TIDM46RT
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 2019 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 :
https://data.fca.org.uk/#/nsm/nationalstoragemechanism 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 Financial Statements
for the year ended 31 December 2019 follows below:
Contact for enquiries:
NIE Networks Corporate Communications - telephone 0845 300 3556
2019 AT A GLANCE
- Continued focus on the health and safety of staff, contractors and the
general public
- Cumulative Renewable generation connected to the electricity network reached
1.67GW
- 7% reduction in customer complaints through continued focus on customer
service
- Awarded Best Apprenticeship Scheme for 2019 at the UK Chartered Institute of
Personnel and Development People Management Awards
- Successful response to network damage resulting from adverse weather
conditions with 100% of affected customers restored within 24 hours
- Significant reduction in Customer Minutes Lost
- Ongoing investment in the network in line with the RP6 price control
- Replacement of 38,000 meters under the meter recertification programme
- Operating profit of GBP110.3m and profit after tax of GBP59.1m
- Over GBP144m contributed to the Northern Ireland economy through employment of
circa 1,200 people and payments to local businesses and authorities
- Actively engaged with NI stakeholders on the development of a future energy
framework for Northern Ireland
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 2019.
The Board of directors of the Company who served during the year are outlined
in the Group Directors' Report on page 23.
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
or the UR). 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, underground cables and associated equipment 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 or upgraded connections to the network).
During the year an estimated 7.6TWh of electricity was transmitted and
distributed to consumers in Northern Ireland. There are 2,200km of
transmission network, 47,000km of distribution network 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 new connections has been
fully open to competition since March 2018. 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
design and 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 GBP735 million for capital
investment and GBP481 million in respect of operating costs (stated at 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 introduction of contestability as referred to above.
The RP6 baseline rate of return of 3.14% 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 by obligations under its
Transmission and Distribution licences as well as a commitment to the
development of a low carbon energy framework for Northern Ireland. Its vision
is to be a high-performing electricity networks company that makes a positive
contribution to the local community. Its mission is to distribute electricity
in a safe, reliable, efficient and environmentally sound manner. NIE Networks'
values are focussed on: ensuring the safety of employees, contractors,
customers and the general public, customer service, developing employees, being
cost effective and showing integrity and respect in all its business dealings.
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, sustainable 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
110.3m for the year to 31 December 2019, an increase of GBP1.2m on the previous
year. Group revenue of GBP276.3m has increased by GBP0.5m from the previous year.
Group operating costs of GBP166.0m are largely in line with operating costs of GBP
166.7m in 2018.
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 4.1 times for the year (2018 - 3.6 times) is
above the target level of 3.0 times.
Net Assets
The Group's net assets of GBP390.7m increased by GBP17.1m on the previous year
largely reflecting profit after tax of GBP59.1m offset by re-measurement losses
(net of tax) of GBP18.3m on net pension scheme liabilities and a dividend paid to
the shareholder during the year of GBP23.7m.
Cash Flow
Cash and cash equivalents decreased by GBP21.4m during the year reflecting net
cash flows from operating activities of GBP114.3m together with a drawdown of the
Group's Revolving Credit Facility (RCF) of GBP5.0m, offset by investing activity
out flows of GBP114.1m (reflecting the Group's continued investment in the
network), the dividend paid of GBP23.7m and repayment of GBP2.9m of lease
liabilities recognised upon adoption of IFRS 16.
Net cash flows generated from operating activities of GBP114.3m are GBP23.6m higher
than the GBP90.7m generated during 2018 reflecting the Group's increased
operating profit during the year together with lower interest payments and a
smaller movement in working capital requirements between 2018 and 2019.
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 23 to the financial statements.
The Group's debt finance at the year end comprised bonds of GBP350.0m and GBP400.0m
(GBP348.4m and GBP398.8m respectively net of issue costs) which are due to mature
in October 2025 and June 2026 respectively and GBP5.0m drawn down from a GBP120.0m
Revolving Credit Facility (RCF) from ESB which is due to mature in December
2021.
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 99.3% 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 - in the nature of
economic hedge. 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 18 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 2019 2018
GBPm GBPm
------------- -------------
Cash and cash equivalents 9.0 30.4
Trade and other receivables (excluding prepayments and 49.7 51.6
accrued income)
Other financial assets - current and non-current 506.6 499.4
------------- -------------
565.3 581.4
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 16 to the
financial statements.
Other financial assets comprise RPI linked interest rate swap arrangements
entered into with ESBNI, a wholly owned subsidiary of ESB, 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.
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. In light of the current Covid-19 pandemic,
the directors have considered the possible financial impact on the Group's
financial position. While the Covid-19 situation is evolving at a fast pace,
the directors are of the opinion that the Group has 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.
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.
In previous Annual Reports, details of NIE Networks' principal Corporate Social
Responsibility (CSR) initiatives in relation to public safety, customer care,
educational outreach, community and charitable giving were included in a
separate CSR section. As each of these themes are of strategic importance and
are embedded within NIE Networks' day-to-day activities, progress on each
during 2019 is reported within the Operational Review.
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 2019 2018
Health & Safety:
Lost time incidents (number of) 3 2
Network Performance:
Customer Minutes Lost (CML)
- Planned CML (minutes) 45 41
- Fault CML (minutes) 38 53
Customer Service:
Overall standards - defaults (number of) None None
Guaranteed standards - defaults (number of) None None
Stage 2 complaints to the Consumer Council (number 2 1
of)
Connections:
Customer demand connections completed (number of) 4,100 5,095
Sustainability:
Waste recycling rate (%) 98 97
Staffing:
Headcount (at 31 December) 1,216 1,180
Absenteeism 3.27% 3.25%
Health and 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 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
(NIEA) 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
three incidents during the year (2018 - two) each of which occurred during
non-operational, lower risk activities.
Safety Engineers are aligned with organisational structures through a 'Business
Partner' relationship which facilitates integration of skills and allows
influence and support. During 2019 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;
- two external ISO audits were completed with zero non-conformances
identified;
- 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
implementation of a contractor management Safety Improvement Plan;
- a further 17 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 112 employees;
- over 4,300 site safety inspections completed, the focus of which was to
provide coaching and to encourage good site behaviours while ensuring
compliance with safety rules. 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 Health and Safety Management
Committee, Executive Committee and Board meeting. This provides a level of
regular assurance against objectives agreed in the annual Health, Safety and
Wellbeing Business Plan.
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 legislative obligations
in respect of safety and involves employees from across the Group.
During 2019 approximately 25,000 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.
Network Performance
The provision of a safe, reliable and responsive electricity service, which
endeavours to meet the standards customers expect, is a key priority for NIE
Networks.
During 2019 NIE Networks continued to efficiently manage outages required for
essential maintenance and development to minimise the occasions and length of
time that customers were 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 average number of planned CML for 2019 was 45 minutes (2018 -
41 minutes) reflecting the RP6 programme of works. The average number of CML
due to faults on the distribution network in 2019 was 38 minutes (2018 - 53
minutes), a significant improvement from the previous year mainly due to
favourable weather conditions. Each measure is 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. During the year, each of the
overall standards was achieved. In 2019 there were no defaults against
Guaranteed Standards of Performance for customer service activities delivered
(2018 - none). During the year 94.6% (2018 - 94.2%) 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 two occasions (wind and gales in mid-March and also
in mid-December) where adverse weather caused damage to the network and
affected several thousand customers' supplies. On each of these occasions 100%
of affected customers were restored within 24 hours.
Customer Service and Care
NIE Networks strives to engage with customers professionally and courteously
while being respectful of their individual needs.
The focus on reducing the number of complaints from customers continued in 2019
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, two Stage 2 Complaints were taken up by the CCNI
on behalf of customers (2018 - one).
NIE Networks has committed to delivering customer service improvements during
RP6 as it seeks to meet and exceed ever increasing customer expectations,
especially in relation to increased means of engagement with the Company. These
improvements are incorporated into the annual Customer Service Action Plan,
endorsed by the Board.
The Consumer Engagement Advisory Panel (CEAP), established during the
development phase of the RP6 business plan and comprising NIE Networks with the
UR, Department for the Economy (DfE) and CCNI, will continue to oversee ongoing
consultation with customer groups during the RP6 period on the delivery of the
RP6 programme and priorities leading into the next price control period.
During 2019 the first stakeholder workshops were hosted by the Managing
Director. Feedback was gained in areas of customer service approach; enabling
developments/connections; and a low carbon future and also explored the best
approach to ongoing stakeholder engagement with relevant groups. The next
phase, to survey a large number of domestic and business customers took place
in early 2020.
Arrangements are in place with ESB Networks, Northern Ireland Water, Openreach
Northern Ireland and Phoenix Natural Gas to provide mutual support, such as
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. A Winter readiness communications campaign is in place to
ensure homeowners have the utility companies' contact details should they need
them.
NIE Networks' medical customer care information service is a priority service
for 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. During the year, the number of customers registered for the
service increased to approximately 10,000 (2018: approximately 9,000).
NIE Networks 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 a pre-agreed password is delivered to the customer
before the employee is allowed to enter a property. In addition, NIE Networks
is a member of the PSNI Quick Check 101 scheme.
NIE Networks is in the second year of its three year partnership with the NOW
Group, the social enterprise that supports people with learning difficulties
and autism into employment, on its JAM Card initiative. JAM stands for Just A
Minute and is a card originally designed as a way for people with
communications difficulties to ask for some more time to complete their
activities. Over 90% of NIE Networks' employees are 'JAM friendly' having
undertaken NOW Group's training package.
During the year, NIE Networks introduced 'Browse Aloud' technology on its
website to support customers with visual impairments, low literacy, dyslexia or
neuro-diverse needs interact with the online content. This technology also
automatically translates the content on the website into over 80 languages to
support those customers for whom English is not their first language.
Connections
NIE Networks' Connections business provides safe, secure, reliable and timely
electricity connections to the distribution system 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 number of customer demand connections completed during the year reduced
from 5,095 in 2018 to 4,100 in 2019; mainly reflecting the impact of customer
timeframes.
The market for new connections has been fully open to competition since March
2018. For 'contestable' elements of connections, customers can now choose
whether to accept a quotation from NIE Networks or to engage an accredited ICP
to design and 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.
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 significant milestone in Northern Ireland's energy history was reached during
2019 when the long term target of 40% of electricity consumption being produced
from renewable sources by 2020 was achieved, and in fact exceeded, with 45% of
consumption for the 12 month period ended 30 September 2019 being produced from
renewable sources. This has been supported through the connection of
approximately 1.7GW of renewable capacity to the network by NIE Networks. With
a further 0.2GW capacity committed to be connected, the total connected
renewable capacity is expected to reach over 1.9GW by 2022.
To date, NIE Networks has successfully connected over 23,000 generators
providing renewable generation capacity to the network, significantly adding to
the available market capacity.
The renewable future of Northern Ireland is dependent on good partnership and
collaboration with industry participants, customers and other stakeholders. NIE
Networks continues to work closely with all these stakeholders.
NIE Networks continued to actively participate in the Connections Innovation
Working Group to consider and progress appropriate solutions which facilitate
the connection of further Distributed Energy Resources (DER) in Northern
Ireland. In December 2019, NIE Networks and SONI issued a joint consultation
on NIE Networks Providing Distribution Generation Offers with Non-Firm Market
Access, which closed in early 2020.
During the year, the Connections business has also continued to deliver the
outputs specified in NIE Networks' business plan, including strengthening
customer service and account management for project developers seeking
connections to the electricity network and ensuring information provided in
documentation and online meets the needs of customers.
The Connections business will continue 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 2019 the Company continued to focus on each of the following areas:
- 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 98% (2018 - 97%);
- managing environmental incidents and ensuring clean up procedures are
followed where environmental incidents occur; and
- a continued reduction in energy usage across operational sites.
Two external audits of ISO 14001 were completed with zero non-conformances
identified.
NIE Networks received the Ulster Wildlife's 'Wildlife Aware' accreditation for
its work to develop positive relationships between employees and nature.
Working with Ulster Wildlife, NIE Networks produced a Wildlife Aware guide and
training programme for all employees.
