety management, employment policies and initiatives and sustainability performance during 2018 can be found in the Operational Review on pages 8 to 14. Initiatives undertaken during the year to support NIE Networks' principal Corporate Social Responsibility (CSR) themes and priorities are described below. During the year NIE Networks employees attended 107 events to promote safety around electricity apparatus and provide skills, careers advice and guidance. Safety Electricity provides a vital service for everyone in Northern Ireland, however it is dangerous and NIE Networks aims to continually heighten and improve the awareness of those in the close vicinity of the electricity network. NIE Networks' Public Safety programme addresses the Group's moral and legislative obligations in respect of safety and involves employees from across the Group. During 2018, approximately 28,000 farmers and contractors received safety advice from NIE Networks at farm safety events. Safety presentations were made to contractors in the transport industry and to other utilities and their contractors. NIE Networks' "Kidzsafe" programme continued with over 10,000 schoolchildren participating in the interactive programme to educate and raise awareness of the dangers of the electricity network in an effort to reduce incidences of electricity-related injuries. NIE Networks continued to utilise the dedicated safety training facility for children and young people, known as RADAR (Risk Avoidance and Danger Awareness Resource). The Group continued to work with the Police Service of Northern Ireland (PSNI), the network operators in Great Britain and other utilities in Northern Ireland to address the dangerous issue of metal theft. Thieves targeting electrical installations endanger themselves, employees and the wider public. NIE Networks' safety advice is supplemented by a proactive media campaign, including social media, with information available on its website at www.nienetworks.co.uk/safety. Customer Care NIE Networks aims to deliver electricity safely and reliably to customers and to respond quickly and efficiently should a power cut occur unexpectedly. Arrangements are in place with ESB Networks, Northern Ireland Water, Openreach Northern Ireland and Phoenix Natural Gas to provide mutual support, for example by sharing resources and equipment, so that customers' utility supplies can be restored more quickly during periods of severe weather or other emergency situations. In addition, together with district councils, emergency planners, health trusts and other organisations, NIE Networks has arrangements in place to respond to wider community needs in the event of customers being without electricity for an extended period of time due to severe weather or an emergency situation. NIE Networks' medical customer care information service is a priority service for approximately 9,000 customers who rely on electricity for their healthcare needs with customers or their carers receiving prioritised information on faults or planned work on the network. The Group works with electricity suppliers to offer a Password scheme to reassure customers that the employee visiting their home or premises is a genuine caller, whereby NIE Networks delivers a pre-agreed password to the customer before being allowed to enter a property. In addition, NIE Networks is a member of the PSNI Quick Check 101 scheme. Work Experience and Educational Outreach NIE Networks is conscious of the ongoing need to encourage and develop tomorrow's workforce. By its nature power engineering is highly skilled and specialist and requires many years of training. With fewer students choosing science and technology subjects, the electricity industry faces a significant skills shortage in the future. NIE Networks therefore continues to engage proactively with students to consider engineering as a career, through a wide range of educational outreach initiatives including: - main sponsor of "Skills NI", a two day careers event for 14-19 year olds with around 75 exhibitors connecting around 8,000 young people with job, career and skills opportunities across Northern Ireland; - links with over 80 schools, most of the further educational colleges and the two universities in NI to promote opportunities to study Science, Technology, Engineering and Maths (STEM) subjects; - offering four further Electrical & Electronic Engineering scholarships at Queen's University Belfast taking the total number of NIE Networks' scholarship students to 25; and - work experience for 42 GCSE and A-Level students studying STEM subjects as well as sponsoring, mentoring and facilitating a four week research and development experience for an A-Level student and other academic bursaries. Community Initiatives NIE Networks continues to be a member of Business in the Community (BiTC). Throughout 2018 employees served on the boards of 24 local voluntary, community and social enterprise organisations many through BiTC's "Business on Board" programme. The Group, along with other utility partners, launched a rebranded PSNI Quick Check Scheme to its customers through its website and social media channels. Quick Check encourages homeowners and particularly the elderly and vulnerable to check the identity of callers at their homes and provides a 24 hour telephone helpline. During the year NIE Networks worked with the NOW Group, the social enterprise that supports people with learning difficulties and autism into employment, on its JAM Card initiative. NIE Networks is the first company to develop a 'JAM friendly' badge for employees who have undertaken the relevant training. Charitable Giving and Sponsorship Charitable giving by employees is promoted through the NIE Networks' Staff and Pensioners Charity Fund, to which the Group contributed GBP10,000 during the year. In 2018 the Charity Fund donated GBP40,000 to local charities. NIE Networks is an active member of, and provides financial support to, the CBI, the Chamber of Commerce, Women in Business, the Institute of Directors and the Centre for Competiveness in Northern Ireland and is a UK Business Supporter of National Energy Action. BOARD OF DIRECTORS STEPHEN KINGON CBE was appointed independent non-executive Chairman of the Board in March 2011. He is Chairman of the Northern Ireland Centre for Competitiveness and Lagan Homes Group Ltd. He is Pro-Chancellor at Queen's University Belfast and a non-executive director of Anderson Spratt Group, Balcas Ltd, Dale Farm Group Ltd and NI Opera. He was formerly Chairman of Invest Northern Ireland and Managing Partner of PricewaterhouseCoopers in NI. DAME ROTHA JOHNSTON DBE was appointed as an independent non-executive director in March 2011. She is Chairperson of Northern Ireland Screen, a member of KPMG's Northern Ireland Advisory Board, a member of Belfast Harbour Commissioners and a director of QUBIS Ltd and Ulster Garden Villages Ltd. In November 2018 she was appointed as a member of the Industrial Strategy Council, a new independent body set up to assess the progress of the UK Government's Industrial Strategy. In the past she has been a BBC Trustee for Northern Ireland and Pro-Chancellor at Queen's University Belfast. In 2016 she was awarded Dame Commander of the Order of the British Empire for services to the Northern Ireland economy and public service. Ms Johnston chairs the Audit & Risk Committee. ALAN BRYCE was appointed as an independent non-executive director in January 2018. He is a non-executive director of Jersey Electricity plc and Chair of the windfarm developer Viking Energy Shetland LLP. He is a member of Ofgem's Customer Challenge Group for the RIIO-2 networks price review. He has extensive relevant experience and knowledge of the energy sector as he formerly held senior executive positions at Scottish Power including as UK Planning and Strategy Director, Managing Director of Generation and Managing Director of Energy Networks. He was previously a non-executive director of Scottish Water, Infinis Energy plc and at Iberdrola USA. He is a Fellow of the Institution of Engineering and Technology. PAUL STAPLETON, Managing Director, was appointed to the Board in May 2018. He is a director of Energy Networks Association Ltd and a committee member of the Institute of Directors in Northern Ireland. He joined ESB in 1991 where he held a number of senior management positions including General Manager of Electric Ireland, one of the largest retail businesses in Ireland, ESB Group Treasurer with responsibility for managing ESB Group's debt, funding and liquidity positions and Financial Controller of ESB Networks Limited, an independent ring-fenced subsidiary within ESB Group. He is a member of the Chartered Institute of Management Accountants. PETER EWING, Deputy Managing Director and Director of Regulation and Market Operations, was appointed to the Board in July 2011. He is Chairman of the NIE Pension Scheme Board and is a non-executive director and Treasurer of Radius Housing. He formerly held Finance Director positions at Viridian Group, NIE and Moy Park Group. He is a Fellow of Chartered Accountants Ireland. GROUP DIRECTORS' REPORT The directors present their report and audited financial statements for Northern Ireland Electricity Networks Limited (NIE Networks or the Company) and its subsidiary undertakings (the Group). Results and Dividends
The results for the year ended 31 December 2018 show a profit after tax of GBP 55.0m (2017 - GBP44.7m). During the year the Company paid a final dividend of GBP 22.0m (2017 - GBP18.0m). The business and financial review, together with future business developments, are provided in the Group Strategic Report. Corporate Governance The Board believes that effective corporate governance is a fundamental aspect of a well-run business and is committed to achieving the highest standards of corporate governance, corporate responsibility and risk management in directing and controlling the business. NIE Networks' regulatory licences require it to establish, and at all times maintain, full managerial and operational independence within the ESB Group. The NIE Networks Board comprises three independent non-executive directors and two executive directors. Throughout 2018, Stephen Kingon CBE continued to chair the Board and Dame Rotha Johnston DBE and Alan Bryce served as the Board's other independent non-executive directors. Following seven years of service, Ronnie Mercer CBE retired as a non-executive director on 3 March 2018. Nicholas Tarrant stood down as Managing Director at the end of April 2018 to take up a position within ESB, and Paul Stapleton was appointed as Managing Director and member of the Board on 1 May 2018. Peter Ewing, Deputy Managing Director and Director of Regulation and Market Operations served as the other executive director throughout the year. Peter Ewing will be stepping down from this role at the end of April 2019 and the Board expresses its gratitude to Peter for his significant contribution to the Company over the last 20 years. Gordon Parkes, Human Resources Director, will be appointed to the Board as an executive director from 1 May 2019. Biographies for current directors are provided on page 21. The Board has a formal schedule of matters specifically reserved to it including: - approval of the annual financial plan; - approval of annual statutory, interim and regulatory financial statements; - approval of major capital expenditure; - approval of major regulatory submissions and certain annual regulatory reports; - approval of key corporate policies; - approval of the annual Health, Safety and Wellbeing Plan; - review of financial and operational performance; and - review of internal control and risk management. During the year the Board conducted a review of its performance, and that of the Audit & Risk Committee, in order to identify ways to improve effectiveness. The Board has overall responsibility for the long-term success and management of the Company. The Board has delegated authority to the Executive Committee of the Board, within pre-defined authority limits, to undertake much of the day-to-day business and management and operation of NIE Networks. The Executive Committee meets monthly and on other occasions as necessary and reports on its activities to each Board meeting. Current membership of the Board, the Audit & Risk Committee and the Executive Committee is outlined as follows: Board of Directors - Stephen Kingon CBE (Chair) - Rotha Johnston DBE (Independent Non-Executive Director) - Alan Bryce (Independent Non-Executive Director) - Paul Stapleton (Managing Director) - Peter Ewing (Deputy MD and Director of Regulation and Market Operations) Audit & Risk Committee - Rotha Johnston DBE (Chair) - Stephen Kingon CBE - Alan Bryce Executive Committee - Paul Stapleton, Managing Director - Peter Ewing, Deputy MD and Director of Regulation and Market Operations - Con Feeney, Network Performance & Safety Director - Roger Henderson, Network Connections Director - Bob Sweeney, Network Construction Director - Gavan Walsh, Finance Director - Gordon Parkes, Human Resources Director Audit & Risk Committee The Audit & Risk Committee is a formally constituted committee of the Board with responsibility for overseeing the Group's financial reporting process and internal control and risk management systems. The Audit & Risk Committee comprises the independent non-executive directors and is chaired by Rotha Johnston. The Board is satisfied that at least one member of the Committee is competent in accounting and auditing. The Committee had seven meetings during the year. The terms of reference, which were updated during 2018, set out the duties of the Audit & Risk Committee. The most significant issues considered by the Committee during 2018, and up to the date of this report, are outlined below: Financial Reporting - reviewed the annual, interim and regulatory financial statements for NIE Networks and annual financial statements for NIE Finance PLC and NIE Networks Services Limited, considering the appropriateness of accounting policies, whether the financial statements give a true and fair view, the appropriateness of the going concern assumption and reviewing the significant issues and judgements; and - reviewed various regulatory submissions. Internal Control and Risk Management - considered and approved the Risk Management Committee's work programme for 2018 and received regular updates on progress; - considered the Group's principal risks faced together with mitigating actions being taken and their alignment to the risk tolerance levels agreed; - reviewed and monitored the effectiveness of internal controls and the risk management framework; - considered an updated risk appetite assessment relating to the Group's principal risks and other key business activities; - considered an assessment of 'High Impact Low Probability' risks; - considered the potential impact of a 'no deal' scenario in relation to the UK's exit from the European Union; - monitored readiness for compliance with the General Data Protection Regulation and Networks Information Systems Directive, each effective from May 2018; - reviewed the Group's statements for publication on the prevention of slavery and human trafficking; and - reviewed the operation of the Group's key ethics policies including the adequacy of the arrangements in place for employees to raise concerns about possible wrongdoing. Internal Audit - considered Deloitte's annual report of the internal audit plan conducted during 2017; - reviewed and approved the 2018 internal audit plan and monitored progress against this plan to assess the effectiveness of this function; - considered Deloitte's annual assurance opinion on the adequacy and effectiveness of the Group's governance risk management and control during 2018; - reviewed reports detailing the results of internal audits and the timeliness of the implementation of actions; and - reviewed and approved the 2019 internal audit plan to be conducted by Deloitte. The Committee had the facility to discuss any areas of the programme with Deloitte without the presence of management. External Audit - reviewed reports from PricewaterhouseCoopers LLP (PwC) on the audit of the 2017 statutory financial statements and March 2018 regulatory financial statements and considered PwC's review of the June 2018 interim financial statements; - reviewed and challenged the proposed external audit plan for the 2018 statutory financial statements to ensure that PwC had identified all key risks and developed robust audit procedures; - considered PwC's adherence to independence requirements; - approved updated policies on the supply of non-audit services from the external auditor and on the employment of former employees of the external auditor in order to ensure that the independence and objectivity of the external auditor is maintained; - approved the engagement of PwC for the provision of permitted non-audit services in relation to the offering circular for a bond issue in September 2018; and - reviewed the report from PwC on the audit of the 2018 statutory financial statements and comments on accounting, financial control and other audit issues. The Committee had the facility to discuss any areas of the audit with PwC without the presence of management. In addition, during the year the Audit & Risk Committee reviewed its own effectiveness as part of the Board's performance evaluation. Internal Control Framework The directors acknowledge that they have responsibility for the Group's systems of internal control and risk management and monitoring their effectiveness. The purpose of these systems is to manage, rather than eliminate, the risk of failure to achieve business objectives, to provide reasonable assurance as to the quality of management information and to maintain proper control over the income, expenditure, assets and liabilities of the Group. Strong financial and business controls are necessary to ensure the integrity and reliability of financial information on which the Group relies for day-to-day operations, external reporting and for longer term planning. The Group has in place a strong internal control framework which includes: - a code of ethics that requires all Board members and employees to maintain the highest ethical standards in conducting business; - a clearly defined organisational structure with defined authority limits and reporting mechanisms; - comprehensive budgeting and business planning processes with an annual budget approved by the Board; - a continuous forecasting and monitoring process to manage financial risk; - an integrated accounting system with a comprehensive system of management and financial reporting. A monthly financial report is prepared which includes analysis of results along with comparisons to budget, forecasts and prior year results. These are reviewed by the Executive Committee and the Board members on a monthly basis; - a financial control framework reviewed in accordance with statutory and regulatory obligations; - a comprehensive set of policies and procedures relating to financial and
operational controls including health and safety, regulation, HR, asset
management, risk management and capital expenditure;
- a risk management framework including the maintenance of risk registers and
ongoing monitoring of key risks and mitigating actions;
- appropriately qualified and experienced personnel;
- governance team responsible for key controls testing;
- key managers formally evaluating the satisfactory and effective operation of
financial and operational controls;
- internal auditors testing management's implementation of their
recommendations following audit reviews;
- external auditors providing advice on specific accounting matters; and
- a confidential helpline service to provide staff with a confidential, and if
required, anonymous means to report fraud or ethical concerns.
