TIDM46RT TIDM52HM
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.
Northern Ireland Electricity Networks Limited's Unaudited Interim Report and
Financial Statements for the six months ended 30 June 2020 (non statutory) have
been submitted 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
Contact for enquiries: NIE Networks Corporate Communications - telephone 0845
300 3356
The report and financial statements follow below.
INTERIM MANAGEMENT REPORT six months to June 2020
The directors present their interim management report for Northern Ireland
Electricity Networks Limited (NIE Networks or the Company) and its subsidiary
undertakings (the Group) for the six months ended 30 June 2020.
NIE Networks is part of the Electricity Supply Board (ESB), the vertically
integrated energy group based in the Republic of Ireland. NIE Networks is an
independent business within ESB with its own Board of Directors, management and
staff. On 3 March 2020, Stephen Kingon retired as Chair of the Board following
nine years of service and on 4 March 2020 Dame Rotha Johnston was appointed
Chair. The other directors, who continued to hold office during the period and
to the date of approving this report are: Alan Bryce (non-executive Director),
Keith Jess (non-executive Director), Paul Stapleton (Managing Director) and
Gordon Parkes (Human Resources Director).
NIE Networks is the owner of the electricity transmission and distribution
networks in Northern Ireland and is the electricity distribution network
operator, serving around 880,000 customers connected to the network.
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 renewable 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 settlement.
Business Update
Price Control
NIE Networks is regulated by the Northern Ireland Authority for Utility
Regulation (the Utility Regulator) and 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 (2019-20 prices). The
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.
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.
Covid-19
The ongoing Covid-19 pandemic has impacted on NIE Networks' operations since
mid-March 2020, with the company's Crisis Management Team and Executive
Committee co-ordinating the response and implementing the business continuity
and emergency response plans.
At the onset of the pandemic, the Company identified three main priorities:
- protect the safety, health and wellbeing of our employees and customers;
- maintain a reliable electricity supply to our customers across Northern
Ireland; and
- protect our business to safeguard employment and enable a successful return
to normal operations.
In response to Government restrictions, the Company ceased all non-essential
works on the network and made arrangements for the majority of office based
staff to work from home. The Company maintained critical operations during the
most significant Covid-19 restrictions and has now updated its standard
operating procedures and adapted its work sites to facilitate the safety of all
staff whether working at field sites, NIE Networks' premises or at home.
Through this the Company continued to support its customers and provide a
reliable electricity service.
In addition to maintaining core services, a significant number of staff
participated in a range of volunteering activities to support local communities
during the pandemic including making visors and scrubs for residential care
home workers, delivering prescriptions and proactively calling vulnerable
customers on NIE Networks' critical care register.
This interim management report reflects the financial impact of the pandemic
for the period to 30 June 2020, primarily the reduction in electricity demand
in the period as well as the cessation of non-essential works which resulted in
lower activity on the Company's capital work programmes during the period.
Management continues to monitor the ongoing impact of the pandemic and has
taken steps to mitigate the operational and financial impacts on the Company.
Financial results
Operating Profit
The Group's operating profit for the six month period increased from GBP56.4m to
GBP67.9m. Group revenue of GBP155.8m has increased by GBP16.1m reflecting an GBP8.0m
increase in Distribution Use of System revenue - primarily reflecting an
increase in the Group's investment in its Regulated Asset Base - and an
increase in revenues associated with the Public Service Obligation (PSO) of GBP
8.1m. Group operating costs of GBP87.9m have increased by GBP4.6m, predominantly
due to additional operational costs and a lower capital programme of works as a
result of the Covid-19 pandemic.
PSO revenue allows NIE Networks to recover the net cost of supporting industry
programmes such as the Northern Ireland Sustainable Energy Programme. 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. Over time PSO related income and costs net to nil, albeit there are
timing differences between the receipt of revenue and payment of costs. The net
PSO income included in operating profit in the current period is GBP11.2m (2019:
GBP2.0m).
