TIDM46RT TIDM52HM
This announcement is in respect of NIE Finance PLC's bonds
- £350,000,000 2.5 per cent Guaranteed Notes due 2025 (ISIN XS1820002308); and
- £400,000,000 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 2020 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 2020 follows below:
Contact for enquiries:
NIE Networks Corporate Communications - telephone 0845 300 3556
2020 - AT A GLANCE
- Continued focus on the health and safety of staff, contractors and the
general public with development of Safer Together programme
- Maintained reliable electricity supply for customers throughout Covid-19
pandemic through the commitment and dedication of all our staff and contractors
- Significant staff participation in volunteering initiatives to support local
communities during pandemic
- Cumulative Renewable generation connected to the electricity network reached
1.7GW
- 6% reduction in customer complaints through continued focus on customer
service
- Successful response to network damage resulting from adverse weather
conditions with 100% of affected customers restored within 24 hours
- Continued management of outages to reduce Customer Minutes Lost
- Investment of £80m in the network in line with the RP6 price control
- Replacement of 28,500 meters under the meter recertification programme
- Operating profit of £129.7m and profit after tax of £63.4m
- Over £142m 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 2020.
The Board of directors of the Company who served during the year are outlined
in the Group Directors' Report on page 29.
NIE Networks' subsidiary companies are NIE Networks Services Limited and NIE
Finance PLC.
The Group financial statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006.
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 895,000 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 7.4TWh 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 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
reviewed by the Utility Regulator at least annually to approve the charging
methodology.
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 £745 million for capital
investment and £487 million in respect of operating costs (stated at 2020-21
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
of 'Delivering a Sustainable Energy System for All' sets the specific goal NIE
Networks aspires to in the future, providing direction for the Company within
the changing external landscape in which it operates. NIE Networks' values,
which were refined and simplified in the year, are being Safety-, People-,
Customer-, Commercially- and Future-focussed.
NIE Networks' Purpose aligns with ESB Group's Purpose 'to create a brighter
future for the customers and communities we serve and will do this by leading
the transition to a reliable, affordable, low carbon economy.'
NIE Networks' strategic objectives are:
- the health and safety of employees, contractors and the general public;
- enabling Northern Ireland's transition to an effective, sustainable and
affordable low carbon energy system;
- 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; and
- effective stakeholder engagement.
NIE Networks seeks to discharge its statutory and regulatory obligations in a
manner which meets these strategic objectives.
Covid-19 response
2020 saw a significant impact on NIE Networks' operations from the Covid-19
pandemic, with NIE Networks' 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 in Q1 2020, 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 in March, the Company ceased all
non-essential works on the network for a number of weeks 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 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. Since that point, the Company has updated its
procedures in line with public health guidelines and continues to adapt its
activities to deliver on the priorities noted above. As a result, the Company
continued to support its customers by providing a reliable electricity service
and continues to do so as the impacts of Covid-19 persist.
This annual report and financial statements reflect the financial impact of the
pandemic for the period to 31 December 2020. Management continues to monitor
the ongoing impact of the pandemic and has taken steps to mitigate the
operational and financial impacts on the Company. It is evident that the
pandemic will continue to impact NIE Networks, all of its customers and the
wider economy through 2021 and potentially beyond. The steps taken by the
Company and its staff in adapting its working environments to deal with the
challenges posed by Covid-19 have ensured that the Company will be able to
deliver work programmes and maintain a reliable electricity service to its
customers for the foreseeable future.
Throughout the duration of Covid-19, the commitment and resilience displayed by
the Company's staff has been exemplary. Employees have responded to all the
challenges posed with real dedication, supporting their communities and
customers and ensuring that the priorities identified at the start of the
pandemic have been addressed. The strong performance of the business in
adapting to the Covid-19 challenge has been testament to their performance.