To support its environmental programme and ISO 14001 targets, NIE Networks has
developed a number of successful partnerships. As an addition to its tree
planting programme, it undertook a tree seed collection pilot whereby a number
of employees gathered seeds of native trees which were then returned to The
Conservation Volunteers to plant, nurture and ultimately boost the number of
native trees in Northern Ireland.
NIE Networks is one of only 23 companies in Northern Ireland to achieve the top
level platinum award in Northern Ireland's Environmental Benchmarking Survey.
This survey recognises those organisations that go above and beyond their legal
requirements to improve their environmental impacts and better manage their
resources.
Network Investment
In 2019 NIE Networks invested a total of GBP93.9m (2018 - GBP89.0m) (net of
customer contributions) in the transmission and distribution networks. This
investment was primarily related to the refurbishment and replacement of aged
transmission and distribution assets to maintain reliability of supply and
ensure the safety of the network. The marginal increase in investment from the
prior year reflects the Company's strategic objective of delivering its RP6
work programme on a flat phased basis during the Price Control period.
During the year over 1,800km of transmission and distribution overhead lines
were addressed as part of an ongoing refurbishment programme. In addition, tree
cutting, which is an essential programme of work to maintain the networks'
resilience to storm conditions and reduce network fault rates, was performed
across 9,600km of overhead lines.
Significant volumes of asset replacements were also delivered on underground
and substation assets totalling 5,000 units during the year.
Substantial progress was made in delivering the programme of work to inspect
and improve the safety of equipment on the network. Following a risk
assessment, permanent solutions were put in place at 130 locations with
significant volumes of signs, stays and clearances delivered against planned
programmes.
Other key investments included the progression of pre-construction works on the
Coolkeeragh - Magherafelt 275kV double circuit tower line which is a key
strategic supply to the North West of Northern Ireland.
During 2019, NIE Networks commenced six innovation projects with the objective
of developing cost effective alternatives to conventional network investment
while maintaining system capacity and capability. In parallel, and following
engagement with the Energy Networks Association on its Open Networks project,
NIE Networks conducted a stakeholder exercise which sought to understand, from
a Northern Ireland perspective, what changes and associated investments are
required to be made to its current functions as a Distribution Network Operator
(DNO) to transition to a Distribution System Operator (DSO). This transition is
a key focus for plans to decarbonise the energy system.
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, during 2019, NIE Networks continued to meet its regulatory
standard to obtain actual meter readings from 99.5% of all customers at least
once per year, therefore ensuring that electricity consumption is calculated
accurately and minimising the number of estimated bills issued by electricity
suppliers.
NIE Networks 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 and continued to be fully compliant with
these obligations throughout 2019.
A major programme to replace meters that have reached the end of their life
cycle continued during 2019 with NIE Networks replacing 38,000 meters during
the year. This programme has involved the replacement of circa 35% 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.
An organisational realignment implemented in May 2019 created development
opportunities for employees at all levels. The number of employees at the end
of 2019 was 1,216 (2018 - 1,180).
Against the challenges of delivering the outputs required in the RP6 price
control within the allowances set, management have continued to focus on cost
reduction by challenging resourcing across the business while at the same time
recognising the significant challenges faced and the need to ensure the Group
has the appropriate skills for the future. This has created upskilling and
development opportunities for employees by increasing their responsibilities
and also offering opportunities for retraining.
Training and Development
NIE Networks seeks to attract, develop and retain highly skilled people through
its award winning apprenticeship programme, as well as graduate,
apprentice-to-graduate and scholarship 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. It is
accredited by the Institution of Engineering and Technology (IET) for its
apprenticeship programme and was awarded Best Apprenticeship Scheme at the UK
CIPD People Management Awards in 2019.
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 initiatives
which included leadership skills programmes, support programmes for formal
qualifications, role enhancement, role changes, team development initiatives,
coaching and mentoring. To continue to support the management team, a 360
degree feedback process commenced in 2019. This engagement will allow targeted
leadership development.
NIE Networks continues to promote the professional development of engineers
through the IET Professional Registration Scheme and encourages and supports
more employees to become IET members and Chartered Engineers. During 2019 seven
engineers 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 all relevant 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.
NIE Networks has been successful in its application for the Bronze Diversity
Charter Mark in recognition of the many initiatives in place in the business to
support gender diversity.
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. A health and wellbeing policy covering stress
management is in place, with specific policies on mental health, alcohol and
drug-related problems and 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 3.27% of employee time, an increase of
0.02% from the previous year owing to long-term sickness absences.
Employee Engagement
NIE Networks places considerable emphasis on its employee participation and
engagement processes which are well embedded in the Company's culture. The
Employee Engagement Board, comprising members representing each employee
location and chaired by the Human Resources (HR) Director, meets bi-monthly and
is held in a different location each time to maximise the opportunity for wider
engagement. Meetings include updates on key areas of the business,
participative group work, idea sharing and two way feedback. Separate
engagement groups operate at each main staff location ensuring local discussion
and information sharing. Through this process matters are identified for
improvement and followed through by management or with employees via a wide
variety of participative working groups.
Separate company-wide working groups and forums focus on specific issues/
problems or ideas generation, including Health & Wellbeing, Digital Strategy,
Innovation and Pensions to drive improvements for both the business and
employees. As a large proportion of the workforce are field based working on
the network across NI, meetings take place regularly at depots to ensure that
all of these employees have an opportunity to raise issues directly with
management.
Three separate Employee Relations Forums, comprising management and the
relevant trade union representatives, meet monthly to progress a wide range of
employee relations issues. More formal negotiating committees, chaired by the
HR Director are held regularly and are attended by management, the respective
fulltime union official and trade union representatives to discuss more complex
issues including terms and conditions and pay. The Executive Committee holds
workshops with the senior management group of around 45 managers at least
biannually to consider performance and new developments and plans.
The formal monthly employee briefing process is the key process to ensure that
all employees are kept up to date on matters of concern to them as employees
and on Company developments generally. All employees can attend a session with
line management at their local workplace and can also access the material via
the Company's intranet. All employees have the opportunity to attend
presentations by the Managing Director, with other members of the Executive
Committee, at least annually discussing business performance, planned
developments and longer term strategy. New employees participate in a formal
induction programme including meeting with senior management.
The annual business plan setting out corporate objectives is briefed to
employees early in the year. This includes a number of performance targets for
the Company, the outcome of which determines an element of annual pay award for
employees across the business and an element of annual performance bonus for
those participating in
the annual bonus scheme. Monthly updates on the Company's performance against
these targets are provided to all employees.
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 continues to face
significant skills shortages. NIE Networks therefore continued 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 in Northern Ireland for
14-19 year olds 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 23. In addition, NIE Networks has two employees participating in
our Apprentice to Graduate scheme; and
- work experience for 49 GCSE and A-Level students studying STEM subjects as
well as sponsoring, mentoring and facilitating Nuffield Placement Projects and
Arkwright Scholarship Students.
Community Initiatives
NIE Networks continues to be a member of Business in the Community (BiTC).
Throughout 2019 employees served on the boards of 13 local voluntary, community
and social enterprise organisations.
During 2019, employees nominated Air Ambulance NI as NIE Networks' charity of
the year and participated in a variety of fundraising initiatives; raising GBP
22,000.
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 2019 the Charity Fund donated GBP30,000 to local charities.
Looking Forward
Key priorities for 2020:
- 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 a Customer Service Action Plan that will drive further
improvement in customer service and development of a customer centric culture;
- ongoing focus on delivery against RP6 price control allowances and outputs
while maintaining a safe and secure network;
- competing successfully in the open connections market;
- providing effective employee engagement across the business;
continued investment in employees to enhance NIE Networks' capability;
- maintaining a strong investment grade credit rating;
- engaging effectively with key stakeholders;
- contributing to the development of a new energy strategy for NI; and
- preparing the network for a low carbon future.
Stakeholder Engagement and Section 172(1) statement
This section describes how the directors have had regard to the matters set out
in section 172(1) (a) to (f), and forms the directors' statement required under
the Companies (Miscellaneous Reporting) Regulations 2018.
The Board has approved a Code of Ethics which sets out NIE Networks' approach
to responsible and ethical business behaviour with the underlying principle
that everyone working for NIE Networks, including the directors, must adhere to
the highest standards of integrity, loyalty, fairness and confidentiality,
including meeting all legal and regulatory requirements. Specific policies and
procedures on the prevention, detection and investigation of fraud, bribery and
corruption and modern slavery have been approved by the Board. These
arrangements, and NIE Networks' wider risk management, governance and internal
control framework align with the standards required by its shareholder, ESB.
As part of the Board's role it seeks to ensure that it is cognisant of the
long-term impact of any decisions. To that end, the Board periodically reviews
the Company's strategy and regularly seeks updates on strategic issues which
may impact the business. Additionally, the Board requires management to prepare
annually a Business Plan for the following year, including five year
projections and funding requirements, as well as completing a review of
business risks, both principal and emerging. In that context, any matters
presented to the Board for approval need to align with the Company's strategy
and Business Plan.
NIE Networks creates value for the shareholder by delivering strong and
sustainable results. NIE Networks' Managing Director and Finance & Regulation
Director engage with senior executives at ESB each quarter to provide updates
on NIE Networks' performance against the annual business plan, governance
matters and on other key developments. Engagement with ESB is consistent and
compliant with NIE Networks regulatory conditions and the Compliance Plan with
respect to NIE Networks' independence within the ESB Group.
Employees
Ensuring the health, safety and wellbeing of employees is the number one value
at the core of NIE Networks' business operations, with the aim to provide a
zero-harm working environment where risks to health and safety are assessed and
controlled. The Health & Safety section of the Operational Review provides
detail on how the Company sought to achieve this during 2019. The Board
approves the annual Health, Safety and Wellbeing Plan and considers updates on
progress against the plan at each meeting. The Board considers and approves
annually the Health and Safety Policy and Health and Safety Management System.
NIE Networks depends on highly trained, skilled and engaged employees to
achieve its objectives. The HR Director, who joined the Board as an executive
director from 1 May 2019, oversees the development and implementation of NIE
Networks' HR strategies which are considered regularly by the Board. The
progressive HR strategies in place for resourcing, training and development,
equality and diversity, managing sickness absence, employee engagement
including engagement with trade unions and employees' participation in the
affairs of NIE Networks are detailed in the People section of the Operational
Review.
During the year the Board received regular updates from the HR Director on
employee engagement processes and issues being addressed. Non-executive
directors met with employees informally at two separate workplaces, and a
number of non-executive directors attended a meeting of the Employee Engagement
Board and other employee events in order to engage directly with employees from
across the business.
As most employees are members of the Northern Ireland Electricity Pension
Scheme's defined contribution scheme, and with over 4,000 pensioners in the
scheme's defined benefit section, the Board of trustees of the scheme is a key
stakeholder. The Board receives regular updates on the scheme and senior
management provide the trustees with regular updates on the Company's
performance and other relevant matters. During 2019, the Board approved a
number of revisions to the scheme, primarily to enhance pension arrangements
for defined contribution members, and provide additional flexibility and
choice, for members and pensioners.
Customers
NIE Networks' customers include large electricity users, customers seeking
demand or generation connections, business and domestic customers, including
those with specific needs, and landowners. These customer groups and their
various representative bodies, including the CCNI, are key stakeholders with
well established engagement channels in place.
The Board endorsed the 2019 Customer Service Action Plan to address increased
expectations of customers, including responses from customer call backs and
surveys. During the year the Board monitored customer service performance,
receiving regular information on the average number of minutes customers had no
electricity supply, the level of complaints and the number of these taken up by
the CCNI on behalf of customers.
Further information on customer service and engagement with customers can be
found in the Customer Service and Care and Connections sections of the
Operational Review, including details on the Consumer Engagement Advisory Panel
(CEAP) and stakeholder workshops held during the year. The Board monitors the
work of CEAP, with a number of non-executive directors attending one of the
stakeholder workshops held during the year and the Board receiving an
independent report from the workshops.