Tax Charge
In March 2020 the Government announced that future Corporation Tax rates would
be retained at 19% rather than reducing to 17% on 1 April 2020 as previously
planned. The effect of the increase in the expected future Corporation Tax rate
has resulted in a one-off charge to the Income Statement and a corresponding
increase in the associated deferred tax liability of GBP11.7m.
FFO Interest Cover
The ratio of FFO (funds from operations) to interest paid increased to 3.5
times for the period (six months to 30 June 2019 - 3.2 times [Note 1]),
reflecting an increase in funds from operations during the period.
[Note 1] FFO interest cover at 30 June 2019 has been restated in line with
changes in credit rating methodology.
Net Assets
The Group's net assets of GBP361.1m have decreased by GBP29.6m in the six months to
30 June 2020 reflecting re-measurement losses (net of tax) on pension scheme
liabilities of GBP57.7m offset by profit after tax of GBP28.1m.
Cash Flow
Cash and cash equivalents increased by GBP21.4m in the period reflecting net cash
flows from operating activities of GBP74.4m partly offset by investing activity
out flows of GBP46.6m, reflecting the Group's continued investment in the
network, and financing activity outflows of GBP6.4m. The Group's Revolving Credit
Facility (RCF) was fully repaid in the period.
Operations
Key Performance Indicators (KPIs) are used to measure progress towards
achieving operational objectives. Performance during the period is summarised
below:
KPIs Six months Year ended
ended
30 June 31 December
2020 2019 2019
=--------------------------------------------------------- ------------ ------------ -------------
Safety:
Lost time incidents None None 3
Network Performance:
Customer Minutes Lost (CML)
- Planned CML (minutes) 12 22 45
- Fault CML (minutes) 22 20 38
Customer Service:
Overall standards - failures (number of) None None None
Guaranteed standards - defaults (number of) None None None
Stage 2 complaints to the Consumer Council None 1 2
Connections:
Customer demand connections completed including 1,829 2,325 4,699
non-recoverable alterations (number of)
Sustainability:
Reduction in non-network carbon emissions [Note 2] 18.7% N/A N/A
Waste recycling rate (%) 97 98 98
Staffing:
Headcount (at 30 June/31 December) 1,202 1,211 1,216
Absenteeism (%) 3.11% 2.60% 3.27%
[Note 2] New KPI for 2020 and therefore no comparative figures are included for
the prior period/year.
Safety
Ensuring the safety of employees, contractors and the general public continued
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. There were no lost time
incidents during the period (2019 - None).
Regrettably, subsequent to the period end, we have had a fatality on our
network involving one of our colleagues, Richard Scott. The circumstances of
the incident are being investigated both by the Health and Safety Executive for
Northern Ireland and internally. The learnings from these investigations will
be incorporated into the Group's operations as part of our ongoing commitment
to providing a zero harm working environment.
Network Performance
The average number of minutes lost per consumer through pre-arranged shutdowns
for maintenance and construction (Planned CML) fell from 22 to 12 minutes in
comparison with the same period last year, primarily due to reduced work
programmes as a result of Covid-19 restrictions. CML through distribution fault
interruptions (Fault CML) increased from 20 to 22 in the period.
Customer Service
The Utility Regulator sets overall and guaranteed standards for NIE Networks'
performance. All the overall standards were achieved and there were no
defaults against the guaranteed standards for customer services activities
delivered during the period (2019 - none). No Stage 2 complaints were taken up
by the Consumer Council during the period (2019 - one).
Connections
The number of customer demand connections completed during the period reduced
compared with the prior period, reflecting the impact of Covid-19 on the
ability to deliver work.
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. The latest statistics
show that nearly 48% of annual electricity consumption in Northern Ireland for
the twelve months to 30 June 2020 was generated from renewable sources. This
has been supported through the connection of approximately 1.7GW of renewable
capacity to the network by NIE Networks and with a further 0.3GW capacity
committed to be connected, the total connected renewable capacity is expected
to reach nearly 2.0 GW by 2022.