The Board, supported by the Audit & Risk Committee, has reviewed the
effectiveness of the system of internal control and has concluded that during
2018, the overall governance, risk management and internal control framework
was adequate to provide reasonable assurance of sound internal control and that
NIE Networks maintained an effective system of internal control which would
prevent or detect against material misstatement or loss.
Directors' Insurance
Insurance in respect of directors' and officers' liability is maintained by the
Company's ultimate parent, ESB.
Disclosure of Information to the Auditors
So far as each person who was a director at the date of approving this report
is aware, there is no relevant audit information, being information needed by
the auditors in connection with preparing their report, of which the auditors
are unaware. Having made enquiries of fellow directors and the Group's
auditors, each director has taken all the steps that he/she is obliged to take
as a director in order to make himself/herself aware of any relevant audit
information and to establish that the auditors are aware of that information.
Appointment of Auditors
PwC were reappointed as external auditors of the Company by the passing of a
shareholder resolution in April 2018. In accordance with Section 487 of the
Companies Act 2006, PwC will be deemed to be reappointed as external auditors
of the Company.
Modern Slavery Act
Modern slavery is a criminal offence under the Modern Slavery Act 2015. The
Act imposes obligations on organisations of a certain size. Modern Slavery can
occur in various forms, including servitude, forced and compulsory labour and
human trafficking, all of which have in common the deprivation of a person's
liberty by another in order to exploit them for personal or commercial gain.
NIE Networks has adopted a Policy on Modern Slavery with the aim of preventing
opportunities for modern slavery occurring within its business and supply
chains. In accordance with the requirements of the Act, NIE Networks publishes
a statement on its website on slavery and human trafficking.
Political Donations
No donations for political purposes have been made during the year (2017 - GBP
nil).
Group Strategic Report
The following information required in the Group Directors' Report has been
included in the Group Strategic Report:
- an indication of future developments in the business (see pages 4 - 14);
- the Group's objectives and policies for financial risk management (including
liquidity risk and credit risk) (see pages 7 - 8);
- a statement on the policy for disabled employees (see page 13);
- arrangements for employees to participate in the affairs of the Group (see
pages 12 - 14); and
- an indication of activities in the Group in the field of research and
development (see page 12).
Directors' Responsibilities Statement
The directors are responsible for preparing the annual report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group financial
statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Company financial statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure
Framework", and applicable law). Under company law the directors must not
approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period. In preparing the
financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- state whether applicable IFRSs as adopted by the European Union have been
followed for the Group financial statements and United Kingdom accounting
Standards, comprising FRS 101, have been followed for the Company financial
statements, subject to any material departures disclosed and explained in the
financial statements;
- make judgements and accounting estimates that are reasonable and prudent; and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group and company will continue in business.
The directors are also responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are also responsible for keeping adequate accounting records that
are sufficient to show and explain the Group and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements and
the Directors' Remuneration Report comply with the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS Regulation.
The directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
On behalf of the Board
Paul Stapleton
Managing Director
Northern Ireland Electricity Networks Limited
Registered Office:
120 Malone Road
Belfast BT9 5HT
Registered Number: NI026041
12 March 2019
INDEPENT AUDITORS' REPORT
to the members of Northern Ireland Electricity Networks Limited
Report on the audit of the financial statements
Opinion
In our opinion:
- Northern Ireland Electricity Networks Limited's group financial statements
and parent company financial statements (the "financial statements") give a
true and fair view of the state of the group's and of the parent company's
affairs as at 31 December 2018 and of the group's profit and cash flows for the
year then ended;
- the group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union;
- the parent company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure
Framework", and applicable law); and
- the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and
Financial Statements (the "Annual Report"), which comprise: the Balance sheets
as at 31 December 2018; the Group income statement and Statements of
comprehensive income, the Group statement of cash flows, and the Group and
parent company statements of changes in equity for the year then ended; and the
notes to the financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the Audit & Risk Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are
further described in the Auditors' responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC's Ethical Standard, as applicable to listed public
interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by the FRC's Ethical Standard were not provided to the group or the
parent company.
Other than those disclosed in note 4 to the financial statements, we have
provided no non-audit services to the group or the parent company in the period
from 1 January 2018 to 31 December 2018.
Our audit approach
Overview
Materiality Overall group materiality: GBP3,307,500 (2017: GBP2,650,000), based on 5%
of profit before tax.
Overall parent company materiality: GBP3,207,500 (2017: GBP2,550,000),
based on 5% of profit before tax.
Audit scope We performed full audit scope over financially significant components
(Northern Ireland Electricity Networks Limited, NIE Finance PLC and
NIE Networks Services Limited).
Key audit Accounting estimates - unbilled debt (Group and parent).
matters Accounting for connections (Group and parent).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the
principal risks of non-compliance with laws and regulations related to the
Listing Rules, the requirements of the Northern Ireland Authority for Utility
Regulation, and we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered those laws and
regulations that have a direct impact on the preparation of the financial
statements such as the Companies Act 2006. We evaluated management's incentives
and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to increase revenue
or reduce expenditure, and management bias in accounting estimates. The group
engagement team shared this risk assessment with the component auditors so that
they could include appropriate audit procedures in response to such risks in
their work. Audit procedures performed by the group engagement team and/or
component auditors included:
- Discussions with management, internal audit and the group's legal advisors,
including consideration of known or suspected instances of non-compliance with
laws and regulation and fraud;
- We have audited key reconciliations, obtained external confirmations and
incorporated elements of unpredictability into our audit testing;
- Challenging assumptions and judgements made by management in their
significant accounting estimates, in particular in relation to accounting for
unbilled debt (see related key audit matter below);
- We have discussed and understood the nature of open matters between the
company and the Northern Ireland Authority for Utility Regulation; and
- Identifying and testing journal entries, in particular any journal entries
posted with an unusual description, unusual nominal account combinations
against revenue, operating expenses and unbilled debt or entries made by
unexpected persons.
There are inherent limitations in the audit procedures described above and the
further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we would
become aware of it. Also, the risk of not detecting a material misstatement due
to fraud is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors' professional
judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the auditors,
including those which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. This is not a complete list of all
risks identified by our audit.
Key audit matter How our audit addressed the key audit matter
Accounting estimates -
unbilled debt We understood and tested the processes and internal
Unbilled revenue is based on controls which NIE Networks has in place for the
an estimation in respect of estimation of unbilled revenue.
consumption derived using We performed testing over the systems that support
historical data and detailed unbilled revenue to include agreement of volume and
assumptions. Estimation pricing data between the billing system and the unbilled
uncertainty and the model, the appropriateness of underlying assumptions (and
complexity of calculations their consistency), and consideration of the outcome of
give rise to heightened prior period estimates.
misstatement risk and are Our specialist data team provided support in the
therefore a focus of our assessment and testing of this model. We concluded that
audit work unbilled revenue was appropriately stated.
Group and parent
Accounting for connections
For each connections job, We assessed that revenue recognition is in line with the
the Group incurs direct and revenue recognition requirements of IFRS15: Revenue from
indirect costs as well as a Contracts with Customers.
margin that is capitalised. We identified, assessed and tested key controls that
On receipt of the customer exist within the NIE Networks capitalisation process to
payment a deferred income ensure that they are designed, implemented and operating
balance arises which is effectively.
released to the Income We examined if costs capitalised during the year were
Statement over time. The accounted for in accordance with the requirements of IAS
application of IFRS 15 to 16: Property, Plant and Equipment and the Group Policy.
this area and the We gained an understanding of and performed testing over
interrelationship between the the opening IFRS15 adjustment which resulted in an
balances (deferred income/ increase to the deferred income balance in relation to
capitalisation) and release incomplete performance obligations.
to the Income Statement is We performed substantive testing over deferred income
complex and therefore a focus balances including transfers from payments on account as
for our audit work. well as testing the associated capitalisation of costs
Group and parent and revenue releases.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to
be able to give an opinion on the financial statements as a whole, taking into
account the structure of the group and the parent company, the accounting
processes and controls, and the industry in which they operate.
As part of our procedures to develop our Audit Strategy, as well as meeting
with management, we attended some Audit & Risk Committee meetings during the
year, engaged with Internal Audit and performed interim review procedures.
The Northern Ireland Electricity Networks Limited Group comprises of Northern
Ireland Electricity Networks Limited, NIE Finance PLC and NIE Networks Services
Limited. All companies are financially significant to the group and
therefore required an audit of their complete financial information.
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
looked at where the directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all of our
audits we also addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group financial statements Parent company financial
statements
Overall materiality GBP3,307,500 (2017: GBP2,650,000). GBP3,207,500 (2017: GBP2,550,000).