Suppliers
The Board recognises the key role suppliers play in ensuring NIE Networks
delivers a reliable service to customers: in supplying materials for the
network, working on the network as contractors as well as the provision of
essential managed services to the business. NIE Networks' procurement
practices are governed by the EU's Utilities Contracts Regulations 2016. During
the year the Board had a presentation which included an overview of NIE
Networks' key suppliers, provided insights on the approach to managing supplier
relationships and considered future challenges and developments. The Board
ensures that formal contract management arrangements are in place throughout
the duration of supplier contracts, including in relation to the management of
safety performance for the contractors working on the network. The Board
received updates during the year on NIE Networks' supplier payment practices.
Along with other members of the Executive Committee, the executive directors
oversee the relationships with key suppliers, with other Board members having
opportunities to meet informally with key suppliers on occasions.
Regulators
Other than suppliers and customers, the Board has identified a number of other
key stakeholders. The UR has regulatory oversight over NIE Networks and there
are well established formal channels of engagement with the UR at various
levels within NIE Networks, overseen by the Managing Director and Finance &
Regulation Director, who report on key regulatory issues to each Board meeting,
with the Compliance Manager also reporting directly to the Board. There is
Board level engagement with the UR on specific significant matters.
The Department for the Economy (DfE) has regulatory powers and sets energy
policy. Together with senior executives from the UR and SONI, the Managing
Director participated in the DfE's Electricity Stakeholders Group during 2019,
providing input and support to the electricity aspects of the DfE's development
of a new energy strategy for Northern Ireland with the Call for Evidence issued
in December 2019. The Board has been kept updated on progress and has had
direct engagement with the DfE.
Other government agencies, including the Health and Safety Executive Northern
Ireland (HSENI) and the Northern Ireland Environment Agency (NIEA), are key
stakeholders in relation to health and safety and the environment with the
Board receiving a report to each meeting on any health and safety and
environmental incidents including any matters reported to these agencies.
Other key stakeholders
In addition to customers and their representative bodies, suppliers and
regulators, other key stakeholders to which NIE Networks directors have regard
include other electricity market participants, including SONI, other utility
companies, industry and business representative bodies and bond investors.
Together with other members of the Executive Committee, the Managing Director
is involved in engagement with senior executives of SONI on both operational
matters and also on the development of potential roadmaps for a decarbonised
electricity system enabling a low carbon future for Northern Ireland. The
Managing Director is a member of the joint utilities group in Northern Ireland
providing mutual aid in severe weather incidents impacting on service provision
to customers and communities. The Managing Director and other senior
executives engage with local councils and with groups representing industry and
business, including representation on relevant committees to ensure the
interests of the wider industry and business community are considered in NIE
Networks' operations and plans. Non-executive directors also engage with these
key stakeholders as appropriate.
The Board is kept updated on engagement with NIE Networks' bond investors and
Standard & Poor's credit rating agency which is led by the Finance & Regulation
Director.
The Board has endorsed an external stakeholder engagement strategy. The
Managing Director oversees the implementation of the strategy and the Board
considers regular updates on progress. During 2019, the Board also considered
the results of an externally conducted survey of key stakeholder groups'
perceptions of NIE Networks which established a benchmark to drive future
stakeholder engagement strategy.
Members of the Board and senior management are active participants in the CBI,
NI Chamber of Commerce and Industry, Women in Business, the Institute of
Directors and the Centre for Competitiveness in Northern Ireland.
Community and environment
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, NIE Networks seeks to make a positive impact on the communities in
which it operates.
The Health and Safety section of the Operational Review provides detail on how
NIE Networks sought to ensure the safety of the general public in its
operations and initiatives taken in raising the public's awareness of the
dangers of the electricity network during the year. The Network Performance and
Customer Service and Care sections of the Operational Review set out the good
performance during 2019 in providing a reliable and responsive electricity
service, including emergency response during severe weather events and provides
information on services to customers who rely on electricity for healthcare
needs, do not have English as their first language or are visually impaired.
The Board considered and approved the plans for 2019 to ensure the safety of
the public with updates on performance against the plans considered at each
meeting. In the autumn the Board reviewed NIE Networks' preparedness for
response to severe weather events and reviewed performance after each
significant event. During the year the Board was kept updated on engagement
with local communities, including ahead of planned maintenance or refurbishment
of the network and large connections work.
The Sustainability section of the Operational Review sets out how NIE Networks
sought to protect the environment and mitigate the impact of its activities
upon the environment during the year. The Board reviewed and approved the
Environmental Policy and the 2019 environmental business plan.
NIE Networks is a member of European Distribution System Operators (E.DSO), an
association which represents electricity distribution system operators (DSOs)
across 25 European countries and promotes the development of smart grid
technologies, new market designs and regulation. During 2019 the Board
approved the adoption of the E.DSO Sustainable Grid Charter as a statement of
intention in relation to NIE Networks' commitment to sustainability in respect
of climate change and wider environmental and societal impacts.
As stated previously, a key priority for the directors during the year was the
development of potential roadmaps for a decarbonised electricity system
enabling a low carbon future for Northern Ireland.
How stakeholders' interests have influenced decision making
NIE Networks recognises the importance of engaging with stakeholders to help
inform strategy and Board decision-making. Relevant stakeholder interests,
including those of employees, customers, suppliers, regulators and others are
taken into account by the Board when it takes decisions. Principal decisions
are those which are material, or of strategic importance, to NIE Networks and
also those which are significant to any of NIE Networks' key stakeholder
groups.
During the year the Board had regard to:
* the views of a range of key stakeholders, including industry participants,
customer representative bodies and landowner representative bodies, in
response to NIE Networks' consultation on its future transition to a
distribution system operator (DSO) which were received via direct
engagement in workshops and through formal written responses.This
engagement provided a good insight into stakeholder views across a broad
range of related matters and helped influence the DSO vision and in
developing recommendations for the significant transition required which
was endorsed by the Board for submission to the UR at the end of the year;
* the interests of both current and future customers, and of employees, in
endorsing a realignment of the organisational management structure to
provide a single customer delivery model organised on a geographic basis,
alignment of key customer facing activities and the enhanced strategic
focus on network assets; and
* the interests of employees, including the consideration of views provided
in the employee engagement processes, in agreeing enhancements to the
defined contribution section of the NIE Pension Scheme following a review
by an employee led Pensions Review Group and endorsing enhancements to the
maternity policy.
Risk Management
Principal Risks and Uncertainties
NIE Networks' principal risks remained consistent between 2018 and 2019,
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 continually monitored as part of the Group's ISO
NIE 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
regulatory matters.
FINANCIAL RISKS
Funding & liquidity:
Inability to secure adequate NIE Networks employs a continuous forecasting and
funding at appropriate cost for monitoring process to ensure adequate funding is
planned investments in the event secured on a timely basis.
that NIE Networks' credit metrics
were not maintained within Credit The Group sets its financial plans cognisant of the
Rating Agency investment grade requirement to ensure adequate funding for its
targets. activities and to maintain an investment grade credit
rating with rating agencies.
Exposure to financial Credit risk in respect of receivables from licensed
counterparty risk. electricity suppliers is mitigated by appropriate
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 reduced income arising NIE Networks continuously reviews and analyses
from either a reduced market and/ connection charges to ensure delivery of value for
or market share arising from customers. The Group also actively forecasts market
contestability in connections. movements to establish the likely impact on the
connections business.
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 programme of review and upgrade of IT
attack or non-malicious failure. software and hardware with IT partners.
Ongoing monitoring of technical performance and
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, including ongoing reporting to the
Northern Ireland Competent Authority (NIS Regulator
for Northern Ireland).
Data loss:
Loss of data integrity or breach The Group's Data Protection Officer, supported by a
of Data Protection Act. Data Protection Forum, implements and monitors
compliance with data protection policy and
procedures.
Governance structures are in place to ensure
compliance with the Data Protection Act 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 Brexit bill implementing the UK's exit deal with the European Union became
official UK law as EU (Withdrawal Agreement) Act on 23 January 2020. The deal
was subsequently ratified by the European Parliament on 29 January. The
agreement allows for an 11 month transition period to 31 December 2020 during
which the two sides will attempt to negotiate their future economic
relationship. NIE Networks will continue to monitor developments and assess the
key risk areas throughout the transition period.
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 2019 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, including crisis
management pandemic plans, 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: 20 March 2020
BOARD OF DIRECTORS
DAME ROTHA JOHNSTON DBE was independent non-executive director, and Chair of
the Audit & Risk Committee, from March 2011 to early March 2020 when she was
appointed as Chair of the Board. 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. She is a member of the Industrial Strategy Council, an independent body
assessing 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.
STEPHEN KINGON CBE was independent non-executive Chairman of the Board from
March 2011 to 3 March 2020. 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.
ALAN BRYCE was appointed as an independent non-executive director in January
2018. He is a non-executive director of Jersey Electricity plc. and 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.
KEITH JESS was appointed as an independent non-executive director in September
2019 and as Chair of the Audit & Risk Committee in March 2020. He is a member
of the Senate of Queen's University Belfast and a non-executive director on the
Board of The Progressive Building Society, in each case chairing the Audit
Committees. His executive career was primarily at Ernst & Young (EY) (and its
predecessor entities) based in its Belfast office, where he was Audit Partner
from 1990 to 2017. He was Engagement Partner for EY on the audit of a number
of companies within the energy sector in Northern Ireland and a range of other
large industrial and commercial clients. He is a Fellow of the Institute of
Chartered Accountants in Ireland.
PAUL STAPLETON, Managing Director, was appointed to the Board in May 2018. He
is a director of Energy Networks Association Ltd, European Distribution System
Operators for Smart Grids (E.DSO), the Northern Ireland Centre for
Competitiveness 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, ESB Group
Treasurer and Financial Controller of ESB Networks Limited. He is a member of
the Chartered Institute of Management Accountants.
GORDON PARKES, Human Resources Director, was appointed to the Board in May
2019. He has been HR Director since 2000. He is a Board Member of the Board
of Trustees of the Grand Opera House Trust and of the Royal Belfast Academical
Institution. He formerly held HR Director positions at Norbrook Laboratories
Ltd, Tyrone Crystal Ltd and Adria Ltd. He has been a Board member at the
Labour Relations Agency and a member of the CBI Employment and Skills
Committee. In 2019 he was awarded Chartered Companion status by the Chartered
Institute of Personnel and Development. He holds a Masters in Business
Administration.
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) for the year ended 31 December 2019.
Results and Dividends
The results for the year ended 31 December 2019 show a profit after tax of GBP
59.1m (2018 - GBP55.0m). During the year the Company paid a dividend of GBP23.7m
(2018 - GBP22.0m). The business and financial review, together with future
business developments, are provided in the Group Strategic Report.
Corporate Governance
The Board's Governance Report
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 Compliance Plan, approved by the Utility Regulator, sets out
how this independence is achieved. NIE Networks is an independent company
within the ESB Group of companies with its own Board of directors, management
and employees.
Under the Companies (Miscellaneous Reporting) Regulations 2018, from the year
ended 31 December 2019 NIE Networks is required to state which corporate
governance code, if any, it has applied and how. In January 2019, NIE Networks
adopted the Corporate Governance Principles for Large Private Companies issued
by the Financial Reporting Council (FRC) in December 2018 (or 'The Wates
Principles').
The Wates Principles set out six key principles of governance: Purpose and
Leadership; Board Composition; Director Responsibilities; Opportunity and Risk;
Remuneration; and Stakeholder Relations and Engagement. The Board's Governance
report, setting out how it has applied each of the Wates Principles during the
year, is structured accordingly.
Purpose and Leadership
Good governance provides the foundation for long-term value creation and is a
core focus for the NIE Networks Board. The Board sees its duties as including
responsibility to the long term success of NIE Networks, providing leadership
and direction for the business and supporting and challenging management to get
the best outcomes for NIE Networks and its stakeholders.
The Board has endorsed the Company's Vision, Mission and Values set out in the
Group Strategic Report.