NIE Networks has continued to participate in the Connections Innovation Working
Group with industry stakeholders. In parallel, the Company is working with the
System Operator for Northern Ireland (SONI) and other industry stakeholders to
develop an enduring connections process that will maximise the ability of
Northern Ireland to achieve its ambitious renewable energy target.
Sustainability
In 2019, NIE Networks adopted the European Distribution System Operators'
(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.
The Company has reduced its non-network carbon emissions by 18.7% during the
current period through a range of measures including improving the energy
efficiency of work locations and increasing the use of technology to reduce the
need for business travel. The reduction in activity due to Covid-19
restrictions together with an increase in the number of staff working from home
during the pandemic has been a significant factor in achieving this level of
reduction in non-network emissions.
The recycling rate for all hazardous and non-hazardous waste (excluding
excavation from roads and footpaths, civil projects excavation and asbestos
removal) continued at a high level with 97% of waste recycled during the
period.
Staffing
The total number of staff employed by the Company remained broadly consistent
with the prior period. Absenteeism levels have increased from 2.60% to 3.11%
owing primarily to long-term sickness absences.
Principal Risks and Uncertainties
The principal risks and uncertainties facing NIE Networks for the remainder of
the financial year, which are managed under NIE Networks' risk management
framework, are as set out in the Group's latest annual report for the year to
31 December 2019 which is available at www.nienetworks.co.uk.
A review of the principal risks has identified a number of areas where the
impact of the Covid-19 pandemic results in an elevated risk profile. Mitigation
plans have been reviewed and updated and will continue to be closely monitored.
GROUP INCOME STATEMENT
Six months ended Year ended
30 June 31 December
2020 2019 2019
Note Unaudited Unaudited Audited
GBPm GBPm GBPm
Revenue 2 155.8 139.7 276.3
Operating costs (87.9) (83.3) (166.0)
----------- ----------- -----------
OPERATING PROFIT 67.9 56.4 110.3
----------- ----------- -----------
Finance costs (17.5) (17.3) (35.0)
Net pension scheme interest (1.0) (1.3) (2.4)
----------- ----------- -----------
Net finance costs (18.5) (18.6) (37.4)
----------- ----------- -----------
PROFIT BEFORE TAX 49.4 37.8 72.9
Tax charge 3 (21.3) (7.2) (13.8)
----------- ----------- -----------
PROFIT FOR THE PERIOD / YEAR
ATTRIBUTABLE TO THE EQUITY HOLDERS OF
THE PARENT COMPANY 28.1 30.6 59.1
====== ====== ======
GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Profit for the financial period / year 28.1 30.6 59.1
----------- ----------- -----------
Other comprehensive (expense) / income:
Re-measurement (losses) on pension scheme
assets and liabilities (75.3) (10.8) (22.1)
Deferred tax credit relating to
components of other comprehensive income 14.3 1.8 3.8
Change in deferred tax rate 3.3 - -
----------- ----------- -----------
Net other comprehensive (expense) for the
period / year (57.7) (9.0) (18.3)
----------- ----------- -----------
Total net comprehensive (expense) /
income for the period / year (29.6) 21.6 40.8
======= ====== ======
GROUP BALANCE SHEET
As at As at
30 June 31 December
2020 2019 2019
Note Unaudited Unaudited Audited
GBPm GBPm GBPm
Non-current assets
Property, plant and equipment 4 1,862.2 1,819.3 1,849.3
Intangible assets 4 18.0 20.2 19.4
Right of use leased assets 4 12.0 11.3 11.9
Derivative financial assets 6 530.6 522.7 492.2
----------- ----------- -----------
2,422.8 2,373.5 2,372.8
----------- ----------- -----------
Current assets
Inventories 17.3 13.1 14.8
Trade and other receivables 47.9 42.8 53.3