Financial Review
Financial Key Performance Indicators (KPIs)
Operating Profit
The Group's operating profit as reported in the financial statements was £
129.7m for the year to 31 December 2020, an increase of £19.4m on the previous
year. Group revenue of £302.2m has increased by £25.9m reflecting a £17.6m
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 £7.0m. Group
operating costs of £172.5m have increased by £6.5m, predominantly due to
additional operational costs and restrictions on capital programmes of works
which led to higher net payroll costs being charged to the Income Statement, 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 £5.3m (2019:
net expense of £3.9m).
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 £11.7m.
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 5.2 times for the year (2019 - 4.6 times) is
above the target level of 3.0 times. FFO Interest Cover at 31 December 2019 has
been restated to align with credit rating agency methodology.
Net Assets
The Group's net assets of £425.0m increased by £34.3m on the previous year
reflecting profit after tax of £63.4m and the impact of changes in deferred tax
rates on the opening net pension deficit of £3.3m, offset by in-year
re-measurement losses (net of tax) of £14.4m on net pension scheme liabilities,
and a dividend paid to the shareholder during the year of £18.0m.
Cash Flow
Cash and cash equivalents increased by £12.5m during the year reflecting net
cash flows from operating activities of £135.3m, offset by investing activity
out flows of £96.9m (reflecting the Group's continued investment in the
network), the dividend paid of £18.0m, repayment of £2.9m of lease liabilities
and repayment of the Group's Revolving Credit Facility (RCF) of £5.0m.
Net cash flows generated from operating activities of £135.3m are £21.0m higher
than the £114.3m generated during 2019 reflecting the Group's increased
operating profit during the year together with lower interest payments and a
smaller movement in working capital requirements between 2019 and 2020.
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 £350.0m and £400.0m
(£348.6m and £399.0m respectively net of issue costs) which are due to mature
in October 2025 and June 2026 respectively. The Group has access to a £200.0m
RCF from ESB, none of which was drawn down at the year end. The RCF is due to
mature in December 2023.
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 to 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 £350.0m and £400.0m bonds are denominated in sterling and carry fixed
interest rates of 2.500% and 6.375% respectively.
Given that 100% of the Group's total borrowings at December 2020 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 £550m 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 2020 2019
£m £m
Cash and cash equivalents 21.5 9.0
Trade and other receivables (excluding prepayments and 53.8 49.7
accrued income)
Other financial assets - current and non-current 532.0 506.6
________ ________
607.3 565.3
________ ________
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
not less than 12 months from the date of approval of the financial statements
along with potential downside sensitivities, the directors have a reasonable
expectation that the Group will have adequate financial resources for the
12-month period. While the Covid-19 pandemic continues to impact on both the
Group and the wider economy, the directors have considered the possible
financial impact on the Group's financial position and 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.
As NIE Networks' principal Corporate Social Responsibility (CSR) initiatives in
relation to public safety, customer care, educational outreach, community and
charitable giving are key objectives and embedded within day-to-day activities,
progress on each during 2020 is reported within the Operational Review.
Operational Review
Operational KPIs
Throughout this Operational Review reference is made to the Key Performance
Indicators (KPIs) used to measure progress towards achieving operational
objectives. Performance during the year is summarised below:
KPIs - Year to 31 December 2020 2019
Health & Safety:
Fatality 1 -
Lost time incidents (number of) 2 3
Network Performance:
Customer Minutes Lost (CML)
- Planned CML (minutes) 33 45
- Fault CML (minutes) 41 38
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 2
of)
Connections:
Customer demand connections completed including
non-recoverable alterations (number of) 4,051 4,100
Sustainability:
Reduction in non-network carbon emissions 11.0% N/A
Waste recycling rate 97.2% 97.9%
Staffing:
Headcount (at 31 December) 1,200 1,216
Absenteeism 2.86% 3.27%
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), various Energy Networks Association (ENA) health and safety committees,
and the ESB Group, to share information and improve safety performance and
learning.
Regrettably, all of NIE Networks suffered a terrible loss on 19 August 2020
with the death of one of our colleagues, Richard Scott, a plant maintenance
electrician, while working at Drumnakelly Main Substation in Portadown. This
tragedy has had a huge impact on Richard's family, work colleagues and many
friends. The circumstances of the incident are being investigated both by the
Health and Safety Executive for Northern Ireland and internally.