The Board oversees the development of management's plans for investing in the
network and delivering services to customers for each multi year price control
period, providing scrutiny and challenge before submission to the UR and
considers for approval the UR's determination. Once the multi year plan is
agreed the Board considers and approves the strategy to deliver the agreed
plan, including human and financial resources, procurement strategies, and
approves annual business plans for delivery. The Board ensures that there is a
strong management team in place to execute the strategy and drive business
performance and to maintain a framework of prudent and effective controls to
mitigate risk.
The Board considers long term developments for the electricity system,
recognising that major change will be required to facilitate the growth of low
carbon technologies connecting to the network which will impact how the network
is managed and operated. The Board has been considering these long term
developments for the Company, providing challenge and guidance to management.
In addition to endorsing the Company's values, the Board has approved a Code of
Ethics which sets out NIE Networks' approach to responsible and ethical
business behaviour. The underlying principle of the Code is that everyone
working for NIE Networks must adhere to the highest standards of integrity,
loyalty, fairness and confidentiality, including meeting all legal and
regulatory requirements. The Board's Audit & Risk Committee is advised of any
serious concerns raised by employees, and stakeholders generally, via the
speaking up / whistleblowing arrangements as and when they arise and of the
outcome of investigations. Contractors, external consultants and other third
parties acting on behalf of NIE Networks, are also expected to conduct
themselves in accordance with the purpose of the Code and the Board's Audit and
Risk Committee has ensured that processes are in place for this purpose.
Culture is the combination of values, attitudes and behaviours manifested by a
company in its operation and relationship with stakeholders. The Board
monitors the culture within NIE Networks by receiving information on safety
incidents, absenteeism, employee turnover, internal control weaknesses,
employee surveys, stakeholder surveys, customer surveys, 360 degree feedback
process and directly via Board members' site visits and direct engagement with
employees.
The Board ensures that there are well embedded arrangements for engagement with
employees on NIE Networks' purpose, strategy and developments and on the
behaviours expected of all employees arising from the Company's values and
culture. This includes via monthly briefings, at least annual Managing Director
presentations, Employee Engagement Board and local meetings, as well as
engagement with trade unions, with regular feedback on engagement activities
being provided to the Board.
Board Composition
The NIE Networks Board comprises a majority of independent non-executive
directors, currently comprising of three independent non-executive directors
and two executive directors. From September 2019 to early March 2020 there
were four non-executive directors, enabling a smooth transition of
responsibilities for the non-executive directors.
Throughout 2019, 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, with Keith Jess appointed as an independent
non-executive director on 23 September 2019. On 3 March 2020, following nine
years of service, Stephen Kingon retired as Chair of the Board and on 4 March
2020 Dame Rotha Johnston was appointed Chair. The Board expresses its
gratitude to Stephen for his significant contribution to the Board and the
Audit & Risk Committee over these years. Paul Stapleton, Managing Director,
was an executive director throughout 2019 and to the date of this report.
Peter Ewing stood down as Deputy Managing Director and Director of Regulation
and Market Operations at the end of April 2019 and Gordon Parkes, Human
Resources Director, was appointed to the Board as an executive director from 1
May 2019.
The non-executive directors bring diverse experience, independence and
challenge to support effective decision making. The range of Board members'
experience in: the electricity industry; business and finance; accounting and
auditing; human resources; serving on other Boards and Audit Committees; and in
NIE Networks' operations is set out in their biographies on page 23. The Board
is confident that all its members have the knowledge, ability and experience to
perform the functions required of them.
The Board has agreed a statement of the division of responsibilities between
the Chair and the Managing Director. The non-executive Chair leads the
Board, considers and approves the Board agenda and is responsible for ensuring
the Board's effectiveness and effective communication with the Company's
shareholder and other key stakeholders whilst the Managing Director is
responsible for the executive leadership of the day to day running of NIE
Networks.
Appointments to the Board are reserved to NIE Networks' ultimate parent
undertaking, ESB, for approval. This is in accordance with the NIE Networks
Compliance Plan. The Chair and the Managing Director engage with ESB about the
key skills and experience that are required on the Board. During 2019, a
specification was prepared for the appointment of a new non-executive director
and Chair of the Audit & Risk Committee and a search agency engaged to bring
forward suitable candidates for consideration. Non-executive directors are
appointed by NIE Networks under contracts for services setting out expected
time commitment, duties and fees. An induction programme is in place to
familiarise new non-executive directors with NIE Networks.
The Board conducts an annual evaluation of its own performance, and that of the
Audit & Risk Committee, in order to identify ways to improve effectiveness.
The evaluation, which relates to the Board and the Committee's collective
performance, is led by the Chair and supported by the Company Secretary. Based
on members' responses to a questionnaire, a report is made to the Board, and
the Committee respectively, with proposed actions to address the issues raised,
with non-executive directors meeting separately to consider the reports. The
annual assessment includes consideration of specific training and development
needs by each director.
Director Responsibilities
The Board has five scheduled meetings each year, with additional meetings on
specific matters as required, and a separate annual meeting to consider longer
term strategic issues. The Board is responsible for reviewing NIE Networks'
operational and financial performance and for ensuring effective internal
control and risk management. There is a formal schedule of matters reserved to
the Board for decision including approval of: the annual financial plan;
dividends; annual statutory, interim and regulatory financial statements; major
capital expenditure; major regulatory submissions and certain annual regulatory
reports; key corporate policies; the annual Health, Safety and Wellbeing Plan;
and appointments to the Executive Committee on the recommendation of the
Managing Director.
The Board has delegated authority to management for decisions in the normal
course of business subject to specified limits. The Board has delegated
authority to the Executive Committee of the Board to undertake much of the
day-to-day business and management and operation of NIE Networks. The
Executive Committee meets formally monthly and on other occasions as necessary
and reports on its activities to each Board meeting.
The Audit & Risk Committee is a formally constituted committee of the Board,
comprising solely non-executive directors, with detailed terms of reference
setting out its responsibility for overseeing the Group's financial reporting
process and internal control and risk management systems. More detail on the
activities of the Audit & Risk Committee is provided on page 28.
Current membership of the Board, the Audit & Risk Committee and the Executive
Committee is as follows:
Board of Directors
- Rotha Johnston DBE (Chair) (appointed Chair March 2020)
- Alan Bryce (Independent Non-Executive Director)
- Keith Jess (Independent Non-Executive Director)
- Paul Stapleton (Managing Director)
- Gordon Parkes (Human Resources Director )
Audit & Risk Committee
- Keith Jess (Chair) (appointed member September 2019 and Chair March 2020)
- Rotha Johnston DBE
- Alan Bryce
Executive Committee
- Paul Stapleton, Managing Director
- Gordon Parkes, Human Resources Director
- Con Feeney, Customer Delivery Director
- Roger Henderson, Network Assets Director
- Gavan Walsh, Finance & Regulation Director
- Ronan McKeown, Customer & Market Services Director (appointed 1 January
2020)
Directors are required to comply with the requirements of NIE Networks' Code of
Ethics. Directors make annual disclosures of any potential or actual conflicts
of interest and are responsible for notifying the Company Secretary on an
ongoing basis should they become aware of any change in their circumstances
regarding conflicts of interest.
Non-executive directors, in the furtherance of their duties, may take
independent professional advice at the expense of NIE Networks. All Board
members have access to the advice and services of the Company Secretary.
Papers and presentations are sent to each Board member electronically in
advance to allow sufficient time to review and consider matters for discussion
and decision. To monitor ongoing business performance the Board receives
monthly updates on financial, and non-financial, performance against budgets
and key performance indicators approved by the Board. The Board receives
regular updates on Health, Safety and Environment, regulatory matters, HR
matters including employee engagement and stakeholder engagement against
approved plans. All information submitted to the Board and Audit & Risk
Committee is subject to prior review by the Executive Committee and clearance
by the Managing Director, with formal arrangements in place for supporting
clearances for matters requiring the Board's approval.
The corporate relationship between NIE Networks and its shareholder, ESB, is
set out formally, and specifies the standards of governance, internal control
and risk management arrangements which NIE Networks must have in place,
reporting arrangements to ESB, the responsibilities of the NIE Networks Board
and Managing Director and the annual business planning process to meet Group
requirements. The arrangements are consistent and compliant with NIE Networks'
regulatory conditions and the Compliance Plan with respect to NIE Networks'
independence within the ESB Group.
Opportunity and Risk
To ensure the long term sustainable success of NIE Networks, management
continues to seek regulatory allowances or incentive arrangements as
appropriate, for innovative developments to improve performance and to enable
the long term development of the network for future customers. The current
price control includes a provision to share reduced delivery costs under the 50
/50 gain share mechanism and an incentive mechanism for achieving reductions in
customer minutes lost, enabling the creation of value for both the business and
customers. The Company has also agreed an allowance with the Utility Regulator
to undertake a number of important network innovation projects.
The development of the roadmap for the long term transition to a distribution
system operator, and the consideration of strategies to support and enable
decarbonisation and electrification, overseen by the Board, are opportunities
being pursued to sustain and enhance the relevance and value of the business in
the longer term by adapting to changing external requirements.
Relevant international standards provide the framework to manage risks and
opportunities in a number of key areas. NIE Networks' asset management, health
and safety management and environmental management systems are accredited to
ISO 55001: 2014, ISO 45001 and ISO 14001 respectively.
The Board has overall responsibility for risk management and internal control,
ensuring that the Group's risk exposure remains proportionate to the pursuit of
its strategic objectives and longer term stakeholder value. The Board
delegates responsibility for oversight of risk to the Audit & Risk Committee
which 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. 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.
The Board annually reviews and approves the Risk Management Policy to support
its oversight of risk. The Committee of Sponsoring Organisations (COSO)
Framework is used to guide NIE Networks in the management of uncertainty,
whether positive or negative. 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. Each business unit maintains its own risk register.
The Risk Management Policy 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), chaired by the Finance & Regulation Director
and comprising a number of Executive Committee members and senior managers,
oversees and directs risk management in accordance with the approved policy.
The RMC considers the status of principal risks and mitigation strategies
biannually and reports on its activities to the Executive Committee, Audit &
Risk Committee and the Board throughout the year.
The Audit & Risk Committee regularly reviews management's assessment of the
principal risks and mitigating actions, 'High Impact Low Probability Risks',
emerging risks, and considers detailed presentations on mitigating specific
risks. Principal risks are set out in pages 19 - 22 in the Group Strategic
Report. At least annually the Board considers and agrees risk tolerances for
key business activities.
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.
Remuneration
It is recognised that an effective remuneration policy aligned to business
needs will underpin high performance.
The Remuneration Policy for all employees on personal contracts, including
senior executives and covering around 25% of employees, is subject to the
Board's approval each year. The policy sets out how the Company will ensure
that the remuneration of senior executives and other employees on personal
contracts is aligned to market rates and allows for differentiation based on
performance, competence, responsibilities and adherence to the Company's values
and behaviours.
The policy provides that all senior executives and employees on personal
contracts receive market-based remuneration based on detailed benchmarked data
which is derived from a range of suitable sources and verified by an
independent specialist third party. The policy sets out arrangements for each
element of the remuneration package, comprising salary, performance related
bonus, pension, private health insurance, death in service benefit, ill health
retirement benefit and non-cash benefits, all of which are considered as part
of any benchmarking exercise. The Board also approves a separate benchmarking
policy, setting out the benchmarking process.
Salaries for all employees on personal contracts, including senior executives,
are reviewed annually for potential cost of living increase, including a
proportion which is dependent on the achievement of annual company performance
targets, and is aligned with pay awards agreed with the trade union
representing engineering staff.
The remuneration package for all employees on personal contracts, including
senior executives, includes the potential to earn an annual performance related
bonus based on the achievement of individual, team work and company-wide
performance targets, which are aligned with meeting customer and stakeholder
needs.
Stakeholder Relations and Engagement
NIE Networks operates across all of Northern Ireland, providing service to
every home and business. The Board recognises that the Company's activities
have a significant impact on many stakeholders, both current and future
customers, members of the public in relation to safety and on the environment.
Key external stakeholder groups comprise the Utility Regulator, policy makers
including relevant government departments and agencies; customers and their
representative groups, electricity industry participants; industry groups; key
suppliers; and bond investors.