Current tax asset 1.9 0.6 1.9
Derivative financial assets 6 17.0 14.0 14.4
Cash and cash equivalents 30.4 35.5 9.0
----------- ----------- -----------
114.5 106.0 93.4
----------- ----------- -----------
TOTAL ASSETS 2,537.3 2,479.5 2,466.2
----------- ----------- -----------
Current liabilities
Trade and other payables 79.0 64.9 71.0
Current tax payable 2.8 1.7 -
Deferred income 19.2 18.6 19.1
Financial liabilities:
Derivative financial 6 17.0 14.0 14.4
liabilities
Lease financial liabilities 6, 7 2.7 2.5 2.8
Other financial liabilities 6, 7 7.9 8.6 21.4
Provisions 3.3 3.3 3.4
----------- ----------- -----------
131.9 113.6 132.1
----------- ----------- -----------
Non-current liabilities
Deferred tax liabilities 66.2 71.4 71.2
Deferred income 516.5 515.8 516.0
Financial liabilities:
Derivative financial 6 530.6 522.7 492.2
liabilities
Lease financial liabilities 6, 7 9.4 9.1 9.1
Other financial liabilities 6, 7 747.4 747.0 747.2
Provisions 3.7 4.1 3.8
Pension liability 8 170.5 100.6 103.9
----------- ----------- -----------
2,044.3 1,970.7 1,943.4
----------- ----------- -----------
TOTAL LIABILITIES 2,176.2 2,084.3 2,075.5
----------- ----------- -----------
NET ASSETS 361.1 395.2 390.7
======= ======= =======
Equity
Share capital 36.4 36.4 36.4
Share premium 24.4 24.4 24.4
Capital redemption reserve 6.1 6.1 6.1
Accumulated profits 294.2 328.3 323.8
----------- ----------- -----------
TOTAL EQUITY 361.1 395.2 390.7
======= ======= =======
The financial statements were approved by the Board of directors and signed on
its behalf by:
Paul Stapleton
Director
22 September 2020
GROUP STATEMENT OF CHANGES IN EQUITY
Capital
Share Share redemption Accumulated
capital premium reserve profits Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 36.4 24.4 6.1 306.7 373.6
---------- ----------- ----------- ----------- -----------
Profit for the year - - - 59.1 59.1
Net other comprehensive expense - - - (18.3) (18.3)
for the year
----------- ----------- ------------ ----------- -----------
Total net comprehensive income - 40.8 40.8
for the year
Dividends to the shareholder - - - (23.7) (23.7)
---------- ----------- ----------- ----------- -----------
At 1 January 2020 36.4 24.4 6.1 323.8 390.7
---------- ----------- ----------- ----------- -----------
Profit for the period - - - 28.1 28.1
Net other comprehensive expense - - - (57.7) (57.7)
for the period
---------- ----------- ----------- ----------- -----------
Total net comprehensive income - - - (29.6) (29.6)
for the period
---------- ----------- ----------- ----------- -----------
At 30 June 2020 36.4 24.4 6.1 294.2 361.1
===== ======= ======= ======= ======
Capital
Share Share redemption Accumulated
Capital premium reserve profits Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 36.4 24.4 6.1 306.7 373.6
---------- ----------- ----------- ----------- -----------
Profit for the period - - - 30.6 30.6
Net other comprehensive income - - - (9.0) (9.0)
for the period
---------- ----------- ----------- ----------- -----------
Total net comprehensive income - - - 21.6 21.6
for the period
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
At 30 June 2019 36.4 24.4 6.1 328.3 395.2
===== ======= ======= ======= ======
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period/year 28.1 30.6 59.1
Adjustments for:
- Tax charge 21.3 7.2 13.8
- Net finance costs 18.5 18.6 37.4
- Depreciation of property, plant and 38.7 36.6 74.3
equipment
Depreciation of right of use leased 1.5 1.4 2.9
assets
- Release of customers' contributions and (9.3) (9.0) (18.5)
grants
- Amortisation of intangible assets 2.6 2.4 4.9
- Defined benefit pension charge less (9.7) (9.0) (18.2)
contributions paid
Net movement in provisions (0.2) (0.4) (0.6)
----------- ----------- -----------
Operating cash flows before movement in 91.5 78.4 155.1
working capital
Decrease/(Increase) in working capital 10.5 4.1 (6.8)