The target for lost time incidents continues to be set at zero. In addition to
the fatality highlighted above, there were two incidents during the year (2019
- three). One occurred during low voltage operational activity on the network
with the other occurring during non-operational training. Each incident has
been investigated internally.
As a business, we must all redouble our efforts to ensure that we are
implementing and adhering to the highest safety standards, in everything we do.
Since these serious incidents, all colleagues across the business have
contributed to the review of our safety practices via participation in around
100 focus groups. This feedback and the wider organisation learning from the
formal incident investigations have led to the development on an enabling
action plan to improve adherence to our safety value, reduce the risk of harm
and improve the wellbeing of our staff. The "Safer Together - Our Pathway to
Zero Harm" plan is a key priority for NIE Networks in 2021.
Safety Engineers are aligned with organisational structures through a Business
Partner relationship which facilitates integration of skills and allows
influence and support. During 2020, 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;
- an internal audit completed on Health, Safety and Environment Assurance
Framework 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 and the publication of a monthly Safety newsletter;
- a further nine 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 121 employees;
- over 3,390 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 Executive
Committee members, business unit managers, health and safety engineers 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 virtually due to restrictions imposed by
the Covid-19 pandemic.
Updates on safety performance are provided to each Health and Safety Management
Committee, Executive Committee and Board meetings. This provides a level of
regular assurance against objectives agreed in the annual Health, Safety and
Wellbeing Business Plan.
Due to the Covid-19 pandemic, NIE Networks amended work programmes in line with
Government guidance and requirements regarding Essential and Non-Essential Work
on a risk-based approach. At an early stage in the pandemic, NIE Networks
concentrated on an agreed schedule of work which was deemed essential as it
supported NI's critical infrastructure. In agreeing this approach, NIE Networks
assessed both the generic and dynamic risks and identified additional control
measures and mitigation that would be required. Along with numerous guidance
documents, the Group also increased communications around Health and Wellbeing,
which included guidance for those working from home.
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.
While Covid-19 restrictions prevailed, the Group's Public Safety Campaign was
delivered by alternative media during May and June through radio messages,
newspaper and associated digital adverts. Delivered through both main stream
media and agricultural media, it enabled the targeting of the messages to the
relevant sectors with an estimated coverage of c1.3 million. Safety
presentations were made to contractors across the industry and to other
utilities and their contractors whilst adhering to the Covid-19 protocols.
NIE Networks' "Kidzsafe" programme continued until March 2020 with over 4,200
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 when Covid-19 prevented the
programme from continuing within the school environment.
NIE Networks continued to work with HSENI, the network operators in Great
Britain and other utilities in Northern Ireland to address the dangerous issue
of third-party contact, or interference, with our network.
NIE Networks' safety advice is supplemented by a proactive media campaign,
including social media, with information available on the 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 2020, 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, which was particularly important with a
greater number of customers working from home due to Covid-19 restrictions.
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 2020 was 33 minutes (2019 -
45 minutes), reflecting the RP6 programme of works and how it was impacted by
the restrictions on work programmes as a result of Coronavirus regulations. The
average number of CML due to faults on the distribution network in 2020 was 41
minutes (2019 - 38 minutes). 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, meter readings in the period and
prescribed times for responding to customers' voltage complaints. During the
year, each of the overall standards was achieved. In 2020 there were no
defaults against Guaranteed Standards of Performance for customer service
activities delivered (2019 - none). During the year 93.7% (2019 - 94.6%) 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 six occasions where adverse weather caused damage to
the network and affected several thousand customers' supplies. On each of these
occasions, 100% of affected customers' supplies 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 2020
with the number of complaints received being 6% 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 (2019 - two).
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, continued to oversee ongoing
consultation with customer groups on the delivery of the RP6 programme and
priorities leading into the next price control period. A number of stakeholder
update and feedback sessions were held focusing on specific areas of our
business such as how we engage with businesses, vulnerable customers, how we
respond in emergencies, how connections are managed and how the business should
be adapting for the future.