The Board has endorsed the Company's external stakeholder engagement strategy,
the key element of which is to set out the Company's current, and developing,
role within the industry, how it ensures: reliability of network performance,
safety of the network, minimal impact on the environment and continual
improvement in customer service and satisfaction. The Managing Director chairs
the Stakeholder Engagement Steering Group, comprising relevant senior managers,
which oversees the implementation of the strategy. The strategy identifies key
stakeholders and their issues and interests, the Company's objectives in the
engagement process and the planned delivery against each objective.
The Board receives updates from the Managing Director at each Board meeting on
key stakeholder engagement activity with updates on the implementation of the
strategy biannually.
The non-executive directors are involved directly in engagement with the
Utility Regulator Board members, senior government officials and elected
representatives and industry groups as appropriate.
Further details on engagement with key stakeholders are provided on pages 16 -
18 of the Group Strategic Report.
Given its dependence on highly trained, skilled and engaged people within the
business to achieve its objectives, the Board recognises that NIE Networks'
most significant stakeholder group is its workforce. NIE Networks places
considerable emphasis on its employee participation and engagement processes
which are well embedded in the Company's culture. The HR Director, appointed
to the Board during 2019, oversees and leads the employee engagement processes
and provides updates on the processes and matters being addressed though the
various forums to the Board biannually. The Board receives the results of
employee engagement surveys, conducted externally every three years, and
monitors the implementation of action plans for improvements arising from the
feedback.
During 2019, the Board established the practice of holding two meetings each
year at staff locations other than the Danesfort headquarters including
informal engagement with employees. Non-executive directors also have
opportunities to engage with employees by attending meetings of the Employee
Engagement Board and various employee events.
Details of the employee engagement processes are provided on pages 14 - 15 of
the Group Strategic Report.
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 was chaired by Rotha Johnston throughout 2019 and to early March 2020 and
by Keith Jess from early March 2020. The Board is satisfied that at least one
member of the Committee is competent in accounting and auditing. The Committee
had five meetings during 2019.
The terms of reference set out the duties of the Audit & Risk Committee. The
most significant issues considered by the Committee during 2019, 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
2019 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;
- monitored the potential impact of a 'no deal' scenario in relation to the
UK's exit from the European Union;
- monitored progress to ensure compliance with the Data Protection Act and
Networks Information Systems Directive;
- 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 2018;
- reviewed and approved the 2019 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 controls during
2019;
- reviewed reports detailing the results of internal audits and the timeliness
of the implementation of actions; and
- reviewed and approved the 2020 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
2018 statutory financial statements and March 2019 regulatory financial
statements and considered PwC's review of the June 2019 interim financial
statements;
- reviewed the proposed external audit plan for the 2019 statutory financial
statements to ensure that PwC had identified all key risks and developed robust
audit procedures;
- considered PwC's adherence to independence requirements; and
- reviewed the report from PwC on the audit of the 2019 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 including a 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; 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
2019, 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. This insurance was in place throughout the year
and at the date of approval of these financial statements.
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
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 (2018 - GBP
nil).
Group Strategic Report
The following information required in the Group Directors' Report has been
included in the Group Strategic Report and is included in this report by cross
reference:
- an indication of future developments in the business (see pages 4 - 16);
- the Group's objectives and policies for financial risk management (including
liquidity risk and credit risk) (see pages 6 - 8);
- a statement on the policy for disabled employees (see page 14);
- an indication of activities in the Group in the field of research and
development (see pages 12 - 13);
- arrangements for employees to participate in the affairs of the Group (see
pages 14 - 15);
- how the directors have engaged with employees, how they have had regard to
employee interests and the effect of that regard, including on the principal
decisions taken by the Group in the financial year (see pages 14 - 19); and
- how the directors have had regard to the need to foster the Group's business
relationships with suppliers, customers and others and the effect of that
regard, including on the principal decisions taken by the Group in the
financial year (see pages 16 - 19).
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
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
20 March 2020
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 company financial statements (the "financial statements") give a true and
fair view of the state of the group's and of the company's affairs as at 31
December 2019 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 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 group and
company balance sheets as at 31 December 2019; the group income statement and
statement of comprehensive income, the group statement of cash flows, and the
group and company statement 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
company.
Other than those disclosed in note 4 to the financial statements, we have
provided no non-audit services to the group or the company in the period from 1
January 2019 to 31 December 2019.
Our audit approach
Overview
MATERIALITY:
- Overall group materiality: GBP3,647,709 (2018: GBP3,307,500), based on 5% of
profit before tax.
- Overall company materiality: GBP3,647,709 (2018: GBP3,207,500), based on 5% of
profit before tax.
AUDIT SCOPE:
- We performed a full scope audit over the financially significant components
(Northern Ireland Electricity Networks Limited and NIE Finance Plc).
KEY AUDIT MATTERS:
- Accounting estimates - unbilled debt (Group and Company)
- Impact of COVID 19 (Group and Company)
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 and 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;
- Challenging assumptions and judgements made by management in their
significant accounting estimates, in particular in relation to accounting for
unbilled debt;
- 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
Unbilled revenue is based on an estimation We understood and tested the processes and
in respect of consumption derived using internal controls which Northern Ireland
historical data and detailed assumptions. Electricity Networks Limited has in place
Estimation uncertainty and the complexity for the estimation of unbilled revenue.
of calculations give rise to heightened We selected a sample of unbilled revenue
misstatement risk and are therefore a focus amounts and checked the calculation of
of our audit work. these amounts in light of actual billings
Group and company subsequent to 31 December 2019 in order to
ensure that the estimates made were not
materially different.
Impact of COVID 19
The ongoing and evolving Covid-19 pandemic We held discussions with the Directors and
is having a significant impact on the reviewed board papers that modelled the
global economy and the economy of Northern sensitivity of cash flow forecasts to
Ireland. There is significant uncertainty possible changes resulting from Covid-19.
as to the duration of the pandemic and what We challenged the key assumptions used in
its lasting impact will be on the local those sensitivities and the Group's and
economy. Company's ability to mitigate adverse cash
The Group's activities would be considered flow impacts that may arise from
to be those of a key industry, in that the fluctuating electricity demands and changes
Group is the owner of the electricity in payment profiles of trade receivables.
transmission network and the owner and Refer to the section on "Conclusions
operator of the electricity distribution relating to going concern" in this report.
network for Northern Ireland.
The related financial impact on the group's
and company's cash flow forecasts and
therefore their ability to continue as a
going concern, is expected to be primarily
in terms of fluctuating electricity demands
and changes in payment profiles of trade
receivables. As at 31 December 2019 the
Group and Company had undrawn facilities of
GBP115m.
Group and company
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 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 a number of the 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 Company financial statements
Overall materiality GBP3,647,709 (2018: GBP3,307,500). GBP3,647,709 (2018: GBP3,207,500).
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 was equal to our overall group materiality.
We agreed with the Audit & Risk Committee that we would report to them
misstatements identified during our audit above GBP182,000 (Group audit) (2018: GBP
165,000) and GBP182,000 (Company audit) (2018: GBP165,000) as well as misstatements
below those amounts that, in our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to
which ISAs (UK) require us to report to you where:
- 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
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.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Group's and Company's ability to
continue as a going concern.
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 Strategic Report and 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.
Strategic Report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic Report and Directors' Report for the year
ended 31 December 2019 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 company and their
environment obtained in the course of the audit, we did not identify any
material misstatements in the Strategic Report and 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
pages 31 - 32, 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 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 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
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 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 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 members 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 3 years, covering the years ended 31 December
2017 to 31 December 2019.
Kevin MacAllister (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Belfast
11 June 2020
GROUP INCOME STATEMENT
for the year ended 31 December 2019
Note 2019 2018
GBPm GBPm
Revenue 3 276.3 275.8
Operating costs 4 (166.0) (166.7)
--------------- ---------------
OPERATING PROFIT 110.3 109.1
Finance revenue 6 0.3 0.2
Finance costs 6 (35.3) (38.3)
Net pension scheme interest 6 (2.4) (3.0)
--------------- ---------------
Net finance costs 6 (37.4) (41.1)
--------------- ---------------
PROFIT BEFORE TAX 72.9 68.0
Tax charge 7 (13.8) (13.0)
--------------- ---------------
PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY
HOLDERS OF THE PARENT COMPANY 59.1 55.0
========== ==========
STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
Group and Company
Note 2019 2018
GBPm GBPm
Profit for the financial year 59.1 55.0
--------------- ---------------
Other comprehensive income:
Items not to be reclassified to profit or loss
in subsequent periods:
Re-measurement (losses)/gains on pension scheme 22 (22.1) 18.7
assets and liabilities
Deferred tax credit/(charge) relating to
components of other comprehensive income 7 3.8 (3.2)
--------------- ---------------
Net other comprehensive (expense)/income for
the year (18.3) 15.5
--------------- ---------------
Total comprehensive income for the year
attributable to the equity holders of the 40.8 70.5
parent company ========== ==========
BALANCE SHEETS
as at 31 December 2019
Group Company
Note 2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Non-current assets
Property, plant and 9 1,849.3 1,791.1 1,850.1 1,791.9
equipment
Right of use assets 10 11.9 - 11.9 -
Intangible assets 11 19.4 21.2 19.4 21.2
Derivative financial 18 492.2 486.9 492.2 486.9
assets
Investments 12 - - 7.9 7.9
-------------- -------------- -------------- --------------
2,372.8 2,299.2 2,381.5 2,307.9
Current assets -------------- -------------- -------------- --------------
Inventories 13 14.8 13.4 14.8 13.4
Trade and other 14 53.3 53.9 53.3 53.9
receivables
Current tax receivable 1.9 4.7 1.9 4.7
Derivative financial 18 14.4 12.5 14.4 12.5
assets
Cash and cash equivalents 15 9.0 30.4 9.0 30.4
-------------- -------------- -------------- --------------
93.4 114.9 93.4 114.9
-------------- -------------- -------------- --------------
TOTAL ASSETS 2,466.2 2,414.1 2,474.9 2,422.8
-------------- -------------- -------------- --------------
Current liabilities
Trade and other payables 16 71.0 69.0 80.2 78.2
Lease liabilities 10 2.8 - 2.8 -
Current tax payable - - - -
Deferred income 17 19.1 18.6 19.1 18.6
Financial liabilities:
-Derivative financial 18 14.4 12.5 14.4 12.5
liabilities
-Other financial 19 21.4 17.2 21.4 17.2
liabilities
Provisions 21 3.4 3.8 3.4 3.8
-------------- -------------- -------------- --------------
132.1 121.1 141.3 130.3
Non-current liabilities -------------- -------------- -------------- --------------
Deferred tax liabilities 7 71.2 72.0 71.2 72.0
Deferred income 17 516.0 512.2 516.0 512.2
Lease liabilities 10 9.1 - 9.1 -
Financial liabilities:
-Derivative financial 18 492.2 486.9 492.2 486.9
liabilities
-Other financial 19 747.2 746.8 747.2 746.8
liabilities
Provisions 21 3.8 4.0 3.8 4.0
Pension liability 22 103.9 97.5 103.9 97.5
-------------- -------------- -------------- --------------
1,943.4 1,919.4 1,943.4 1,919.4
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 2,075.5 2,040.5 2,084.7 2,049.7
-------------- -------------- -------------- --------------
NET ASSETS 390.7 373.6 390.2 373.1
========= ========= ========= =========
Equity
Share capital 23 36.4 36.4 36.4 36.4
Share premium 23 24.4 24.4 24.4 24.4
Capital redemption reserve 23 6.1 6.1 6.1 6.1
Accumulated profits 23 323.8 306.7 323.3 306.2
-------------- -------------- -------------- --------------
TOTAL EQUITY 390.7 373.6 390.2 373.1
========= ========= ========= =========
The profit after tax of the Company for the year is GBP59.1m (2018 - GBP55.0m).