----------- ----------- -----------
Cash generated from operations 102.0 82.5 148.3
Interest paid (25.6) (25.5) (35.1)
Lease interest paid (0.2) (0.2) (0.3)
Current taxes received/(paid) (1.8) 4.1 1.4
----------- ----------- -----------
Net cash flows from operating activities 74.4 60.9 114.3
----------- ----------- -----------
Cash flows used in investing activities
Purchase of property, plant and equipment (55.4) (66.0) (133.8)
Customers' cash contributions 10.1 12.7 22.8
Purchase of intangible assets (1.3) (1.4) (3.1)
----------- ----------- -----------
Net cash flows used in investing (46.6) (54.7) (114.1)
activities
----------- ----------- -----------
Cash flows (used in) / from financing
activities
Dividends paid to shareholder - - (23.7)
Payments in respect of lease liabilities (1.4) (1.1) (2.9)
Amounts received from group undertakings 8.0 - 5.0
Amounts repaid to group undertakings (13.0) - -
----------- ----------- -----------
Net cash flows (used in) financing (6.4) (1.1) (21.6)
activities
----------- ----------- -----------
Net increase in cash and cash equivalents 21.4 5.1 (21.4)
Cash and cash equivalents at beginning of 9.0 30.4 30.4
period / year
----------- ----------- -----------
Cash and cash equivalents at end of period 30.4 35.5 9.0
/ year ======= ======= =======
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 CONDENSED INTERIM FINANCIAL STATEMENTS
1. Basis of Preparation
The condensed interim financial statements for the period ended 30 June 2020
have been prepared in accordance with International Accounting Standard (IAS)
34 "Interim Financial Reporting" and the Disclosure and Transparency Rules of
the Financial Conduct Authority.
The condensed interim financial statements consolidate the results of Northern
Ireland Electricity Networks Limited (NIE Networks or the Company) and its
subsidiary undertakings, NIE Networks Services Limited and NIE Finance PLC (the
Group).
The condensed interim financial statements have been prepared on the basis of
the accounting policies set out in the financial statements for the year ended
31 December 2019.
The condensed interim financial statements have been prepared on the going
concern basis as the directors are of the opinion that the Group has adequate
financial resources to continue in operational existence for a period of 12
months from the date of approval of the interim report and financial
statements. While the impact of the Covid-19 pandemic continues to evolve, the
directors are of the opinion that the Group has adequate financial resources to
continue for the 12 month period.
The condensed interim financial statements have not been audited or reviewed by
auditors pursuant to the Auditing Practices Board guidance on "Review of
Interim Financial Information performed by the Independent Auditor of the
Entity".
The condensed interim financial statements for the period ended 30 June 2020 do
not constitute statutory financial statements within the meaning of Section 434
of the Companies Act 2006. The report of the auditors on the financial
statements contained within the Group's report for the year ended 31 December
2019 was unmodified and did not contain a statement under either Section 498(2)
or Section 498(3) of the Companies Act 2006 regarding inadequate accounting
records or a failure to obtain necessary information and explanations.
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.
2. Revenue
Six months ended Year ended
30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Revenue:
Sales revenue 146.7 130.9 258.2
Amortisation of customer contributions from 9.1 8.8 18.1
deferred income
----------- ----------- -----------
155.8 139.7 276.3
======= ======= =======
The Group's operating activities, which are described in the interim management
report, comprise one operating segment. Sales revenue consists largely of
income from regulated tariffs.