How we determined it 5% of profit before tax. 5% of profit before tax.
Rationale for Based on the benchmarks used in We believe that profit before
benchmark applied the annual report, profit before tax is the primary measure used
tax is the primary measure used by the shareholders in assessing
by the shareholders in assessing the performance of the entity,
the performance of the group, and is a generally accepted
and is a generally accepted auditing benchmark.
auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality
that is less than our overall group materiality. The range of materiality
allocated across components was between GBP93,980 and GBP2,650,000. Certain
components were audited to a local statutory audit materiality that was also
less than our overall group materiality.
We agreed with the Audit & Risk Committee that we would report to them
misstatements identified during our audit above GBP165,000 (Group audit) (2017: GBP
132,500) and GBP132,500 (Parent company audit) (2017: GBP165,000) as well as
misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
- the directors' use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate; or
- the directors have not disclosed in the financial statements any identified
material uncertainties that may cast significant doubt about the group's and
parent company's ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the date when the
financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the group's and parent company's ability to
continue as a going concern. For example, the terms on which the United Kingdom
may withdraw from the European Union, which is currently due to occur on 29
March 2019, are not clear, and it is difficult to evaluate all of the potential
implications on the company's trade, customers, suppliers and the wider
economy.
Reporting on other information
The other information comprises all of the information in the Annual Report
other than the financial statements and our auditors' report thereon. The
directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there
is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these
responsibilities.
With respect to the Group Strategic Report and Group Directors' Report, we also
considered whether the disclosures required by the UK Companies Act 2006 have
been included.
Based on the responsibilities described above and our work undertaken in the
course of the audit, ISAs (UK) require us also to report certain opinions and
matters as described below.
Group Strategic Report and Group Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Group Strategic Report and Group Directors' Report for
the year ended 31 December 2018 is consistent with the financial statements and
has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and parent company and
their environment obtained in the course of the audit, we did not identify any
material misstatements in the Group Strategic Report and Group Directors'
Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors' Responsibilities Statement set out on
page 26, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's and the parent company's ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the
parent company's members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
- we have not received all the information and explanations we require for our
audit; or
- adequate accounting records have not been kept by the parent company, or
returns adequate for our audit have not been received from branches not visited
by us; or
- certain disclosures of directors' remuneration specified by law are not made;
or
- the parent company financial statements are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit & Risk Committee, we were appointed
by the directors on 17 October 2017 to audit the financial statements for the
year ended 31 December 2017 and subsequent financial periods. The period of
total uninterrupted engagement is 2 years, covering the years ended 31 December
2017 to 31 December 2018.
Kevin MacAllister (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Belfast
12 March 2019
GROUP INCOME STATEMENT
for the year ended 31 December 2018
Note 2018 2017
GBPm GBPm
Revenue 3 275.8 261.1
Operating costs 4 (166.7) (166.2)
----------- -----------
OPERATING PROFIT 109.1 94.9
----------- -----------
Finance revenue 6 0.2 -
Finance costs 6 (38.3) (38.5)
Net pension scheme interest 6 (3.0) (3.6)
----------- -----------
Net finance costs 6 (41.1) (42.1)
----------- -----------
PROFIT BEFORE TAX 68.0 52.8
Tax charge 7 (13.0) (8.1)
----------- -----------
PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY
HOLDERS OF THE PARENT COMPANY 55.0 44.7
======== ========
STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
Group and Company
Note 2018 2017
GBPm GBPm
Profit for the financial year 55.0 44.7
----------- -----------
Other comprehensive income:
Items not to be reclassified to profit or loss
in subsequent periods:
Re-measurement gains on pension scheme assets 21 18.7 8.2
and liabilities
Deferred tax charge relating to components of
other comprehensive income 7 (3.2) (1.4)
----------- -----------
Net other comprehensive income for the year
15.5 6.8
----------- -----------
Total comprehensive income for the year
attributable to the equity holders of the 70.5 51.5
parent company
======== ========
BALANCE SHEETS
as at 31 December 2018
Group Company
Note 2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Non-current assets
Property, plant and 9 1,791.1 1,715.5 1,791.9 1,716.3
equipment
Intangible assets 10 21.2 20.0 21.2 20.0
Derivative financial 17 486.9 500.0 486.9 500.0
assets
Investments 11 - - 7.9 7.9
----------- ----------- ----------- -----------
2,299.2 2,235.5 2,307.9 2,244.2
Current assets ----------- ----------- ----------- -----------
Inventories 12 13.4 15.2 13.4 15.2
Trade and other 13 53.9 57.1 53.9 57.1
receivables
Current tax receivable 4.7 1.4 4.7 1.4
Derivative financial 17 12.5 79.5 12.5 79.5
assets
Cash and cash equivalents 14 30.4 11.2 30.4 11.2
----------- ----------- ----------- -----------
114.9 164.4 114.9 164.4
----------- ----------- ----------- -----------
TOTAL ASSETS 2,414.1 2,399.9 2,422.8 2,408.6
----------- ----------- ----------- -----------
Current liabilities
Trade and other payables 15 69.0 89.2 78.2 98.4
Deferred income 16 18.6 18.0 18.6 18.0
Financial liabilities:
- Derivative financial 17 12.5 79.5 12.5 79.5
liabilities
- Other financial 18 17.2 307.2 17.2 307.2
liabilities
Provisions 20 3.8 1.1 3.8 1.1
----------- ----------- ----------- -----------
121.1 495.0 130.3 504.2
Non-current liabilities ----------- ----------- ----------- -----------
Deferred tax liabilities 7 72.0 64.7 72.0 64.7
Deferred income 16 512.2 483.4 512.2 483.4
Financial liabilities:
- Derivative financial 17 486.9 500.0 486.9 500.0
liabilities
- Other financial 18 746.8 398.5 746.8 398.5
liabilities
Provisions 20 4.0 3.9 4.0 3.9
Pension liability 21 97.5 127.0 97.5 127.0
----------- ----------- ----------- -----------
1,919.4 1,577.5 1,919.4 1,577.5
----------- ----------- ----------- -----------
TOTAL LIABILITIES 2,040.5 2,072.5 2,049.7 2,081.7
----------- ----------- ----------- -----------
NET ASSETS 373.6 327.4 373.1 326.9
======== ======== ======== ========
Equity
Share capital 22 36.4 36.4 36.4 36.4
Share premium 22 24.4 24.4 24.4 24.4
Capital redemption 22 6.1 6.1 6.1 6.1
reserve
Accumulated profits 22 306.7 260.5 306.2 260.0
----------- ----------- ----------- -----------
TOTAL EQUITY 373.6 327.4 373.1 326.9
======== ======== ======== ========
The profit after tax of the Company for the year is GBP55.0m (2017 - GBP44.7m).
The financial statements on pages 32 to 63 were approved by the Board of
Directors on 6 March 2019 and signed on its behalf by:
Paul Stapleton
Director
Date: 12 March 2019
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2018
Group
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 36.4 24.4 6.1 227.0 293.9
Profit for the year - - - 44.7 44.7
Net other comprehensive
income for the year - - - 6.8 6.8
Total comprehensive income ----------- ----------- ----------- ----------- -----------
for the year - - - 51.5 51.5
Dividends to the 22 - - - (18.0) (18.0)
shareholder
----------- ----------- ----------- ----------- -----------
At 31 December 2017 36.4 24.4 6.1 260.5 327.4
Profit for the year - - - 55.0 55.0
Net other comprehensive
income for the year - - - 15.5 15.5
Total comprehensive income ----------- ----------- ----------- ----------- -----------
for the year - - - 70.5 70.5
Dividends to the 22 - - -
shareholder (22.0) (22.0)
Opening balance adjustment
on adoption of IFRS 15 2 - - - (2.3) (2.3)
----------- ----------- ----------- ----------- -----------
At 31 December 2018 36.4 24.4 6.1 306.7 373.6
====== ====== ====== ====== ======
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2018
Company
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 36.4 24.4 6.1 226.5 293.4
Profit for the year - - - 44.7 44.7
Net other comprehensive
income for the year - - - 6.8 6.8
Total comprehensive income ----------- ----------- ----------- ----------- -----------
for the year - - - 51.5 51.5
Dividends to the 22 - - - (18.0) (18.0)
shareholder
----------- ----------- ----------- ----------- -----------
At 31 December 2017 36.4 24.4 6.1 260.0 326.9
Profit for the year - - - 55.0 55.0
Net other comprehensive
income for the year - - - 15.5 15.5
Total comprehensive income ----------- ----------- ----------- ----------- -----------
for the year - - - 70.5 70.5
Dividends to the 22 (22.0) (22.0)
shareholder - - -
Opening balance adjustment - - - (2.3) (2.3)
on adoption of IFRS 15 2
----------- ----------- ----------- ----------- -----------
At 31 December 2018 36.4 24.4 6.1 306.2 373.1
====== ====== ====== ====== ======
CASH FLOW STATEMENT
for the year ended 31 December 2018
Group
Note 2018 2017
GBPm GBPm
Cash flows generated from operating activities
Profit for the year 55.0 44.7
Adjustments for:
- Tax charge 13.0 8.1
- Net finance costs 6 41.1 42.1
- Depreciation of property, plant and equipment 9 70.5 66.0
- Amortisation of intangible assets 10 4.3 5.2
- Release of customers' contributions and grants 16 (17.5) (16.0)
- Defined benefit pension charge less contributions 21 (13.8) (14.4)
paid
- Net movement in provisions 20 0.5 (0.2)
----------- -----------
Operating cash flows before movement in working capital 153.1 135.5
Decrease / (increase) in inventories 1.8 (2.3)
(Increase) / decrease in trade and other receivables (0.9) 3.8
Decrease in trade and other payables (20.3) (46.5)
----------- -----------
Increase in working capital (19.4) (45.0)
----------- -----------
Cash generated from operations 133.7 90.5
Interest received 0.2 -
Interest paid (39.1) (38.2)
Current taxes paid (4.1) (5.8)
----------- -----------
Net cash flows generated from operating activities 90.7 46.5
----------- -----------
Cash flows used in investing activities
Purchase of property, plant and equipment (147.9) (206.9)
Customers' cash contributions 16 44.6 86.3
Purchase of intangible assets (5.5) (0.9)
----------- -----------
Net cash flows used in investing activities (108.8) (121.5)
----------- -----------
Cash flows generated from financing activities
Dividends paid to shareholder 22 (22.0) (18.0)
Amounts (repaid to) / received from group undertakings 18 (114.0) 94.9
Amounts received from financing activities 18 348.3 -
Repayment of external borrowings 18 (175.0) -
----------- -----------
Net cash flows generated from financing activities 37.3 76.9
----------- -----------
Net increase in cash and cash equivalents 19.2 1.9
Cash and cash equivalents at beginning of year 11.2 9.3
----------- -----------
Cash and cash equivalents at end of year 14 30.4 11.2
======= =======
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash at bank and in hand, short-term bank deposits and bank overdrafts.
NOTES TO THE FINANCIAL STATEMENTS
1. General Information
Northern Ireland Electricity Networks Limited (NIE Networks or the Company) is
a limited company incorporated, domiciled and registered in Northern Ireland
(registered number NI026041). The Company's registered office address is 120
Malone Road, Belfast, BT9 5HT. The principal activities of the Company are:
- constructing and maintaining the electricity transmission and distribution
networks in Northern Ireland and operating the distribution network;
- connecting demand and generation customers to the transmission and
distribution networks; and
- providing electricity meters in Northern Ireland and providing metering data
to suppliers and market operators to enable wholesale and retail market
settlement.
2. Accounting Policies
The principal accounting policies applied in the preparation of these financial
statements are set out below. These policies have been applied consistently to
all years presented, unless otherwise stated.