The financial statements on pages 38 to 69 were approved by the Board of
Directors on 18 March 2020 and signed on its behalf by:
Paul Stapleton
Director
Date: 20 March 2020
Company number: NI026041
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2019
Group
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
GBPm GBPm GBPm GBPm GBPm
At 1 January 2018 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 23 - - - (22.0) (22.0)
shareholder
Opening balance adjustment - - - (2.3) (2.3)
on
adoption of IFRS 15
----------- ----------- ----------- ----------- -----------
At 31 December 2018 36.4 24.4 6.1 306.7 373.6
Profit for the year - - - 59.1 59.1
Net other comprehensive
expense for the year - - - (18.3) (18.3)
Total comprehensive income ----------- ----------- ----------- ----------- -----------
for the year - - - 40.8 40.8
Dividends to the 23 - - -
shareholder (23.7) (23.7)
====== ====== ====== ====== ======
At 31 December 2019 36.4 24.4 6.1 323.8 390.7
====== ====== ====== ====== ======
Company
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
GBPm GBPm GBPm GBPm GBPm
At 1 January 2018 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 23 - - - (22.0) (22.0)
shareholder
Opening balance adjustment - - - (2.3) (2.3)
on adoption of IFRS 15
----------- ----------- ----------- ----------- -----------
At 31 December 2018 36.4 24.4 6.1 306.2 373.1
Profit for the year - - - 59.1 59.1
Net other comprehensive
expense for the year - - - (18.3) (18.3)
Total comprehensive income ----------- ----------- ----------- ----------- -----------
for the year - - - 40.8 40.8
Dividends to the 23 (23.7) (23.7)
shareholder - - -
====== ====== ====== ====== ======
At 31 December 2019 36.4 24.4 6.1 323.3 390.2
====== ====== ====== ====== ======
CASH FLOW STATEMENT
for the year ended 31 December 2019
Group
Note 2019 2018
GBPm GBPm
Cash flows generated from operating activities
Profit for the year 59.1 55.0
Adjustments for:
-Tax charge 13.8 13.0
-Net finance costs 37.4 41.1
-Depreciation of property, plant and equipment 74.3 70.5
-Depreciation of leased assets 2.9 -
-Amortisation of intangible assets 4.9 4.3
-Release of customers' contributions and grants (18.5) (17.5)
-Defined benefit pension charge less contributions (18.2) (13.8)
paid
-Net movement in provisions (0.6) 0.5
----------- -----------
Operating cash flows before movement in working capital 155.1 153.1
(Increase) / decrease in inventories (1.4) 1.8
Decrease/(increase) in trade and other receivables 0.6 (0.9)
Decrease in trade and other payables (6.0) (20.3)
----------- -----------
Increase in working capital (6.8) (19.4)
----------- -----------
Cash generated from operations 148.3 133.7
Interest received 0.3 0.2
Interest paid (35.4) (39.1)
Lease interest paid (0.3) -
Current taxes received / (paid) 1.4 (4.1)
----------- -----------
Net cash flows generated from operating activities 114.3 90.7
----------- -----------
Cash flows used in investing activities
Purchase of property, plant and equipment (133.8) (147.9)
Customers' cash contributions 22.8 44.6
Purchase of intangible assets (3.1) (5.5)
----------- -----------
Net cash flows used in investing activities (114.1) (108.8)
----------- -----------
Cash flows generated from financing activities
Dividends paid to shareholder (23.7) (22.0)
Amounts received from/(repaid to) group undertakings 5.0 (114.0)
Amounts received from financing activities - 348.3
Repayment of external borrowings - (175.0)
Payment of lease liabilities (2.9) -
----------- -----------
Net cash flows (used in)/generated from financing (21.6) 37.3
activities
----------- -----------
Net (decrease)/increase in cash and cash equivalents (21.4) 19.2
Cash and cash equivalents at beginning of year 30.4 11.2
----------- -----------
Cash and cash equivalents at end of year 15 9.0 30.4
======= =======
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 16, Leases', which is effective for the first time
for the financial year beginning on 1 January 2019. 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.
The impact of adoption on the financial statements of the Group and Company is
outlined below:
IFRS 16
IFRS 16 addressed the definition of a lease, the recognition and measurement of
leases and it established 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 are
accounted for on balance sheet for lessees. The Group has applied IFRS 16 on a
modified retrospective basis without restating prior years.
The Group's financial liabilities associated with future lease commitments
recognised on the balance sheet at 1 January 2019 were GBP12.0m and the
corresponding right of use assets were GBP12.0m.
Presentational changes have been made to the Group's cash flow in accordance
with the requirements of IFRS 16.
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 2020, 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.
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 23 to the financial statements. The Group's debt finance
at the year end comprised bonds of GBP350.0m and GBP400.0m (GBP348.4m and GBP398.8m
respectively net of issue costs) which are due to mature in October 2025 and
June 2026 respectively and GBP5.0m drawn down from a GBP120.0m Revolving Credit
Facility (RCF) from ESB which is due to mature in December 2021.
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 directors
have a reasonable expectation that the Group will have adequate financial
resources for the 12-month period. In light of the Covid-19 pandemic, the
directors have considered the possible financial impact on the Group's
financial position. While the Covid-19 situation is evolving at a fast pace,
the directors are of the opinion that the Group has 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.
Right of Use Assets and Lease liabilities
On entering a new lease contract, the Group recognises a right of use asset and
a liability to pay future rentals. The liability is measured at the present
value of future lease payments discounted at the applicable incremental
borrowing rate. The right of use asset is depreciated over the shorter of the
term of the lease and the useful economic life, subject to review for
impairment.
The low value and short term lease exemptions have been applied. The associated
lease payments are expensed to the income statement as they are incurred.
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.
Financial assets measured at amortised cost (continued)
The Group's financial assets are initially recorded at fair value. After
initial recognition, financial assets are measured at amortised cost and
comprise trade and other receivables, cash and cash equivalents.
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 and other 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.
Other financial liabilities
Other financial liabilities include bank borrowings and trade payables. The
Group's other financial liabilities are initially recorded at fair value and
are subsequently carried at amortised cost.
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 and other payables
Trade and other payables are not interest bearing. The Group's trade and other
payables are initially recorded at fair value and subsequently carried 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.
Revenue
Revenue is principally derived through charges for use of the distribution
system (DUoS) levelled on electricity suppliers and transmission service
charges (TSC) mainly for use of the transmission system levied on System
Operator for Northern Ireland (SONI). NIE Networks is a regulated business,
earning revenue primarily from an allowed return on its Regulated Asset Base
(RAB).
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. 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.
Distribution Use of System (DUoS) revenue
DUoS revenue is recognised over time in line with the use of the system by
suppliers under the schedule of entitlement set by the Utility Regulator for
each tariff period. Any outstanding billed and unbilled usage for DUoS is
included within Use of System receivable at the balance sheet date. Revenue
includes an assessment of the volume of electricity distributed, estimated
using historical consumption patterns.
Transmission service charge revenue
Revenue is earned by maintaining the transmission assets to facilitate the
effective operation by SONI. For this fixed price contract, revenue is
recognised over time on a straight line basis in line with the schedule of
entitlement set by the Utility Regulator for each tariff period and a Use of
System receivable is recognised on the balance sheet.
Public Service Obligation revenue
Included within the Group's operating profit are revenues and costs associated
with the Public Service Obligation (PSO) charges which are fully recoverable
(including amounts paid under the Northern Ireland Sustainable Energy
Programme), albeit there are timing differences between the receipt of revenue
/ payment of costs and the recovery of those amounts through the PSO charges.
PSO revenue is earned over time in line with the use of system by suppliers
under the schedule of entitlement set by the Utility Regulator for each tariff
period. In addition to PSO tariff revenues, NIE Networks recognises income
received from the Power Procurement Business (PPB) at a point in time as NIE
Networks does not have control over the amount or timing of receipt of PPB
revenues.
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 offered 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 22.
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 18.
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.
2019 2018
GBPm GBPm
Revenue:
Regulated tariff revenue 242.5 239.2
Release of customers' contributions 18.1 17.0
PPB PSO 6.8 10.6
Other unregulated revenue 8.9 9.0
----------- -----------
276.3 275.8
======= =======
Revenue of GBP276.3m (2018 - GBP275.8m) includes GBP9.6m (2018 - GBP14.2m) recognised
at a point in time comprising PPB PSO revenue of GBP6.8m (2018 - GBP10.6m) and
elements of other unregulated revenue GBP2.8m (2018 - GBP3.6m).
As outlined in note 14, the Group does not have contract assets arising from
contracts with customers (2018 - none).
The Group's contract liabilities are in the form of payments received on
account (note 16) and deferred income in respect of customers' contributions
(note 17), both of which relate to amounts charged to customers in respect of
connections to the network. Revenue from the release of customers'
contributions of GBP17.9m (2018 - GBP17.0m) 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 (2018 - none) relates to
performance obligations satisfied in prior years.
During the year, four customers accounted for sales revenue totalling GBP191.6m
(2018 - three customers accounted for GBP158.0m).
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:
2019 2018
GBPm GBPm
Employee costs (note 5) 23.4 34.1
Depreciation and amortisation 81.7 74.3
Other operating charges 60.9 58.3
----------- -----------
166.0 166.7
======= =======
Operating costs include:
Depreciation charge on property, plant and equipment 74.3 70.5
Depreciation on right of use assets 2.9 -
Amortisation of intangible assets 4.9 4.3
Amortisation of grants (0.4) (0.5)
Cost of inventories recognised as an expense 1.1 1.1
Operating costs include:
2019 2018
Auditors' remuneration GBP'000 GBP'000
PricewaterhouseCoopers LLP:
Fees payable to the Group and Company auditors for the 30.0 49.0
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 4.0 4.0
legislation
Audit related assurance services 14.0 50.0
5. Employees
Employee costs - Group and Company
2019 2018
GBPm GBPm
Wages and salaries 50.9 53.9
Social security costs 5.5 5.5
Pension costs
- defined contribution plans 6.5 5.3
- defined benefit plans 6.9 14.3
----------- -----------
69.8 79.0
Less: amounts capitalised to
property, plant and equipment and (46.4) (44.9)
intangible assets
----------- -----------
Charged to the income statement 23.4 34.1
======= =======
Average and actual headcount for the Group and Company are disclosed in the
table below:
Actual headcount
Average as at 31 December
2019 2018 2019 2018
Number Number Number Number
Management, administration and 298 290 306 280
support
Electrical services 906 913 910 900
----------- ----------- ----------- -----------
Employee numbers 1,204 1,203 1,216 1,180
======= ======= ======= =======
Directors' emoluments
The remuneration of the directors paid by the Company was as follows:
2019 2018
GBP'000 GBP'000
Emoluments in respect of qualifying services 589 662
Emoluments in respect of qualifying services include deferred remuneration
awarded in the current and prior year but payable in future years. GBP50,000 is
payable to directors in respect of termination benefits (2018 - GBP422,548). 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:
2019 2018
Number Number
Defined benefit pension scheme - -
Defined contribution scheme 2 2
Aggregate contributions by the Company to the Company's defined contribution
pension scheme in respect of the directors during the year was GBP60,771 (2018 -
GBP23,791).
The remuneration in respect of the highest paid director was as follows:
For the year ended 2019 2018
GBP'000 GBP'000
Emoluments 266 287
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 GBP34,846 (2018 - GBP5,791).
6. Net Finance Costs
2019 2018
GBPm GBPm
Finance revenue:
Bank interest receivable 0.3 0.2
------------ ------------
Finance costs:
GBP175m bond - (8.6)
GBP400m bond (25.5) (25.5)
GBP350m bond (8.8) (2.3)
Amounts payable to group undertakings (note 26) (0.3) (1.5)
Lease liabilities (0.3) -
------------ ------------
(34.9) (37.9)
Less: capitalised interest - -
------------ ------------
Total interest charged to the income statement (34.9) (37.9)
------------ ------------
Other finance costs:
Amortisation of financing charges (0.4) (0.4)
------------ ------------
Total finance costs (35.3) (38.3)
------------ ------------
Net pension scheme interest (2.4) (3.0)
------------ ------------
Net finance costs (37.4) (41.1)
======== ========
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:
2019 2018
GBPm GBPm
Operating profit 110.3 109.1
Add back depreciation and 81.7 74.3
amortisation
Deduct pension deficit repair (18.4) (17.7)
contributions
Deduct amortisation of customer (17.9) (17.0)
contributions
Deduct tax paid (including group (10.0) (7.6)
relief paid)
------------ ------------
Funds from operations 145.7 141.1
Interest paid (35.4) (39.1)
------------ ------------
FFO to interest paid (times) 4.1 3.6
======== ========
Pension deficit repair contributions of GBP18.4m (2018 - GBP17.7m) reflect
contributions in respect of past service costs as explained in note 22.