3. Tax Charge
Six months ended Year ended
30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current tax charge
UK corporation tax at 19.0% (2019 - 19.0%) 8.6 6.0 10.8
----------- ----------- -----------
Total current tax 8.6 6.0 10.8
----------- ----------- -----------
Deferred tax charge
Origination and reversal of temporary 1.0 1.2 3.0
differences in current period
Origination and reversal of temporary - - -
differences in prior period
Effect of increase in tax rate on opening 11.7 - -
liability
----------- ----------- -----------
Total deferred tax charge 12.7 1.2 3.0
----------- ----------- -----------
Total tax charge 21.3 7.2 13.8
======= ======= =======
4. Capital Additions
Six months Year ended
ended 31 December
30 June
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Property, plant and equipment 51.6 64.8 132.5
Intangibles assets - computer software 1.2 1.4 3.1
Right of use leased assets 1.6 12.7 14.8
----------- ----------- -----------
54.4 78.9 150.4
======= ======= =======
Depreciation of GBP42.8m (30 June 2019 - GBP40.4m) was charged in the period. No
assets were disposed of in the period (30 June 2019 - GBPnil).
Capital additions to Right of use leased assets in 2019 include amounts
recognised upon adoption of IFRS 16.
5. Capital Commitments
At 30 June 2020 the Group had contracted future capital expenditure in respect
of property, plant and equipment of GBP11.2m (June 2019 - GBP14.7m) and computer
software assets of GBP3.5m (June 2019 - GBP5.2m).
6. Financial Instruments
An overview of financial instruments, other than cash, short-term deposits,
prepayments and tax and social security costs held by the Group as at 30 June
2020 is as follows:
As at 30 June 2020 Held at Fair value
amortised profit or
Financial assets: cost loss
Unaudited Unaudited
GBPm GBPm
Trade and other receivables 45.0 -
Interest rate swaps - 17.0
----------- -----------
Total current 45.0 17.0
----------- -----------
Interest rate swaps - 530.6
----------- -----------
Total non-current - 530.6
----------- -----------
Total financial assets 45.0 547.6
======= =======
Financial liabilities:
Trade and other payables 53.7 -
Interest rate swaps - 17.0
Lease liabilities 2.7 -
Interest bearing loans and borrowings 7.9 -
----------- -----------
Total current 64.3 17.0
----------- -----------
Interest rate swaps - 530.6
Lease liabilities 9.4 -
Interest bearing loans and borrowings 747.4 -
----------- -----------
Total non-current 756.8 530.6
----------- -----------
Total financial liabilities 821.1 547.6
======= =======
The directors consider that the carrying amount of financial instruments equals
fair value.
NIE Networks has held a GBP550m portfolio of inflation linked interest rate 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. Future accretion payments are now scheduled to occur every
five years with remaining accretion paid at maturity.
At the same time that the restructuring took effect in 2014 the Company entered
into RPI linked interest rate swap arrangements with ESBNI Limited, the
immediate parent undertaking of the Company, which have identical matching
terms to the restructured swaps. The back to back matching swaps with ESBNI
Limited 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 Limited. 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. Positive fair value movements of GBP37.0m arose on the swaps in
the six months ended 30 June 2020 (June 2019: positive fair value movements of
GBP34.8m) and were recognised within finance costs in the income statement, as
hedge accounting was not available.
During 2020 the Company made swap interest payments of GBP6.9m (2019: GBP6.3m). Due
to the back to back arrangements, the Company had matching swap interest
receipts of GBP6.9m (2019: GBP6.3m). 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.
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 30 June 2020 is considered by the
Company to fall within the level 2 fair value hierarchy. The Company
determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each
reporting period. There have been no transfers between level 1 or 3 of the
hierarchy during the period.