New and revised accounting standards, amendments and interpretations
The Group has adopted IFRS 15, 'Revenue from Contracts with Customers', (IFRS
15) and IFRS 9, 'Financial Instruments', (IFRS 9) both of which are effective
for the first time for the financial year beginning on 1 January 2018. The
impact of adoption on the financial statements of the Group and Company is
outlined below:
IFRS 15
The adoption of IFRS 15 resulted in a change in the timing of recognition in
respect of an aspect of connections revenue. This reduction in revenue has been
offset by a commensurate reduction in operating costs associated with those
elements of revenue, therefore having no impact on the operating profit of the
Group or Company. On transition, the Group and Company recognised a GBP2.3m
reduction in accumulated profits in respect of the change in timing of revenue
recognition which related to contracts with customers for which performance
obligations were not complete as at 31 December 2017. The reduction in
accumulated profits is disclosed in the Statement of Changes in Equity for both
the Group and Company and resulted in a corresponding increase in deferred
income as disclosed in note 16.
IFRS 9
As a result of the Group and Company's limited exposure to credit risk in
respect of its trade receivables the adoption of IFRS 9 has had no material
impact on the financial statements of the Group or Company.
New and revised accounting standards, amendments and interpretations not yet
adopted
A number of new standards and amendments to standards and interpretations are
effective for annual periods beginning after 1 January 2019, and have not been
applied in preparing these financial statements. None of these are expected to
have a significant effect on the financial statements of the Group or Company
with the exception of IFRS 16, 'Leases', (IFRS 16) as noted below:
IFRS 16
IFRS 16 addresses the definition of a lease, the recognition and measurement of
leases and it establishes principles for reporting useful information to users
of financial statements about the leasing activities of both lessees and
lessors. A key change arising from IFRS 16 is that most operating leases will
be accounted for on balance sheet for lessees.
The standard replaces IAS 17, 'Leases', and related interpretations. The
standard is effective for annual periods beginning on or after 1 January 2019,
and earlier application is permitted subject to EU endorsement and the entity
adopting IFRS 15 at the same time. NIE Networks intends to apply IFRS 16 from
1 January 2019.
Based on the Group's current lease portfolio, the Group estimates financial
liabilities associated with future lease commitments of GBP8.9m and a
corresponding right of use asset of GBP8.9m will be recognised on the Group's
balance sheet at 31 December 2019. The Group expects profit before tax to
decrease by GBP1.3m as a result of the accounting changes required by IFRS 16.
The Group is aware that the IASB has made a submission to the IFRS
Interpretations Committee (IFRS IC) to clarify the accounting position of
specific issues under IFRS 16. The Group will review the outcome of this
submission to assess if it will require any change to the Group's accounting
treatment however it is the Group's assessment that any change arising from
this submission will not have a material impact on the financial statements of
the Group or Company.
Basis of Preparation
The Group financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRS IC interpretations
as adopted by the EU and applied in accordance with the provisions of the
Companies Act 2006 as applicable to companies reporting under IFRS.
The Company financial statements have been prepared in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in
accordance with applicable accounting standards.
The financial statements of the Group and Company have been prepared under the
historical cost convention, as modified by the revaluation of derivative
instruments at fair value through profit or loss.
The financial statements are presented in Sterling (GBP) with all values rounded
to the nearest GBP100,000 except where otherwise indicated.
The Company has taken advantage of the following disclosure exemptions under
FRS 101:
(a) the requirements of paragraphs 10(d), 38A, 38B, 38C, 38D, 40A, 40B, 40C,
40D, 111 and 134-136 of IAS 1 Presentation of Financial Statements, which are
requirements relating to cash flows, comparative information, statement of
compliance and the management of capital;
(b) the requirements of IAS 7 Statement of Cash Flows in preparing a cash flow
statement for the Company;
(c) the requirements of paragraphs 17 and 18A of IAS 24 Related Party
Disclosures relating to the disclosure of key management personnel
compensation; and
(d) the requirements in IAS 24 Related Party Disclosures to disclose related
party transactions entered into between two or more members of a group,
provided that any subsidiary which is a party to the transaction is wholly
owned by such a member.
Basis of Preparation - Going Concern The Group is financed through a combination of equity and debt finance. Details in respect of the Group's equity are shown in the Statement of Changes in Equity and in note 22 to the financial statements. The Group's debt finance at the year end comprised bonds of GBP350.0m and GBP400.0m (GBP348.1m and GBP398.7m respectively net of issue costs) which are due to mature in October 2025 and June 2026 respectively. The Group repaid its expiring GBP175.0m bond and GBP114.0m drawn on the RCF from ESB in September 2018. The Group's liquidity risk is assessed through the preparation of cash flow forecasts. The Group's policy is to have sufficient funds in place to meet funding requirements for the next 12 - 18 months. On the basis of their assessment of the Group's financial position, which included a review of the Group's projected funding requirements for a period of 12 months from the date of approval of the financial statements, the directorshave a reasonable expectation that the Group will have adequate financial resources for the 12-month period. Accordingly the directors continue to adopt the going concern basis in preparing the annual report and financial statements . Basis of consolidation The Group financial statements consolidate the financial statements of the Company and entities controlled by the Company (its subsidiaries), NIE Networks Services Limited and NIE Finance PLC. Control exists when the Company is exposed to, or has the rights to, variable returns from its involvement with an entity and has the ability to affect those returns through its power, directly or indirectly, to govern the financial and operating policies of the entity. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Subsidiaries are consolidated from the day on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Company's investments in subsidiaries The Company recognises its investments in subsidiaries at cost less any recognised impairment loss. Dividends received from subsidiaries are recognised in the income statement. The carrying values of investments in subsidiaries are reviewed annually for any indications of impairment, including whether the carrying value is impaired as a result of the receipt of dividends. Property, plant and equipment Property, plant and equipment is included in the balance sheet at cost, less accumulated depreciation and any recognised impairment loss. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate portion of overheads. Interest on funding attributable to significant capital projects is capitalised during the period of construction provided it meets the recognition criteria in IAS 23 and is written off as part of the total cost of the asset. Freehold land is not depreciated. Other property, plant and equipment are depreciated on a straight-line basis so as to write off the cost, less estimated residual values, over their estimated useful economic lives as follows: Infrastructure assets - up to 40 years Non-operational buildings - freehold and long leasehold - up to 60 years Fixtures and equipment - up to 10 years Vehicles and mobile plant - up to 5 years The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Where the carrying value exceeds the estimated recoverable amount, the asset is written down to its recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Impairment losses are recognised in the income statement. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from its continued use. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the net selling price and the carrying amount of the asset. Intangible assets - Computer software The cost of acquiring computer software is capitalised and amortised on a straight-line basis over its estimated useful economic life which is between three and ten years. Costs include direct labour relating to software development and an appropriate portion of directly attributable overheads. Interest on funding attributable to significant capital projects is capitalised during the period of construction provided it meets the recognition criteria in IAS 23 and is written off as part of the total cost of the asset. The carrying value of computer software is reviewed for impairment annually when the asset is not yet in use and subsequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Gains or losses arising from de-recognition of computer software are measured as the difference between the net selling price and the carrying amount of the asset. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated as the weighted average purchase price. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Financial instruments The accounting policies for the financial instruments of the Group are set out below. The related objectives and policies for financial risk management (including capital management and liquidity risk, credit risk and interest rate risk) are included in the Group Strategic Report. The Group classifies its financial instruments into one of the categories discussed below, depending on the purpose for which the instrument was acquired. The Group's accounting policy for each category is as follows: Fair value through profit or loss This category comprises derivative assets and liabilities. Derivatives are carried in the balance sheet at fair value with changes in fair value recognised in the income statement within net finance costs. Financial assets measured at amortised cost Assets measured at amortised cost principally arise from the provision of services to customers (trade receivables) but also incorporate other types of financial assets where the objective is to hold assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Group's financial assets measured at amortised cost comprise trade and other receivables, cash and cash equivalents and loans and receivables. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities of three months or less. Trade and other receivables Trade receivables do not carry any interest. The Group assesses, on a forward looking basis, the expected credit losses associated with trade receivables. The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Loans and receivables Loans and receivables are initially recorded at fair value. After initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Other financial liabilities Other financial liabilities include the bank borrowings and trade payables. Interest bearing loans and overdrafts Interest bearing loans and overdrafts are initially recorded at fair value, being the proceeds received net of direct issue costs. After initial recognition, interest bearing loans are subsequently measured at amortised cost using the effective interest method. Trade payables Trade payables are not interest bearing and are stated at their amortised cost. Borrowing costs Borrowing costs attributable to significant capital projects are capitalised as part of the cost of the respective qualifying assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Operating lease contracts Leases are classified as operating lease contracts whenever the terms of the lease do not transfer substantially all the risks and benefits of ownership to the lessee. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term. Revenue The Group has applied IFRS 15 using the cumulative effect method and therefore the comparative information has not been restated and continues to be reported under IAS 18. Other than the change in the timing of recognition in respect of some elements of connections revenue outlined above, IFRS 15 has not resulted in significant changes in revenue recognition for the Group. For completeness the Group has outlined the principles applied in respect of revenue recognition when applying IFRS 15 and IAS 18, however as noted, this has not resulted in a material change. 2018 Revenue recognition principles - IFRS 15
Revenue is recognised when the Group has satisfied its performance obligations
in respect of the contract with the customer. Revenue is measured based on the
consideration specified in a contract with a customer.
2017 Revenue recognition principles - IAS 18
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided in the
normal course of business, exclusive of value added tax and other sales related
taxes.
Specific revenue recognition principles - IFRS 15 and IAS 8
The following specific recognition criteria must also be met before revenue is
recognised:
Interest receivable
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Use of System and PSO revenue
Revenue is recognised on the basis of units distributed during the period.
Revenue includes an assessment of the volume of electricity distributed,
estimated using historical consumption patterns.
Transmission service revenue
Revenue is recognised in accordance with the schedule of entitlement set by the
Utility Regulator for each tariff period.
Customers' contributions
Customers' contributions received in respect of property, plant and equipment
are deferred and released to revenue in the income statement by instalments
over the estimated useful economic lives of the related assets.
Government grants
Government grants received in respect of property, plant and equipment are
deferred and released to operating costs in the income statement by instalments
over the estimated useful economic lives of the related assets. Grants
received in respect of expenditure charged to the income statement during the
period are included in the income statement.
Tax
The tax charge represents the sum of tax currently payable and deferred tax.
Tax is charged or credited in the income statement, except when it relates to
items charged or credited directly to equity, in which case the tax is also
dealt with in equity.
Tax currently payable is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the income statement because it
excludes both items of income or expense that are taxable or deductible in
other years as well as items that are never taxable or deductible. The Company
and Group's liability for current tax is calculated using tax rates (and tax
laws) that have been enacted or substantially enacted by the balance sheet
date.
Deferred tax is the tax payable or recoverable on differences between the
carrying amount of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, except where the Group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred tax is not recognised on temporary differences where they arise from
the initial recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time of the
transaction affects neither accounting nor taxable profit nor loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the deferred tax
asset to be recovered.
Deferred tax assets and liabilities are calculated at the tax rates that are
expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantially enacted by the balance sheet date.
Provisions
Provisions are recognised when (i) the Group has a present obligation (legal or
constructive) as a result of a past event (ii) it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and (iii) a reliable estimate can be made of the amount of the
obligation. Where the Group expects a provision to be reimbursed, the
reimbursement is recognised as a separate asset but only when the reimbursement
is virtually certain. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time
is included within finance costs.
Pensions and other post-retirement benefits
Employees of the Group are entitled to membership of the Northern Ireland
Electricity Pension Scheme (NIEPS) which has both defined benefit and defined
contribution pension arrangements. The amount recognised in the balance sheet
in respect of liabilities represents the present value of the obligations
offset by the fair value of assets.
Pension scheme assets are measured at fair value and liabilities are measured
using the projected unit credit method and discounted at a rate equivalent to
the current rate of return on a high quality corporate bond of equivalent
currency and term to the liabilities. Full actuarial valuations are obtained
at least triennially and updated at each balance sheet date. Re-measurements
comprising of actuarial gains and losses and return on plan assets are
recognised immediately in the period in which they occur and are presented in
the statement of comprehensive income. Re-measurements are not reclassified to
profit or loss in subsequent periods.