7. Tax Charge
(i) Analysis of charge during the year
2019 2018
Group Income Statement GBPm GBPm
Current tax charge
UK corporation tax at 19.0% (2018 - 19.0%) 10.8 9.0
Over-provided in prior years - -
------------ ------------
Total current income tax 9.0
10.8
------------ ------------
Deferred tax charge
Origination and reversal of temporary differences in 3.0 3.8
current year
Origination and reversal of temporary differences in - 0.2
previous year
------------ ------------
Total deferred tax charge 3.0 4.0
------------ ------------
Total tax charge for the year 13.8 13.0
======== ========
Tax relating to items charged in other comprehensive
income
Deferred tax
Deferred tax (credit) / charge relating to components (3.8) 3.2
of other comprehensive income ======== ========
(ii) Reconciliation of total tax charge
The tax charge in the Group Income Statement for the year is the same as (2018
- same as) the standard rate of corporation tax in the UK of 19.0% (2018 -
19.0%). The differences are reconciled below:
2019 2018
GBPm GBPm
Profit before tax 72.9 68.0
------------ ------------
Profit before tax multiplied by the UK standard rate 13.8 12.9
of corporation tax of 19.0% (2018 - 19.0%)
Tax effect of:
Impact of deferred tax at reduced rate (0.3) (0.4)
Other permanent differences 0.3 0.3
Tax under provided in prior years - 0.2
------------ ------------
Total tax charge for the year 13.8 13.0
======== ========
(iii) Deferred tax
The deferred tax included in the Group and Company Balance Sheet is as follows:
2019 2018
GBPm GBPm
Deferred tax assets
Pension liability 17.7 16.5
Other temporary differences 0.2 0.2
------------ ------------
17.9 16.7
------------ ------------
Deferred tax liabilities
Accelerated capital allowances (88.3) (87.9)
Held-over losses on property disposals (0.8) (0.8)
------------ ------------
(89.1) (88.7)
------------ ------------
Net deferred tax liability (71.2) (72.0)
======== ========
Deferred tax has been calculated at 17.0% as at 31 December 2019 (2018 - 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:
2019 2018
GBPm GBPm
Accelerated capital allowances 0.3 2.1
Temporary differences in respect of pensions 2.7 1.8
Other temporary differences - 0.1
------------ ------------
Deferred tax charge 3.0 4.0
======== ========
8. Profit for the Financial Year
The profit of the Company is GBP59.1m (2018 - GBP55.0m). 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 and
land and Fixtures mobile plant
Infrastructure buildings and GBPm
assets GBPm equipment Total
GBPm GBPm GBPm
Cost:
At 1 January 2018 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
Additions 120.6 - 11.6 0.3 132.5
------------ ------------ ------------ ------------ ------------
At 31 December 2019 2,897.5 5.1 101.7 3.2 3,007.5
------------ ------------ ------------ ------------ ------------
Depreciation:
At 1 January 2018 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
Charge for the year 67.2 0.1 6.8 0.2 74.3
------------ ------------ ------------ ------------ ------------
At 31 December 2019 1,081.2 2.1 72.4 2.5 1,158.2
------------ ------------ ------------ ------------ ------------
Net book value:
At 31 December 2018 1,762.9 3.1 24.5 0.6 1,791.1
======== ======== ======== ======= ========
At 31 December 2019 1,816.3 3.0 29.3 0.7 1,849.3
======== ======== ======== ======= ========
Infrastructure assets include amounts in respect of assets under construction
of GBP80.4m (2018 - GBP83.1m).
Company Non-operational Vehicles
land and Fixtures and
Infrastructure buildings and mobile plant
assets GBPm equipment GBPm Total
GBPm GBPm GBPm
Cost:
At 1 January 2018 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
Additions 120.6 - 11.6 0.3 132.5
------------ ------------ ------------ ------------ ------------
At 31 December 2019 2,899.1 5.1 101.7 3.2 3,009.1
------------ ------------ ------------ ------------ ------------
Depreciation:
At 1 January 2018 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
Charge for the year 67.2 0.1 6.8 0.2 74.3
------------ ------------ ------------ ------------ ------------
At 31 December 2019 1,082.0 2.1 72.4 2.5 1,159.0
------------ ------------ ------------ ------------ ------------
Net book value:
At 31 December 2018 1,763.7 3.1 24.5 0.6 1,791.9
======== ======== ======== ======== =======
At 31 December 2019 1,817.1 3.0 29.3 0.7 1,850.1
======== ======== ======== ======== =======
Infrastructure assets include amounts in respect of assets under construction
of GBP80.4m (2018 - GBP83.1m).
10. Right of Use Assets and Lease Liabilities
Group and Company
Land and
Buildings Vehicles Total
GBPm GBPm GBPm
Cost:
Opening balance adjustment on adoption of 7.4 4.6 12.0
IFRS 16
Additions 0.2 2.6 2.8
------------ ------------ ------------
At 31 December 2019 7.6 7.2 14.8
------------ ------------ ------------
Depreciation:
At 1 January 2019 - - -
Charge for the year 0.7 2.2 2.9
------------ ------------ ------------
At 31 December 2019 0.7 2.2 2.9
------------ ------------ ------------
Net book value:
At 31 December 2018 - - -
======== ======== ========
At 31 December 2019 6.9 5.0 11.9
======== ======== ========
Lease liabilities
Current 0.9 1.9 2.8
Non-current 6.0 3.1 9.1
------------ ------------ ------------
6.9 5.0 11.9
======== ======== ========
Lease costs include:
Depreciation on right-of-use assets (note 0.7 2.2 2.9
4)
Lease liabilities finance cost (note 6) 0.2 0.1 0.3
Expense relating to short-term leases - 0.6 0.6
included in operating costs
------------ ------------ ------------
0.9 2.9 3.8
======== ======== ========
11. Intangible Assets
Computer software - Group and Company
2019 2018
GBPm GBPm
Cost:
At 1 January 109.3 103.8
Additions acquired externally 3.1 5.5
------------ ------------
At 31 December 112.4 109.3
------------ ------------
Amortisation:
At 1 January 88.1 83.8
Amortisation charge for the year 4.9 4.3
------------ ------------
At 31 December 93.0 88.1
------------ ------------
Net book value:
At 1 January 21.2 20.0
======== ========
At 31 December 19.4 21.2
======== ========
Software assets include amounts in respect of assets under construction
amounting to GBPnil (2018 - nil).
Software assets include GBP8.6m (2018 - GBP12.2m) in respect of market and customer
software invested in following separation from the Viridian Group. The relevant
software has a remaining useful life of 2.5 years.
12. Investments
Company - Investment in subsidiaries
2019 2018
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 19.
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 2019 is GBPnil (2018 - GBPnil).
13. Inventories
2019 2018
Group and Company GBPm GBPm
Materials and consumables 14.5 13.1
Work-in-progress 0.3 0.3
------------ ------------
14.8 13.4
======== ========
14. Trade and Other Receivables
Group and Company 2019 2018
GBPm GBPm
Current
Trade receivables (including unbilled consumption) 46.1 47.8
Loss allowance (0.5) (0.7)
------------ ------------
Trade receivables (net of provision) 45.6 47.1
Other receivables 0.2 0.6
Prepayments and accrued income 3.6 2.3
Amounts owed by fellow subsidiary undertakings (note 26) 3.9 3.9
------------ ------------
53.3 53.9
======== ========
Trade receivables include amounts relating to unbilled consumption of GBP19.0m
(2018 - GBP17.7m).The largest trade receivable at the year end, due from one
customer, is GBP7.6m (2018 - GBP8.1m).
Trade receivables include GBPnil (2018 - nil) in respect of contract assets
arising from contracts with customers.
Trade receivables are stated net of an allowance of GBP0.5m (2018 - GBP0.7m) 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'.
2019 2018
Group and Company GBPm GBPm
At the beginning of the year 0.7 0.5
Increase in allowance - 0.3
Bad debts written off (0.2) (0.1)
------------ ------------
At the end of the year 0.5 0.7
======== ========
The allowance of GBP0.5m (2018 - GBP0.7m) reflects individual balances impaired
based on past default experience.
The following shows an aged analysis of current trade receivables for the Group
and Company:
2019 2018
GBPm GBPm
Within credit terms:
Current 42.1 44.4
Past due but not impaired:
Less than 30 days 0.3 0.2
30 - 60 days 0.2 0.7
60 - 90 days 0.9 1.0
+ 90 days 2.1 0.8
------------ ------------
45.6 47.1
======== ========
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 16 to the
financial statements.
15. Cash and Cash Equivalents
Group and Company
2019 2018
GBPm GBPm
Cash at bank and in hand 9.0 17.4
Short term deposits - 13.0
------------ ------------
9.0 30.4
======== ========
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.
16. Trade and Other Payables
Group Company
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Trade payables 15.0 15.3 15.0 15.3
Payments received on account 22.5 11.9 22.5 11.9
Amounts owed to fellow
subsidiary undertakings (note 7.7 9.7 7.7 9.7
26)
Amounts owed to subsidiary - - 9.2 9.2
undertakings
Tax and social security 4.7 9.6 4.7 9.6
Accruals 17.8 20.4 17.8 20.4
Other payables 3.3 2.1 3.3 2.1
------------ ------------ ------------ ------------
71.0 69.0 80.2 78.2
======== ======== ======== ========
The directors consider that the carrying amount of trade and other payables
equates to fair value.
17. Deferred Income
Group and Company Customers'
Grants contributions Total
GBPm GBPm GBPm
------------ ------------ ------------
Current 0.5 17.5 18.0
Non-current 4.9 478.5 483.4
------------ ------------ ------------
Total at 1 January 2018 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
------------ ------------ ------------
Receivable - 22.8 22.8
Released to income statement (0.4) (18.1) (18.5)
------------ ------------ ------------
Current 0.3 18.8 19.1
Non-current 4.2 511.8 516.0
------------ ------------ ------------
Total at 31 December 2019 4.5 530.6 535.1
======== ======== ========
The opening balance adjustment on the adoption of IFRS 15 arose as a result of
the change in the timing of recognition of an aspect of connections revenue.
The GBP2.3m increase in customers' contributions in 2018 reflected 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.
18. Derivative Financial Instruments
Group and Company - Interest rate swaps 2019 2018
GBPm GBPm
Current assets 14.4 12.5
Non-current assets 492.2 486.9
------------ ------------
506.6 499.4
======== ========
Current liabilities (14.4) (12.5)
Non-current liabilities (492.2) (486.9)
------------ ------------
(506.6) (499.4)
======== ========
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 originally 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 - in the nature of economic hedge. 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.
Nothing was paid in respect of swap accretion in 2019 (2018 - GBP71.5m). Future
accretion payments are now scheduled to occur every 5 years, with remaining
accretion paid on maturity.
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.
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 GBP20.4m occurred in 2019 (2018 - negative fair value movements of GBP5.7m).
These have been recognised in finance costs in the income statement. Given the
back to back matching swaps with ESBNI, there is a matching positive fair value
movement of GBP20.4m in 2019 (2018 - matching positive fair value movement of GBP
5.7m).
During 2019 the Company made swap interest payments of GBP13.2m (2018: GBP14.3m).
Due to the back to back arrangements, the Company had matching swap interest
receipts of GBP13.2m (2018: GBP14.3m). Due to the back to back arrangements with
ESBNI Limited, no net swap interest cost arises on these transactions and
therefore they have been netted in finance costs.
In June 2019 the Company novated GBP66m of the RPI interest linked swaps from one
swap counterparty to an existing swap counterparty, thereby reducing the
overall number of swap counterparties. Due to the back to back arrangements
with ESBNI Limited, no gain or loss has been recognised within the Company or
Group as a result of the novation.