7. Net Debt
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Cash at bank and in hand 30.4 35.5 9.0
----------- ----------- -----------
Debt due before 1 year:
Interest payable on GBP350m bond (5.9) (6.5) (1.6)
Interest payable on GBP400m bond (2.0) (2.0) (14.8)
Interest payable to parent undertaking (0.1) (0.1) (0.1)
Lease liability (2.7) (2.5) (2.8)
Amounts owed to parent undertaking - - (5.0)
----------- ----------- -----------
(10.7) (11.1) (24.3)
Debt due after 1 year: ----------- ----------- -----------
GBP350m bond (348.5) (348.3) (348.4)
GBP400m bond (398.9) (398.7) (398.8)
Lease liability (9.4) (9.1) (9.1)
----------- ----------- -----------
(756.8) (756.1) (756.3)
----------- ----------- -----------
Total net debt (737.1) (731.7) (771.6)
======= ======= =======
8. Pension Commitments
Most employees of the Group are members of the 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 8% 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.
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Market value of assets 1,143.3 1,128.4 1,127.0
Actuarial value of liabilities (1,313.8) (1,229.0) (1,230.9)
----------- ----------- -----------
Net pension liability (170.5) (100.6) (103.9)
Changes in the market value of assets
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Market value of assets at beginning 1,127.0 1,054.7 1,054.7
of the period / year
Interest income on scheme assets 11.1 14.6 28.9
Contributions from employer 12.4 12.3 25.0
Contributions from scheme members 0.1 0.2 0.4
Benefits paid (36.4) (31.8) (67.9)
Administration expenses paid (1.4) (0.5) (1.5)
Re-measurement gains on scheme 30.5 78.9 87.4
assets
----------- ----------- -----------
Market value of assets at end of the 1,143.3 1,128.4 1,127.0
period / year ======= ======= =======
Changes in the actuarial value of liabilities
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
Actuarial value of liabilities at 1,230.9 1,152.2 1,152.2
beginning of the period / year
Interest expense on pension liability 12.1 15.9 31.3
Current service cost 2.8 2.7 5.3
Curtailment costs 0.1 0.1 0.1
Past service credit (1.6) - -
Contributions from scheme members 0.1 0.2 0.4
Benefits paid (36.4) (31.8) (67.9)
Effects of changes in demographic - - -
assumptions
Effect of changes in financial 105.8 89.7 112.1
assumptions
Effect of experience adjustments - - (2.6)
----------- ----------- -----------
Actuarial value of liabilities at end of 1,313.8 1,229.0 1,230.9
the period / year ======= ======= =======
9. Related Party Transactions
During the period ended 30 June 2020, the Group contributed GBP16.0m (2019 - GBP
15.4m) to the Northern Ireland Electricity Pension Scheme in respect of Focus
and Options employer contributions, including an element of deficit repair
contributions in respect of Focus.
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 NIE Networks 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, DOA A995.
Principal subsidiaries of ESB are related parties of the Group. Transactions
between the Group and related parties are disclosed below:
Amounts Amounts
Revenue Charges owed by owed to
from from related related
Interest related related party at party at
charges party party period end period end
Unaudited Unaudited Unaudited Unaudited Unaudited
GBPm GBPm GBPm GBPm GBPm
Six months ended
30 June 2020
ESB (0.2) - - - (0.1)
ESB subsidiaries - 17.4 (1.3) 2.8 (2.9)
----------- ----------- ----------- ----------- -----------
(0.2) 17.4 (1.3) 2.8 (3.0)
======= ======= ======= ======= =======
Six months ended
30 June 2019
ESB (0.1) - - - (0.1)
ESB subsidiaries - 15.6 (1.4) 2.7 (5.2)
----------- ----------- ----------- ----------- -----------
(0.1) 15.6 (1.4) 2.7 (5.3)
======= ======= ======= ======= =======
10. 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 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 period end.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the directors, named on page 1, confirm that to the best of their
knowledge:
(i) the interim financial statements have been prepared in accordance with IAS
34 "Interim Financial Reporting" and give a true and fair view of the assets,
liabilities, financial position and profit of the Group for the six months to
30 June 2020; and
(ii) the interim management report includes a fair review of the information
required by DTR 4.2.7R of the Disclosure and Transparency Rules.
By order of the Board
Paul Stapleton
Director
22 September 2020
END
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