The cost of providing benefits under the defined benefit scheme is charged to
the income statement over the periods benefiting from employees' service.
These costs comprise current service costs, past service costs, gains or losses
on curtailments and non-routine settlements, all of which are recognised in
operating costs. Past service costs are recognised immediately to the extent
that the benefits are already vested. Curtailment losses are recognised in the
income statement in the period they occur.
Net pension interest on net pension scheme liabilities is included within net
finance costs. Net interest is calculated by applying the discount rate to the
net pension asset or liability.
Pension costs in respect of defined contribution arrangements are charged to
the income statement as they become payable.
The Group has adopted the exemption allowed in IFRS 1 to recognise all
cumulative actuarial gains and losses at the transition date in reserves.
Critical accounting judgements and key sources of estimation uncertainty
Pensions and other post-employment benefits
The estimation of and accounting for retirement benefit obligations involves
judgements made in conjunction with independent actuaries. This involves
estimates about uncertain future events including the life expectancy of scheme
members, future salary and pension increases and inflation as well as discount
rates. The assumptions used by the Group and a sensitivity analysis of a change
in these assumptions are described in note 21.
Unbilled debt
Revenue includes an assessment of the volume of electricity distributed but not
yet invoiced, estimated using historical consumption patterns. A corresponding
receivable in respect of unbilled consumption is recognised within trade
receivables.
Fair value measurement
The measurement of the Group's derivative financial instruments is based on a
number of judgmental factors and assumptions which by necessity are not based
on observable inputs. These have been classified as Level 2 financial
instruments in accordance with IFRS 13. Further detail is provided in note 17.
3. Revenue
The Group's operating activities, which comprise one operating segment, are
described in the Group Strategic Report. Financial information is reported to
the Executive Committee and the Board on a consolidated basis and is not
segmented.
All of the Group's revenue is derived from contracts with customers.
2018 2017
GBPm GBPm
Revenue:
Regulated tariff revenue 239.2 225.4
Release of customers' contributions 17.0 25.3
PPB PSO 10.6 0.2
Other unregulated revenue 9.0 10.2
----------- -----------
275.8 261.1
======= =======
Revenue of GBP275.8m (2017 - GBP261.1m) includes GBP14.2m (2017 - GBP4.2m) recognised
at a point in time comprising PPB PSO revenue of GBP10.6m (2017 - GBP0.2m) and
elements of other unregulated revenue GBP3.6m (2017 - GBP4.0m).
As outlined in note 13, the Group does not have contract assets arising from
contracts with customers (2017 - none).
The Group's contract liabilities are in the form of payments received on
account (note 15) and deferred income in respect of customers' contributions
(note 16), both of which relate to amounts charged to customers in respect of
connections to the network. Revenue from the release of customers'
contributions of GBP17.0m (2017 - GBP25.3m) represents revenue recognised during
the year which would have been included within contract liabilities in the
prior year.
None of the Group's revenue recognised during the year (2017 - none) relates to
performance obligations satisfied in prior years.
During the year, three customers accounted for sales revenue totalling GBP158.0m
(2017 - four customers accounted for GBP198.8m).
Geographical information
The Group is of the opinion that all revenue is derived from the United Kingdom
on the basis that the Group's assets, from which revenue is derived, are all
located within the United Kingdom.
4. Operating Costs
Operating costs are analysed as follows:
2018 2017
GBPm GBPm
Employee costs (note 5) 34.1 29.3
Depreciation and amortisation 74.3 70.7
Other operating charges 58.3 66.2
----------- -----------
166.7 166.2
======= =======
Operating costs include:
Depreciation charge on property, plant and equipment 70.5 66.0
Amortisation of intangible assets 4.3 5.2
Amortisation of grants (0.5) (0.5)
Minimum payments due under operating leases 3.2 3.3
Cost of inventories recognised as an expense 1.1 1.3
Operating costs include:
2018 2017
Auditors' remuneration GBP'000 GBP'000
Ernst & Young LLP:
Fees payable to the Group and Company auditors for the
audit of the financial statements - -
Fees payable to the Group and Company auditors for
other services:
The audit of the company's subsidiaries pursuant to - -
legislation
Audit related assurance services - 27
Permitted tax compliance services - 3
PricewaterhouseCoopers LLP:
Fees payable to the Group and Company auditors for the
audit of the financial statements 49 29
Fees payable to the Group and Company auditors for
other services:
The audit of the company's subsidiaries pursuant to 4 4
legislation
Audit related assurance services 50 10
5. Employees
Employee costs - Group and Company
2018 2017
GBPm GBPm
Wages and salaries 53.9 52.8
Social security costs 5.5 5.6
Pension costs
- defined contribution plans 5.3 4.4
- defined benefit plans 14.3 11.0
----------- -----------
79.0 73.8
Less: amounts capitalised to
property, plant and equipment and (44.9) (44.5)
intangible assets
----------- -----------
Charged to the income statement 34.1 29.3
======= =======
Average and actual headcount for the Group and Company are disclosed in the
table below:
Actual headcount
Average as at 31 December
2018 2017 2018 2017
Number Number Number Number
Management, administration and 290 318 280 312
support
Electrical services 913 966 900 961
----------- ----------- ----------- -----------
Employee numbers 1,203 1,284 1,180 1,273
======= ======= ======= =======
Directors' emoluments
The remuneration of the directors paid by the Company was as follows:
2018 2017
GBP'000 GBP'000
Emoluments in respect of qualifying services 662 654
Emoluments in respect of qualifying services include deferred remuneration
awarded in the current and prior year but payable in future years. GBP422,548 is
payable to directors in respect of termination benefits (2017 - GBPnil). No
amounts were paid to directors in respect of long-term incentive plans. The
Company does not operate any share schemes therefore no directors exercised
share options or received shares under long-term incentive schemes during
either the current year or the previous year.
The number of directors to whom retirement benefits are accruing, under defined
benefit and defined contribution pension schemes, was as follows:
2018 2017
Number Number
Defined benefit pension scheme - -
Defined contribution scheme 2 1
Aggregate contributions by the Company to the Company's defined contribution
pension scheme in respect of the directors during the year was GBP23,791 (2017 -
GBP4,212).
The remuneration in respect of the highest paid director was as follows:
For the year ended 2018 2017
GBP'000 GBP'000
Emoluments 287 312
Total accrued pension at 31 December (per annum) - -
Contributions by the Company to the Company's defined contribution pension
scheme in respect of the highest paid director was GBP5,791 (2017 - GBP4,212).
6. Net Finance Costs
2018 2017
GBPm GBPm
Finance revenue:
Bank interest receivable 0.2 -
----------- -----------
Finance costs:
GBP175m bond (8.6) (12.0)
GBP400m bond (25.5) (25.5)
GBP350m bond (2.3) -
Amounts payable to parent undertakings (note 26) (1.5) (0.8)
----------- -----------
(37.9) (38.3)
Less: capitalised interest - 0.1
----------- -----------
Total interest charged to the income statement (37.9) (38.2)
----------- -----------
Other finance costs:
Amortisation of financing charges (0.4) (0.3)
----------- -----------
Total finance costs (38.3) (38.5)
----------- -----------
Net pension scheme interest (3.0) (3.6)
----------- -----------
Net finance costs (41.1) (42.1)
======= =======
Funds from Operations (FFO) Interest Cover Ratio
The Group considers the ratio of FFO to interest paid to be a key measure of
the Group's financial health. FFO interest cover indicates the Group's ability
to fund interest payments from cash flows generated from operations. The
calculation of the ratio, as reported in the Financial Review, is shown below:
2018 2017
GBPm GBPm
Operating profit 109.1 94.9
Add back depreciation and 74.3 70.7
amortisation
Deduct pension deficit repair (17.7) (17.2)
contributions
Deduct amortisation of customer (17.0) (15.5)
contributions
Deduct tax paid (4.1) (5.8)
----------- -----------
Funds from operations 144.6 127.1
Interest paid (39.1) (38.2)
----------- -----------
FFO to interest paid (times) 3.7 3.3
======= =======
Pension deficit repair contributions of GBP17.7m (2017 - GBP17.2m) reflect
contributions in respect of past service costs as explained in note 21.
7. Tax Charge
(i) Analysis of charge during the year
2018 2017
Group Income Statement GBPm GBPm
Current tax charge
UK corporation tax at 19.0% (2017 - 19.25%) 9.0 6.4
Over-provided in prior years - (2.0)
----------- -----------
Total current income tax 9.0 4.4
----------- -----------
Deferred tax charge
Origination and reversal of temporary differences in 3.8 3.7
current year
Origination and reversal of temporary differences in 0.2 -
previous year
----------- -----------
Total deferred tax charge 4.0 3.7
----------- -----------
Total tax charge for the year 13.0 8.1
======= =======
Tax relating to items charged in other comprehensive
income
Deferred tax
Deferred tax charge relating to components of other 3.2 1.4
comprehensive income
======= =======
(ii) Reconciliation of total tax charge
The tax charge in the Group Income Statement for the year is the same as (2017
- lower than) the standard rate of corporation tax in the UK of 19.0% (2017 -
19.25%). The differences are reconciled below:
2018 2017
GBPm GBPm
Profit before tax charge 68.0 52.8
----------- -----------
Profit before tax multiplied by the UK standard rate
of corporation tax of 19.0% (2017 - 19.25%) 12.9 10.2
Tax effect of:
Impact of deferred tax at reduced rate (0.4) (0.5)
Other permanent differences 0.3 0.4
Tax under/(over) provided in prior years 0.2 (2.0)
----------- -----------
Tax charge for the year 13.0 8.1
======= =======
(iii) Deferred tax
The deferred tax included in the Group and Company Balance Sheet is as follows:
2018 2017
GBPm GBPm
Deferred tax assets
Pension liability 16.5 21.6
Other temporary differences 0.2 0.3
----------- -----------
16.7 21.9
----------- -----------
Deferred tax liabilities
Accelerated capital allowances (87.9) (85.8)
Held-over losses on property disposals (0.8) (0.8)
----------- -----------
(88.7) (86.6)
----------- -----------
Net deferred tax liability (72.0) (64.7)
======= =======
Deferred tax has been calculated at 17.0% as at 31 December 2018 (2017 - 17.0%)
reflecting future reductions in the corporation tax rate enacted at the balance
sheet date.
The deferred tax charge included in the Group Income Statement is as follows:
2018 2017
GBPm GBPm
Accelerated capital allowances 2.1 1.9
Temporary differences in respect of pensions 1.8 1.8
Other temporary differences 0.1 -
----------- -----------
Deferred tax charge 4.0 3.7
======= =======
8. Profit for the Financial Year
The profit of the Company is GBP55.0m (2017 - GBP44.7m). No separate income
statement is presented for the Company as permitted by Section 408 of the
Companies Act 2006.
9. Property, Plant and Equipment
Group Non-operational Vehicles
land and Fixtures and mobile
Infrastructure buildings and plant
assets GBPm equipment GBPm Total
GBPm GBPm GBPm
Cost:
At 1 January 2017 2,442.9 5.1 74.3 2.4 2,524.7
Additions 196.6 - 7.6 - 204.2
----------- ----------- ----------- ----------- -----------
At 31 December 2017 2,639.5 5.1 81.9 2.4 2,728.9
Additions 137.4 - 8.2 0.5 146.1
----------- ----------- ----------- ----------- -----------
At 31 December 2018 2,776.9 5.1 90.1 2.9 2,875.0
Depreciation:
At 1 January 2017 889.2 1.8 55.5 0.9 947.4
Charge for the year 60.4 0.1 4.6 0.9 66.0
----------- ----------- ----------- ----------- -----------
At 31 December 2017 949.6 1.9 60.1 1.8 1,013.4
Charge for the year 64.4 0.1 5.5 0.5 70.5
----------- ----------- ----------- ----------- -----------
At 31 December 2018 1,014.0 2.0 65.6 2.3 1,083.9
----------- ----------- ----------- ----------- -----------
Net book value:
At 31 December 2017 1,689.9 3.2 21.8 0.6 1,715.5
======= ======= ======= ====== =======
At 31 December 2018 1,762.9 3.1 24.5 0.6 1,791.1
======= ======= ======= ====== =======
Infrastructure assets include amounts in respect of assets under construction
of GBP83.1m (2017 - GBP77.9m).