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 2019 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 and 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 GBP49.9m / (GBP53.2m) (2018 - GBP
53.2m / (GBP56.7m)). 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 GBP49.9m / (GBP53.2m) (2018 - GBP
53.2m / (GBP56.7m)) 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.
19. Other Financial Liabilities
Group Company
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Current
Interest payable on GBP400m bond 14.8 14.8 - -
Interest payable on GBP350m bond 1.5 2.3 - -
Interest payable to group 0.1 0.1 0.1 0.1
undertaking (note 26)
Interest payable to subsidiary - - 16.3 17.1
undertaking
GBP175m bond - - - -
Amounts owed to group undertaking 5.0 - 5.0 -
(note 26)
------------ ------------ ------------ ------------
21.4 17.2 21.4 17.2
======== ======== ======== ========
Non-current
GBP400m bond 398.8 398.7 - -
GBP350m bond 348.4 348.1 - -
Amounts owed to subsidiary - - 747.2 746.8
undertaking
------------ ------------ ------------ ------------
747.2 746.8 747.2 746.8
======== ======== ======== ========
Loans and other borrowings outstanding are repayable as follows:
Group and Company 2019 2018
GBPm GBPm
In one year or less or on demand 21.4 17.2
Between two and five years - -
In more than five years 747.2 746.8
------------ ------------
768.6 764.0
======== ========
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 GBP 350m 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 2019 of GBP526.6m (2018 - GBP
519.6m) and GBP364.2m (2018 - GBP352.0m) respectively, based on current market
prices. The Company's back-to-back loans had a fair value at 31 December 2019
of GBP526.6m (2018 - GBP519.6m) and GBP364.2m (2018 - GBP352.0m) respectively based on
the fair value of the GBP400m and GBP350m bonds.
The fair value of bonds as at 31 December 2019 is considered by the Company to
fall within the level 1 fair value hierarchy (defined within note 18). There
have been no transfers between levels in the hierarchy during the year.
Given that 99.3% (2018 - 100%) 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 2019
On demand Within 1 1 to 5 years More than 5
Year years Total
GBPm GBPm GBPm GBPm GBPm
GBP400m bond (including interest - 25.5 102.0 451.0 578.5
payable)
GBP350m bond (including interest - 8.8 35.0 358.7 402.5
payable) - - 5.0 - 5.0
RCF (including interest
payable)
Trade and other payables 22.5 38.8 - - 61.3
Interest rate swap liabilities - 14.5 175.3 361.8 551.6
Lease Liabilities - 2.8 5.1 4.0 11.9
------------ ------------ ------------ ------------ ------------
22.5 90.4 322.4 1,175.5 1,610.8
======== ======== ======== ======== ========
At 31 December 2018 On demand Within 1 1 to 5 years More than 5
Year years Total
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 95.0 310.3 1,219.7 1,636.9
======== ======== ======== ======== ========
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 2019
On demand Within 1 1 to 5 years More than 5
Year years Total
GBPm GBPm GBPm GBPm GBPm
Amounts owed to subsidiary - 34.3 137.0 809.7 981.0
undertaking
Trade and other payables 22.5 48.0 - - 70.5
Interest rate swap liabilities - 14.5 175.3 361.8 551.6
RCF (including interest - - 5.0 - 5.0
payable) - 2.8 5.1 4.0 11.9
Lease Liabilities
------------ ------------ ------------ ------------ ------------
22.5 99.6 322.4 1,175.5 1,620.0
======== ======== ======== ======== ========
At 31 December 2018 On demand Within 1 1 to 5 years More than 5
Year years Total
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
------------ ------------ ------------ ------------ ------------
11.9 104.2 310.3 1,219.7 1,646.1
======== ======== ======== ======== ========
20. Analysis of Net Debt
Group At Non- At
1 January Cash cash 31 December
2019 flow movement 2019
GBPm GBPm GBPm GBPm
Cash and cash equivalents 30.4 (21.4) - 9.0
Interest payable on GBP400m bond (14.8) 25.5 (25.5) (14.8)
Interest payable on GBP350m bond (2.3) 9.5 (8.8) (1.6)
Interest payable to group undertaking (0.1) 0.3 (0.3) (0.1)
GBP400m bond (398.7) - (0.1) (398.8)
GBP350m bond (348.1) - (0.3) (348.4)
Amounts owed to group undertaking - (5.0) - (5.0)
Lease liabilities - 3.1 (15.0) (11.9)
------------ ------------ ------------ ------------
(733.6) 12.0 (50.0) (771.6)
======== ======== ======== ========
Company At Non- At
1 January Cash cash 31 December
2019 flow movement 2019
GBPm GBPm GBPm GBPm
Cash and cash equivalents 30.4 (21.4) - 9.0
Interest payable to group undertaking (0.1) 0.3 (0.3) (0.1)
Interest payable to subsidiary (17.1) 35.0 (34.3) (16.4)
undertaking
Amounts owed to group undertaking - (5.0) - (5.0)
Amounts owed to subsidiary undertaking (746.8) - (0.4) (747.2)
Lease liabilities - 3.1 (15.0) (11.9)
------------ ------------ ------------ ------------
(733.6) 12.0 (50.0) (771.6)
======== ======== ======== ========
21. Provisions
Group and Company Liability and
Environment damage claims Total
GBPm GBPm GBPm
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
------------ ------------ ------------
Charged to income statement
- 3.4 3.4
Utilised in the year
- (0.6) (0.6)
Current 0.6 3.2 3.8
Non-current 1.0 3.0 4.0
------------ ------------ ------------
Total at 1 January 2019 1.6 6.2 7.8
------------ ------------ ------------
Utilised in the year - (1.3) (1.3)
Charged to income statement - 0.7 0.7
Current 0.6 2.8 3.4
Non-current 1.0 2.8 3.8
------------ ------------ ------------
Total at 31 December 2019 1.6 5.6 7.2
======== ======== ========
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.
22. 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 25% of the liabilities are attributable to
current employees, 3% to former employees and 72% 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 (2018 - 14
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 provided a valuation of Focus under
IAS 19 as at 31 December 2019 based on the following assumptions (in nominal
terms) and using the projected unit credit method:
2019 2018
Rate of increase in pensionable salaries (per annum) 2.75% 3.20%
Rate of increase in pensions in payment (per annum) 2.10% 2.10%
Discount rate (per annum) 2.00% 2.80%
Inflation assumption (CPI) (per annum) 2.10% 2.10%
Life expectancy:
- Current pensioners (at age 60) - males 26.3 years 26.2 years
- Current pensioners (at age 60) - females 28.7 years 28.6 years
- Future pensioners (at age 60) - males *27.9 * 27.8
years years
- Future pensioners (at age 60) - females *30.3 * 30.2
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 2019 shows a net pension liability
(before deferred tax) of GBP103.9m (2018 - GBP97.5m). 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
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
0.5% change in rate of increase in (9.3) (7.9) 9.1 7.6
pensionable salaries
0.5% change in rate of pensions in (67.2) (58.2) 64.2 55.7
payments
0.5% change in annual discount rate 78.9 68.1 (83.2) (71.8)
0.5% change in annual inflation rate (77.3) (66.9) 73.6 63.7
(CPI)
1 year change in life expectancy (46.9) (40.1) 46.9 40.1
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
2019 2018
GBPm GBPm
Equities - quoted 215.1 229.1
Bonds - quoted 312.8 232.0
Diversified growth funds - quoted 371.8 377.9
Multi-asset credit investments 215.0 208.7
Cash 12.3 7.0
------------ ------------
Total market value of assets 1,127.0 1,054.7
Actuarial value of liabilities (1,230.9) (1,152.2)
------------ ------------
Net pension liability (103.9) (97.5)
======== ========
Changes in the market value of assets - Group and Company
2019 2018
GBPm GBPm
Market value of assets at the beginning of the year 1,054.7 1,139.2
Interest income on scheme assets 28.9 27.6
Contributions from employer 25.0 28.1
Contributions from scheme members 0.4 0.3
Benefits paid (67.9) (83.3)
Administration expenses paid (1.5) (1.6)
Re-measurement gains / (losses) on scheme assets 87.4 (55.6)
------------ ------------
Market value of assets at the end of the year 1,127.0 1,054.7
======== ========
Changes in the actuarial value of liabilities - Group and Company
2019 2018
GBPm GBPm
Actuarial value of liabilities at the beginning of the 1,152.2 1,266.2
year
Interest expense on pension liability 31.3 30.6
Current service cost 5.3 6.9
Curtailment costs 0.1 4.1
Past service costs - 1.7
Contributions from scheme members 0.4 0.3
Benefits paid (67.9) (83.3)
Effect of changes in demographic assumptions - (45.7)
Effect of changes in financial assumptions 112.1 (44.4)
Effect of experience adjustments (2.6) 15.8
------------ ------------
Actuarial value of liabilities at the end of the year 1,230.9 1,152.2
======== ========
The curtailment loss (cost) arising in 2019 and 2018 reflects past service
costs associated with employees leaving the company under a restructuring exit
arrangement.
Past service costs of GBPnil in 2019 (2018 - GBP1.7m) 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 GBP25.2m to Focus in
2020.
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)
2019 2018
GBPm GBPm
Current service cost (5.3) (6.9)
Administration expenses paid (1.5) (1.6)
Curtailment costs (0.1) (4.1)
Past service costs - (1.7)
------------ ------------
Total operating charge (6.9) (14.3)
======== ========
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
2019 2018
GBPm GBPm
Interest income on scheme assets 28.9 27.6
Interest expense on liabilities (31.3) (30.6)
------------ ------------
Net pension scheme interest expense (2.4) (3.0)
======== ========
The actual return on Focus assets was a gain of GBP121.5m for the Group and
Company (2018 - loss of GBP28.0m for the Group and Company).
Analysis of amounts recognised in the Statement of Comprehensive Income
2019 2018
GBPm GBPm
Re-measurement gains / (losses) on scheme assets 87.4 (55.6)
Actuarial (losses) / gains on scheme liabilities (109.5) 74.3
------------ ------------
Net (losses)/gains (22.1) 18.7
======== ========
The cumulative actuarial losses recognised in the Group and Company Statements
of Comprehensive Income since 1 April 2004 are GBP154.5m and GBP156.6m respectively
(2018 - GBP132.4m and GBP134.5m 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.
23. Share Capital and Equity
Group Company
2019 2018 2019 2018
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 323.8 306.7 323.3 306.2
------------ ------------ ------------ ------------
390.7 373.6 390.2 373.1
======== ======== ======== ========
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: 2019 2018
GBPm GBPm
145,566,431 ordinary shares of 25p each 36.4 36.4
======== ========
Dividend
The following dividends were paid by the Company
2019 2018
GBPm GBPm
16.3 pence per allotted share (2018 - 15.1 pence) 23.7 22.0
======== ========
24. Commitments and Contingent Liabilities
(i) Capital commitments
At 31 December 2019 the Group and Company had contracted future capital
expenditure in respect of property, plant and equipment of GBP16.5m (2018 - GBP
13.8m) and computer assets of GBP4.5m (2018 - GBP4.4m).
(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 21) 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.
2019 2018
GBPm GBPm
Salaries and short-term 1.5 1.6
employee benefits
Post-employment benefits 0.4 0.3
Other long-term benefits - 0.1
Termination benefits 0.1 0.4
------------ ------------
2.0 2.4
======== ========
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 12.
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 2019
ESB (0.3) - - - - (5.1)
ESB subsidiaries - 31.1 (3.3) (23.7) 3.9 (7.7)
------------ ------------ ------------ ------------ ------------ ------------
(0.3) 31.1 (3.3) (23.7) 3.9 (12.8)
======== ======== ======== ======== ======== ========
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)
======== ======== ======== ======== ======== ========
Transactions with ESB group undertakings are determined on an arm's length
basis and outstanding balances with ESB 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 18.
Other related parties
During the year the Group and Company contributed GBP31.5m (2018 - GBP33.4m 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
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