Company Non-operational Vehicles
land and Fixtures and
Infrastructure buildings and mobile
assets GBPm equipment plant Total
GBPm GBPm GBPm GBPm
Cost:
At 1 January 2017 2,444.5 5.1 74.3 2.4 2,526.3
Additions 196.6 - 7.6 - 204.2
----------- ----------- ----------- ----------- -----------
At 31 December 2017 2,641.1 5.1 81.9 2.4 2,730.5
Additions 137.4 - 8.2 0.5 146.1
----------- ----------- ----------- ----------- -----------
At 31 December 2018 2,778.5 5.1 90.1 2.9 2,876.6
----------- ----------- ----------- ----------- -----------
Depreciation:
At 1 January 2017 890.0 1.8 55.5 0.9 948.2
Charge for the year 60.4 0.1 4.6 0.9 66.0
----------- ----------- ----------- ----------- -----------
At 31 December 2017 950.4 1.9 60.1 1.8 1,014.2
Charge for the year 64.4 0.1 5.5 0.5 70.5
----------- ----------- ----------- ----------- -----------
At 31 December 2018 1,014.8 2.0 65.6 2.3 1,084.7
----------- ----------- ----------- ----------- -----------
Net book value:
At 31 December 2017 1,690.7 3.2 21.8 0.6 1,716.3
======= ======= ======= ======= =======
At 31 December 2018 1,763.7 3.1 24.5 0.6 1,791.9
======= ======= ======= ======= =======
Infrastructure assets include amounts in respect of assets under construction
of GBP83.1m (2017 - GBP77.9m).
10. Intangible Assets
Computer software - Group and Company
2018 2017
GBPm GBPm
Cost:
At the beginning of the year 103.8 102.9
Additions acquired externally 5.5 0.9
----------- -----------
At the end of the year 109.3 103.8
----------- -----------
Amortisation:
At the beginning of the year 83.8 78.6
Amortisation charge for the year 4.3 5.2
----------- -----------
At the end of the year 88.1 83.8
----------- -----------
Net book value:
At the beginning of the year 20.0 24.3
======= =======
At the end of the year 21.2 20.0
======= =======
Software assets include amounts in respect of assets under construction
amounting to GBPnil (2017 - nil).
Software assets include GBP12.2m (2017 - GBP15.7m) in respect of market and
customer software invested in following separation from the Viridian Group. The
relevant software has a remaining useful life of 3.5 years.
11. Investments
Company - Investment in subsidiaries
2018 2017
GBPm GBPm
Cost:
At the beginning and end of the year 7.9 7.9
======= =======
The Company holds the entire share capital of NIE Networks Services Limited and
NIE Finance PLC which have been fully consolidated into the financial
statements. All of the Company's subsidiaries are incorporated in the United
Kingdom and hold registered office addresses at 120 Malone Road, Belfast, BT9
5HT.
The principal activity of NIE Networks Services Limited until 31 December 2015
was to provide construction maintenance, metering and other services to the
Company. As NIE Networks Services Limited provided services to the Company,
revenue on consolidation was GBPnil. On 1 January 2016, all assets, operations
and employees of NIE Networks Services Limited transferred to NIE Networks and
NIE Networks Services Limited ceased operational activity.
The principal activity of NIE Finance PLC is the provision of financing
services, being the issuer of the GBP400m and GBP350m bonds which were on-lent to
the Company. Further details of the bond issues are included in note 18.
Dormant subsidiaries
The Company holds 100% of the share capital of Northern Ireland Electricity
Limited and NIE Limited. These companies are dormant and the carrying value of
these investments as at 31 December 2018 is GBPnil (2017 - GBPnil).
12. Inventories
Group and Company 2018 2017
GBPm GBPm
Materials and consumables 13.1 14.9
Work-in-progress 0.3 0.3
----------- -----------
13.4 15.2
======= =======
13. Trade and Other Receivables
Group and Company 2018 2017
GBPm GBPm
Current
Trade receivables (including unbilled consumption) 47.1 49.8
Other receivables 0.6 0.6
Prepayments and accrued income 2.3 1.9
Amounts owed by fellow subsidiary undertakings (note 26) 3.9 4.8
----------- -----------
53.9 57.1
======= =======
Trade receivables include amounts relating to unbilled consumption of GBP17.7m
(2017 - GBP17.6m).The largest trade receivable at the year end, due from one
customer, is GBP8.1m (2017 - GBP8.8m).
Trade receivables include GBPnil (2017 - nil) in respect of contract assets
arising from contracts with customers.
Trade receivables are stated net of an allowance of GBP0.7m (2017 - GBP0.5m) for
estimated irrecoverable amounts based on the lifetime expected credit loss of
the trade receivable referencing the Group's past default experience. There
are no allowances for estimated irrecoverable amounts included in 'amounts owed
by fellow subsidiary undertakings'.
2018 2017
Group and Company GBPm GBPm
At the beginning of the year 0.5 0.3
Increase in allowance 0.3 0.3
Bad debts written off (0.1) (0.1)
----------- -----------
At the end of the year 0.7 0.5
======= =======
The allowance of GBP0.7m (2017 - GBP0.4m) reflects individual balances impaired
based on past default experience.
The following shows an aged analysis of current trade receivables for the Group
and Company:
2018 2017
GBPm GBPm
Within credit terms:
Current 44.4 46.6
Past due but not impaired:
Less than 30 days 0.2 0.5
30 - 60 days 0.7 0.9
60 - 90 days 1.0 0.2
+ 90 days 0.8 1.6
----------- -----------
47.1 49.8
======= =======
The credit quality of trade receivables that are neither past due nor impaired
is assessed by reference to external credit ratings where available, otherwise
historical information relating to counterparty default rates is used. The
directors consider that the carrying amount of trade and other receivables
approximates to fair value.
The Group's credit risk in respect of trade receivables from licensed
electricity suppliers is mitigated by appropriate policies with security
received in the form of cash deposits, letters of credit or parent company
guarantees. With the exception of certain public bodies, payments in relation
to new connections or alterations are received in advance of the work being
carried out. Payments received on account are disclosed in note 15 to the
financial statements.
14. Cash and Cash Equivalents
Group and Company
2018 2017
GBPm GBPm
Cash at bank and in hand 17.4 11.2
Short term deposits 13.0 -
----------- -----------
30.4 11.2
======= =======
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates. Short-term deposits are placed for varying periods of between
one day and one month depending on the immediate cash requirements of the Group
and Company, and earn interest at the respective short-term deposit rates.
The directors consider that the carrying amount of cash and cash equivalents
equates to fair value.
15. Trade and Other Payables
Group Company
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Trade payables 15.3 19.0 15.3 19.0
Payments received on account 11.9 29.9 11.9 29.9
Amounts owed to fellow
subsidiary undertakings (note 9.7 5.3 9.7 5.3
26)
Amounts owed to subsidiary - - 9.2 9.2
undertakings
Tax and social security 9.6 7.9 9.6 7.9
Accruals 20.4 24.0 20.4 24.0
Other payables 2.1 3.1 2.1 3.1
----------- ----------- ----------- -----------
69.0 89.2 78.2 98.4
======= ======= ======= =======
The directors consider that the carrying amount of trade and other payables
equates to fair value.
16. Deferred Income
Group and Company Customers'
Grants contributions Total
GBPm GBPm GBPm
----------- ----------- -----------
Current 0.5 15.7 16.2
Non-current 5.4 409.5 414.9
----------- ----------- -----------
Total at 1 January 2017 5.9 425.2 431.1
----------- ----------- -----------
Receivable - 86.3 86.3
Released to income statement (0.5) (15.5) (16.0)
----------- ----------- -----------
Current 0.5 17.5 18.0
Non-current 4.9 478.5 483.4
----------- ----------- -----------
Total at 31 December 2017 5.4 496.0 501.4
----------- ----------- -----------
Receivable - 44.6 44.6
Released to income statement (0.5) (17.0) (17.5)
Opening balance adjustment on adoption - 2.3 2.3
of IFRS 15
----------- ----------- -----------
Current 0.5 18.1 18.6
Non-current 4.4 507.8 512.2
----------- ----------- -----------
Total at 31 December 2018 4.9 525.9 530.8
======= ======= =======
The opening balance adjustment on the adoption of IFRS 15 arises as a result of
the change in the timing of recognition of an aspect of connections revenue.
The GBP2.3m increase in customers' contributions reflects revenue recognised in
the income statement during 2017 in respect of contracts with customers for
which performance obligations were not complete as at 31 December 2017. A
corresponding reduction has been recognised in accumulated profits and
disclosed in the Statement of Changes in Equity of both the Group and Company.
17. Derivative Financial Instruments
Group and Company - Interest rate swaps 2018 2017
GBPm GBPm
Current assets 12.5 79.5
Non-current assets 486.9 500.0
----------- -----------
499.4 579.5
======= =======
Current liabilities (12.5) (79.5)
Non-current liabilities (486.9) (500.0)
----------- -----------
(499.4) (579.5)
======= =======
The Company has held a GBP550m portfolio of inflation-linked interest rate swaps
(the RPI swaps) since December 2010. The fair value of inflation linked
interest rate swaps is affected by relative movements in interest rates and
market expectations of future retail price index (RPI) movements.
The RPI swaps were put in place by the Viridian Group (the Group's previous
parent undertaking) in 2006 to better match NIE Networks' debt and related
interest payments with its inflation-linked regulated assets and associated
revenue. The swaps are considered to be economic hedges for NIE Networks'
regulated revenue and asset base. As part of the acquisition of NIE Networks by
ESB in 2010, the swaps were novated to NIE Networks.
During 2014 the Company, and its counterparty banks, together agreed a
restructuring of the swaps, including amendments to certain critical terms.
These changes included an extension of the mandatory break period in the swaps
from 2015 to 2022, including immediate settlement of accretion payments of GBP
77.7m (previously due for payment in 2015), amendments to the fixed interest
rate element of the swaps and an increase in the number of swap
counterparties. GBP71.5m was paid in respect of swap accretion in 2018. Future
accretion payments are now scheduled to occur every 5 years, with remaining
accretion paid on maturity.
Arising from a negative impact of higher forward RPI rates, partly reduced by a
positive impact of higher forward interest rates, negative fair value movements
of GBP5.7m occurred in 2018 (2017 - positive fair value movements of GBP3.8m).
These have been recognised in finance costs in the income statement.
The decrease in the current portion of the interest rate swaps in 2018 is
largely owing to accretion payments made during the year.
At the same time that the restructuring took effect in 2014, the Company
entered into RPI linked interest rate swap arrangements with ESBNI, the
immediate parent undertaking of the Company, which have identical matching
terms to the restructured swaps. The back to back matching swaps with ESBNI
ensure that there is no net effect on the financial statements of the Company
and that any risk to financial exposure is borne by ESBNI. The fair value
movements have been recognised in finance costs in the income statement
effectively offsetting the fair value movements of interest rate swap
liabilities.
The fair value of interest rate swaps has been valued by calculating the
present value of future cash flows, estimated using forward rates from third
party market price quotations.
The Company uses the hierarchy as set out in IFRS 13: Fair Value Measurement.
All assets and liabilities for which fair value is disclosed are categorised
within the fair value hierarchy described as follows:
Level 1: quoted (unadjusted) market prices in active markets for identical
assets or liabilities;
Level 2: valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable;
and
Level 3: valuation techniques for which the lowest level input that is
significant to the fair value measurement is not observable.
The fair value of interest rate swaps as at 31 December 2018 is considered by
the Company to fall within the level 2 fair value hierarchy. The Company
determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each
reporting period. There have been no transfers between level 1 or 3 of the
hierarchy during the year.
Independent valuations are used in measuring the interest rate swaps and
validated using the present valuation of expected cash flows using a
constructed zero-coupon discount curve. The zero-coupon curve uses the
interest rate yield curve of the relevant currency. Future cash flows are
estimated using expected RPI benchmark levels as well as expected LIBOR rate
sets.
An increase / (decrease) of 0.5% in interest rates would decrease / (increase)
the fair value of interest rate swap liabilities by GBP53.2m / (GBP56.7m) (2017 - GBP
58.1m / (GBP63.3m)). However, the swap arrangements entered into with ESBNI
hedge the Company's cash flows in respect of these liabilities and therefore,
an increase / (decrease) of 0.5% in interest rates would increase / (decrease)
the fair value of the interest rate swap assets by GBP53.2m / (GBP56.7m) (2017 - GBP
58.1m / (GBP63.3m)) and thereby offset the exposure to the swap liabilities.
These sensitivities are based on an assessment of market rate movements during
the period and each is considered to be a reasonably possible range.
18. Other Financial Liabilities
Group Company
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Current
Interest payable on GBP175m bond - 3.4 - 3.4
Interest payable on GBP400m bond 14.8 14.8 - -
Interest payable on GBP350m bond 2.3 - - -
Interest payable to parent 0.1 0.2 0.1 0.2
undertaking (note 26)
Interest payable to subsidiary - - 17.1 14.8
undertaking
GBP175m bond - 174.8 - 174.8
Amounts owed to parent - 114.0 - 114.0
undertaking (note 26)
----------- ----------- ----------- -----------
17.2 307.2 17.2 307.2
======= ======= ======= =======
Non-current
GBP400m bond 398.7 398.5 - -
GBP350m bond 348.1 - - -
Amounts owed to subsidiary - - 746.8 398.5
undertaking
----------- ----------- ----------- -----------
746.8 398.5 746.8 398.5
======= ======= ======= =======
Loans and other borrowings outstanding are repayable as follows:
Group and Company 2018 2017
GBPm GBPm
In one year or less or on demand 17.2 307.2
Between two and five years - -
In more than five years 746.8 398.5
----------- -----------
764.0 705.7
======= =======
Other financial liabilities are held at amortised cost.
The principal features of the Group's borrowings are as follows:
- the 15 year GBP400m bond is repayable in 2026 and carries a fixed rate of
interest of 6.375% which is payable annually in arrears on 2 June. The bond
issue incurred GBP2.1m of costs associated with raising finance. In back to back
arrangements, NIE Finance PLC has a loan of GBP400m with the Company, which was
issued net of GBP2.1m of costs associated with raising finance. Interest is paid
on the loan at a fixed rate of 6.375% annually in arrears on 2 June; and
- the 7 year GBP350m bond is repayable in 2025 and carries a fixed rate of
interest of 2.500% which is payable annually in arrears on 27 October. The
bond issue incurred GBP1.9m of costs associated with raising finance. In back to
back arrangements, NIE Finance PLC has a loan of GBP350m with the Company, which
was issued net of GBP1.9m of costs associated with raising finance. Interest is
paid on the loan at a fixed rate of 2.500% annually in arrears on 27 October.
The GBP400m and GBP350m bonds, which are listed on the London Stock Exchange's
regulated market, had fair values at 31 December 2018 of GBP519.6m (2017 - GBP
545.3m) and GBP352.0m respectively, based on current market prices. The
Company's back-to-back loans had a fair value at 31 December 2018 of GBP519.6m
(2017 - GBP545.3m) and GBP352.0m respectively based on the fair value of the GBP400m
and GBP350m bonds.
The fair value of bonds as at 31 December 2018 is considered by the Company to
fall within the level 1 fair value hierarchy (defined within note 17). There
have been no transfers between levels in the hierarchy during the year.
Given that 100% (2017 - 83%) of Group and Company borrowings carry fixed
interest rates, the Group and Company are not significantly exposed to
movements in interest rates during the year.
The table below summarises the maturity profile of the Group's financial
liabilities (excluding tax and social security) based on contractual
undiscounted payments.
At 31 December 2018 More than 5
On demand Within 3 3 to 12 1 to 5 years
months months years Total
GBPm GBPm GBPm GBPm GBPm GBPm
GBP400m bond (including interest - - 25.5 102.0 476.5 604.0
payable)
GBP350m bond (including interest - - 9.5 35.0 367.5 412.0
payable)
Trade and other payables 11.9 47.5 - - - 59.4
Interest rate swap liabilities - - 12.5 173.3 375.7 561.5
----------- ----------- ----------- ----------- ----------- -----------
11.9 47.5 47.5 310.3 1,219.7 1,636.9
======= ======= ======= ======= ======= =======
At 31 December 2017 On demand Within 3 3 to 12 1 to 5 More than 5
months months years years Total
GBPm GBPm GBPm GBPm GBPm GBPm
GBP175m bond (including interest - - 187.0 - - 187.0
payable)
GBP400m bond (including interest - - 25.5 102.0 502.0 629.5
payable)
RCF (including interest payable) - - 114.9 - - 114.9
Trade and other payables 33.0 51.3 - - - 84.3
Interest rate swap liabilities - - 79.9 52.8 504.3 637.0
----------- ----------- ----------- ----------- ----------- -----------
33.0 51.3 407.3 154.8 1,006.3 1,652.7
======= ======= ======= ======= ======= =======
The table below summarises the maturity profile of the Company's financial
liabilities (excluding tax and social security) based on contractual
undiscounted payments.
At 31 December 2018 More than 5
On demand Within 3 3 to 12 1 to 5 years
months months years Total
GBPm GBPm GBPm GBPm GBPm GBPm
Amounts owed to subsidiary - - 35.0 137.0 844.0 1,016.0
undertaking
Trade and other payables 11.9 56.7 - - - 68.6
Interest rate swap liabilities - - 12.5 173.3 375.7 561.5
----------- ----------- ----------- ----------- ----------- -----------
11.9 56.7 47.5 310.3 1,219.7 1,646.1
======= ======= ======= ======= ======= =======
At 31 December 2017 On demand Within 3 3 to 12 1 to 5 More than 5
months months years years Total
GBPm GBPm GBPm GBPm GBPm GBPm
GBP175m bond (including interest - - 187.0 - - 187.0
payable)
Amounts owed to subsidiary - - 25.5 102.0 502.0 629.5
undertaking
RCF (including interest payable) - - 114.9 - - 114.9
Trade and other payables 33.0 60.5 - - - 93.5
Interest rate swap liabilities - - 79.9 52.8 504.3 637.0
----------- ----------- ----------- ----------- ----------- -----------
33.0 60.5 407.3 154.8 1,006.3 1,661.9
======= ======= ======= ======= ======= =======
19. Analysis of Net Debt
Group At Non- At
1 January Cash cash 31 December
2018 flow movement 2018
GBPm GBPm GBPm GBPm
Cash and cash equivalents 11.2 19.2 - 30.4
Interest payable on GBP175m bond (3.4) 12.0 (8.6) -
Interest payable on GBP400m bond (14.8) 25.5 (25.5) (14.8)
Interest payable on GBP350m bond - - (2.3) (2.3)
Interest payable to parent undertaking (0.2) 1.6 (1.5) (0.1)
GBP175m bond (174.8) 175.0 (0.2) -
GBP400m bond (398.5) - (0.2) (398.7)
GBP350m bond - (348.3) 0.2 (348.1)
Amounts owed to parent undertaking (114.0) 114.0 - -
----------- ----------- ----------- -----------
(694.5) (1.0) (38.1) (733.6)
======= ======= ======= =======
Company At Non- At
1 January Cash cash 31 December
2018 flow movement 2018
GBPm GBPm GBPm GBPm
Cash and cash equivalents 11.2 19.2 - 30.4
Interest payable on GBP175m bond (3.4) 12.0 (8.6) -
Interest payable to parent undertaking (0.2) 1.6 (1.5) (0.1)
Interest payable to subsidiary (14.8) 25.5 (27.8) (17.1)
undertaking
GBP175m bond (174.8) 175.0 (0.2) -
Amounts owed to parent undertaking (114.0) 114.0 - -
Amounts owed to subsidiary undertaking (398.5) (348.3) - (746.8)
----------- ----------- ----------- -----------
(694.5) (1.0) (38.1) (733.6)
======= ======= ======= =======
20. Provisions
Group and Company Liability and
Environment damage claims Total
GBPm GBPm GBPm
----------- ----------- -----------
Current 1.1 0.6 1.7
Non-current 0.5 3.0 3.5
----------- ----------- -----------
Total at 1 January 2017 1.6 3.6 5.2
----------- ----------- -----------
Applied in the year - 0.3 0.3
Released to income statement - (0.5) (0.5)
----------- ----------- -----------
Current 0.6 0.5 1.1
Non-current 1.0 2.9 3.9
----------- ----------- -----------
Total at 1 January 2018 1.6 3.4 5.0
----------- ----------- -----------
Applied in the year - 3.4 3.4
Released to income statement - (0.6) (0.6)
----------- ----------- -----------
Current 0.6 3.2 3.8
Non-current 1.0 3.0 4.0
----------- ----------- -----------
Total at 31 December 2018 1.6 6.2 7.8
======= ======= =======
Environment
Provision has been made for expected costs of decontamination and demolition
arising from obligations in respect of power station sites formerly owned by
the Group. It is anticipated that the expenditure relating to the non-current
portion of the provision will take place within the next five years.
Liability and damage claims
Notwithstanding the intention of the directors to defend vigorously claims made
against the Group, liability and damage claim provisions have been made which
represent the directors' best estimate of costs expected to arise from ongoing
third party litigation and employee matters. The non-current element of these
provisions is expected to be utilised within a period not exceeding five years.
21. Pension Commitments
Most employees of the Group are members of Northern Ireland Electricity Pension
Scheme (NIEPS or the scheme). The scheme has two sections: 'Options' which is
a money purchase arrangement whereby the Group generally matches the members'
contributions up to a maximum of 7% of salary and 'Focus' which provides
benefits based on pensionable salary at retirement or earlier exit from
service. The assets of the scheme are held under trust and invested by the
trustees on the advice of professional investment managers. The trustees are
required by law to act in the interest of all relevant beneficiaries and are
responsible for the investment policy with regard to the assets and the
day-to-day administration of the benefits of the scheme.
As the benefits paid to members of the Options section of the scheme are
directly related to the value of assets for Options, there are no funding
issues with this section of the scheme. The remainder of this note is
therefore in respect of the Focus section of the scheme.
Under the Focus section of the scheme, employees are entitled to annual
pensions on retirement at age 63 (for members who joined after 1 April 1988) of
one-sixtieth of final pensionable salary for each year of service. Benefits
are also payable on death and following events such as withdrawing from active
service.
UK legislation requires that pension schemes are funded prudently. The last
funding valuation of the scheme was carried out by a qualified actuary as at 31
March 2017 and showed a deficit of GBP136.9m. The Company is paying deficit
contributions of GBP17.2m per annum (increasing in line with inflation) from 1
April 2018. The Company also pays contributions of 39.6% of pensionable
salaries in respect of Focus employees currently employed in the company
(active members of the scheme) plus GBP77,500 monthly expenses, with active
members paying a further 6% of pensionable salaries.
Profile of the scheme
The net liability includes benefits for current employees, former employees and
current pensioners. Broadly, about 20% of the liabilities are attributable to
current employees, 5% to former employees and 75% to current pensioners. The
scheme duration is an indication of the weighted average time until benefit
payments are made. For the NIEPS, the duration is around 14 years (2017 - 13
years) based on the last funding valuation.
Risks associated with the scheme
Asset volatility - liabilities are calculated using a discount rate set with
reference to corporate bond yields. If assets underperform this yield, this
will create a deficit. The scheme holds a significant proportion of growth
assets (equities and diversified growth funds) which, though expected to
outperform corporate bonds in the long-term, create volatility and risk in the
short-term. The allocation of growth assets is monitored to ensure it remains
appropriate given the scheme's long-term objectives.
Changes in bond yields - a decrease in corporate bond yields will increase the
value placed on the scheme's liabilities for accounting purposes although this
is likely to be partially offset by an increase in the value of the scheme's
bond holdings.
Inflation risk - the majority of the scheme's benefit obligations are linked to
inflation and higher inflation will lead to higher liabilities (although in
most cases caps on the level of inflationary increases are in place to protect
against extreme inflation). The majority of the scheme assets are either
unaffected by, or only loosely correlated with, inflation, meaning that an
increase in inflation will also increase the deficit.
Life expectancy - the majority of the scheme's obligations are to provide
benefits for the life of the member, so an increase in life expectancy will
increase the liabilities.
The Company and the trustees have agreed a long-term strategy for reducing
investment risk as and when appropriate. This includes a liability driven
investment policy which aims to reduce the volatility of the funding level of
the plan by investing in assets such as index-linked gilts which perform in
line with the liabilities of the plan so as to protect against inflation being
higher than expected.
The trustees insure certain benefits payable on death before retirement.
Mercer Limited, NIE Networks' actuary, has have provided a valuation of Focus
under IAS 19 as at 31 December 2018 based on the following assumptions (in
nominal terms) and using the projected unit credit method:
2018 2017
Rate of increase in pensionable salaries (per annum) 3.20% 3.20%
Rate of increase in pensions in payment (per annum) 2.10% 2.10%
Discount rate (per annum) 2.80% 2.50%
Inflation assumption (CPI) (per annum) 2.10% 2.10%
Life expectancy:
Current pensioners (at age 60) - males 26.2 years 27.4 years
Current pensioners (at age 60) - females 28.6 years 29.9 years
Future pensioners (at age 60) - males * 27.8 * 29.3
years years
Future pensioners (at age 60) - females * 30.2 * 31.9
years years
* Life expectancy from age 60 for males and females currently aged 40.
The life expectancy assumptions are based on standard actuarial mortality
tables and include an allowance for future improvements in life expectancy.
The valuation under IAS 19 at 31 December 2018 shows a net pension liability
(before deferred tax) of GBP97.5m (2017 - GBP127.0m). The table below shows the
possible (increase) / decrease in the net pension liability that could result
from changes in key assumptions:
Increase in assumption Decrease in assumption
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
0.5% change in rate of increase in (7.9) (9.5) 7.6 9.3
pensionable salaries
0.5% change in rate of pensions in (58.2) (58.9) 55.7 54.2
payments
0.5% change in annual discount rate 68.1 81.6 (71.8) (86.2)
0.5% change in annual inflation rate (66.9) (65.3) 63.7 61.7
(CPI)
1 year change in life expectancy (40.1) (43.4) 40.1 43.4
Assets and Liabilities
The Group and Company's share of the assets and liabilities of Focus are:
Value at Value at
31 December 31 December
2018 2017
GBPm GBPm
Equities - quoted 229.1 276.8
Bonds - quoted 232.0 225.8
Diversified growth funds - quoted 377.9 410.1
Multi-asset credit investments 208.7 217.0
Cash 7.0 9.5
----------- -----------
Total market value of assets 1,054.7 1,139.2
Actuarial value of liabilities (1,152.2) (1,266.2)
----------- -----------
Net pension liability (97.5) (127.0)
======= =======
Changes in the market value of assets - Group and Company
2018 2017
GBPm GBPm
Market value of assets at the beginning of the year 1,139.2 1,105.4
Interest income on scheme assets 27.6 29.3
Contributions from employer 28.1 25.4
Contributions from scheme members 0.3 0.4
Benefits paid (83.3) (66.7)
Administration expenses paid (1.6) (1.3)
Re-measurement (losses) / gains on scheme assets (55.6) 46.7
----------- -----------
Market value of assets at the end of the year 1,054.7 1,139.2
======= =======
Changes in the actuarial value of liabilities - Group and Company
2018 2017
GBPm GBPm
Actuarial value of liabilities at the beginning of the 1,266.2 1,251.4
year
Interest expense on pension liability 30.6 32.9
Current service cost 6.9 8.0
Curtailment costs 4.1 1.7
Past service costs 1.7 -
Contributions from scheme members 0.3 0.4
Benefits paid (83.3) (66.7)
Effect of changes in demographic assumptions (45.7) -
Effect of changes in financial assumptions (44.4) 32.9
Effect of experience adjustments 15.8 5.6
----------- -----------
Actuarial value of liabilities at the end of the year 1,152.2 1,266.2
======= =======
The curtailment loss (cost) arising in 2018 and 2017 reflects past service
costs associated with employees leaving the company under a restructuring exit
arrangement.
Past service costs of GBP1.7m in 2018 (2017 - GBPnil) reflect changes to member
benefits arising from a clarification of the law in respect of Guaranteed
Minimum Pension Equalisation for male and female members.
The Group expects to make contributions of approximately GBP25.1m to Focus in
2019.
The Group's share of the NIEPS service costs is allocated based on the
pensionable payroll. Contributions from employer, interest cost liabilities,
interest income on assets and experience gains or losses are allocated based on
the Group's share of the NIEPS net pension liability.
Analysis of the amount charged to operating costs (before capitalisation)
2018 2017
GBPm GBPm
Current service cost (6.9) (8.0)
Administration expenses paid (1.6) (1.3)
Curtailment costs (4.1) (1.7)
Past service costs (1.7) -
----------- -----------
Total operating charge (14.3) (11.0)
======= =======
Focus has been closed to new members since 1998 and therefore under the
projected unit credit method the current service cost for members of this
section as a percentage of salary will increase as they approach retirement
age.
Analysis of the amount charged to net pension scheme interest
2018 2017
GBPm GBPm
Interest income on scheme assets 27.6 29.3
Interest expense on liabilities (30.6) (32.9)
----------- -----------
Net pension scheme interest expense (3.0) (3.6)
======= =======
The actual return on Focus assets was a loss of GBP28.0m for the Group and
Company (2017 - gain of GBP76.0m for the Group and Company).
Analysis of amounts recognised in the Statement of Comprehensive Income
2018 2017
GBPm GBPm
Re-measurement (losses) / gains on scheme assets (55.6) 46.7
Actuarial gains / (losses) on scheme liabilities 74.3 (38.5)
----------- -----------
Net gains 18.7 8.2
======= =======
The cumulative actuarial losses recognised in the Group and Company Statements
of Comprehensive Income since 1 April 2004 are GBP132.4m and GBP134.5m respectively
(2017 - GBP151.1m and GBP153.2m respectively). The directors are unable to
determine how much of the net pension liability recognised on transition to
IFRS and taken directly to equity is attributable to actuarial gains and losses
since the inception of Focus. Consequently, the directors are unable to
determine the amount of actuarial gains and losses that would have been
recognised in the Statement of Comprehensive Income shown before 1 April 2004.
22. Share Capital and Equity
Group Company
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Share capital 36.4 36.4 36.4 36.4
Share premium 24.4 24.4 24.4 24.4
Capital redemption reserve 6.1 6.1 6.1 6.1
Accumulated profits 306.7 260.5 306.2 260.0
----------- ----------- ----------- -----------
373.6 327.4 373.1 326.9
======= ======= ======= =======
The balance classified as share capital comprises the nominal value of the
Company's equity share capital.
The balance classified as share premium records the total net proceeds on the
issue of the Company's equity share capital less the nominal value of the share
capital.
The balance classified as capital redemption reserve arises from the legal
requirement to maintain the capital of the Company following the return of that
amount of capital to shareholders on 2 August 1995.
Allotted and fully paid share capital: 2018 2017
GBPm GBPm
145,566,431 ordinary shares of 25p each 36.4 36.4
======= =======
Dividend
The following dividends were paid by the Group
2018 2017
GBPm GBPm
15.1 pence per allotted share (2017 - 12.4 pence) 22.0 18.0
======= =======
23. Lease Obligations
The Group and Company have entered into leases on certain items of property,
plant and equipment. These leases contain options for renewal before the
expiry of the lease term at rentals based on market prices at the time of
renewal.
The future minimum lease payments under non-cancellable operating leases are as
follows:
2018 2017
GBPm GBPm
Within one year 2.5 2.9
After one year but not more than five years 4.6 6.2
More than five years 9.1 9.3
----------- -----------
16.2 18.4
======= =======
24. Commitments and Contingent Liabilities
(i) Capital commitments
At 31 December 2018 the Group and Company had contracted future capital
expenditure in respect of property, plant and equipment of GBP13.8m (2017 - GBP
8.7m) and computer assets of GBP4.4m (2017 - GBP3.4m).
(ii) Contingent liabilities
In the normal course of business the Group has contingent liabilities arising
from claims made by third parties and employees. Provision for a liability is
made (as disclosed in note 20) when the directors believe that it is probable
that an outflow of funds will be required to settle the obligation where it
arises from an event prior to the year end.
25. Financial Commitments
In June 2011 and September 2018 NIE Finance PLC, a subsidiary undertaking of
the Company, issued GBP400m and GBP350m bonds respectively on behalf of the
Company. The Bonds have been admitted to the Official List of the UK Listing
Authority and to trading on the London Stock Exchange's regulated market. The
payments of all amounts in respect of the GBP400m and GBP350m bonds are
unconditionally and irrevocably guaranteed by the Company.
26. Related Party Disclosures
Remuneration of key management personnel
The compensation paid to key management personnel is set out below. Key
management personnel of the Group comprise the directors of the Company and the
executive team.
2018 2017
GBPm GBPm
Salaries and short-term 1.6 1.6
employee benefits
Post-employment benefits 0.3 0.2
Other long-term benefits 0.1 0.1
Termination benefits 0.4 -
----------- -----------
2.4 1.9
======= =======
The immediate parent undertaking of the Group and the ultimate parent company
in the UK is ESBNI Limited (ESBNI). The ultimate parent undertaking and
controlling party of the Group and the parent of the smallest and largest group
of which the Company is a member and for which group financial statements are
prepared is Electricity Supply Board (ESB), a statutory corporation established
under the Electricity (Supply) Act 1927 domiciled in the Republic of Ireland.
A copy of ESB's financial statements is available from ESB's registered office
at Two Gateway, East Wall Road, Dublin 3, DO3 A995. A full list of the
subsidiary undertakings of ESB is included in its financial statements.
Related parties of the Company also include the subsidiaries listed in note 11.
Transactions between the Group and related parties together with the balances
outstanding are disclosed below:
Revenue Charges Other Amounts Amounts
from from transactions owed by owed to
Interest related related with related related related
charges party party party party at party at
31 December 31 December
GBPm GBPm GBPm GBPm GBPm GBPm
Year ended
31 December 2018
ESB (1.5) - - - - (0.1)
ESB subsidiaries - 24.8 (5.4) (22.0) 3.9 (9.7)
----------- ----------- ----------- ----------- ----------- -----------
(1.5) 24.8 (5.4) (22.0) 3.9 (9.8)
======= ======= ======= ======= ======= =======
Year ended
31 December 2017
ESB (0.8) - - - - (114.2)
ESB subsidiaries - 19.2 (4.1) (18.0) 4.8 (5.3)
----------- ----------- ----------- ----------- ----------- -----------
(0.8) 19.2 (4.1) (18.0) 4.8 (119.5)
======= ======= ======= ======= ======= =======
Transactions with ESB group undertakings are determined on an arm's length
basis and outstanding balances with group undertakings are unsecured. Interest
charges and amounts owed to ESB relate to the RCF provided by ESB. Revenue
from and amounts owed by ESB subsidiaries primarily arise from regulated sales
to ESB subsidiaries. Charges from and amounts owed to ESB subsidiaries
primarily arise from services purchased. Other transactions with related
parties shown above relate to dividends paid to the shareholder. Amounts in
relation to the back to back swaps with ESBNI Limited are detailed in note 17.
Other related parties
During the year the Group and Company contributed GBP33.4m (2017 - GBP29.8m Group
and Company) to NIEPS in respect of Focus and Options employer contributions,
including an element of deficit repair contributions in respect of Focus.
END
(END) Dow Jones Newswires
March 21, 2019 03:33 ET (07:33 GMT)
1 Year Nie Fin.6.375% Chart |
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