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. Over 10,000 customers are registered for the service. During the
initial 'lockdown' period around 80% of customers on the medical care register
were contacted to provide assurance concerning their electricity supply and
other support.
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 third year of a 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.
During the year, NIE Networks has been developing its Vulnerable Customer
Strategy and it is planned to launch this strategy during 2021. This strategy
will focus on household customers who are critically dependent on electrically
powered equipment (including life-protecting devices, technologies to support
independent living and medical equipment), or are identified as needing extra
support due to the personal characteristics or circumstances.
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,
altering the network, or connecting generators to the distribution network.
More recently, customers have also expressed interest in connecting energy
storage devices and low carbon technologies, such as electric vehicle chargers
and electric heat pumps to the network.
Typically, the Connections business connects approximately 9,000 customers each
year to the electricity network, powering homes, businesses, farms and
connecting renewable and low carbon technologies. The number of new connections
completed during the year reduced to 7,661, from 9,501 in 2019 reflecting the
impact of Covid-19 restrictions.
The market for new connections has been fully open to competition since March
2018. For 'contestable' elements of connections, customers can choose whether
to accept a quotation from NIE Networks or to engage an accredited Independent
Connection Provider (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.
During 2020, a Contestability Working Group including representatives from the
Utility Regulator, SONI, NIE Networks, ICPs and Lloyds Register Group was
reconvened to look at potential changes to activities that are currently deemed
contestable and non-contestable within the NI connections market. As part of
this review, the Utility Regulator has commenced a consultation process in
relation to 'Expanding the Scope of Contestability in Northern Ireland'
including a Call for Evidence which was issued in February 2021 and for which
responses are due in March 2021.
NIE Networks continues to play a critical role in providing connections for
renewable energy sources including connection of two major battery storage
projects with a total capacity of 100MW in late 2020. To date, NIE Networks has
successfully connected over 20,000 generators providing renewable generation
capacity to the network, significantly adding to the available market capacity
and resulting in approximately 1.7GW of renewable capacity now connected to the
network. With a further 0.3GW capacity committed to be connected, the total
connected renewable capacity is expected to reach circa 2.0GW by 2023. In
addition, there continues to be interest from generators to connect potential
further renewable capacity to the network. During 2020, over 49% of
electricity consumption was produced from renewable sources, which exceeded the
long-term target of 40% by 2020.
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, including
proactively contributing to the DfE's Northern Ireland Energy Strategy 2050.
NIE Networks has 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. Following a joint consultation issued by NIE Networks and
SONI in respect of NIE Networks Providing Distribution Generation Offers with
Non-Firm Market Access, a Decision Paper was published in February 2021,
confirming that NIE Networks will provide non-firm access to distribution
generators of 5MW and above.
Electric vehicles and heat pumps have a strategic role in reducing greenhouse
gas emissions and are a key component of the transition to a low carbon
economy. NIE Networks supports this transition and is investing in its networks
to ensure that it can safely and reliably meet the increase in electricity
demand required to support these technologies. NIE Networks has updated its
website so that customers who have installed, or plan to install, an electrical
vehicle charger or a heat pump can submit their notification online in just a
few minutes by visiting NIE Networks' website.
As part of NIE Networks' consultation during 2019 in relation to 'Greater
Access to the Distribution Network in Northern Ireland', a requirement was
highlighted in respect of the need for quicker timescales to facilitate battery
storage alongside micro generation. In response to this, a new fast track
process was developed for these types of connections which now allows customers
to apply online and to submit commissioning and test results through an online
portal.
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.
Environment
NIE Networks' Environmental Policy commits to protecting the environment and
mitigating the impact of its activities on the environment. NIE Networks is
also committed to aligning its business with social objectives and supporting
local environmental organisations to protect and improve the environment in
Northern Ireland. The environmental management system is certified to ISO 14001
and is designed to ensure compliance with all relevant legislative, regulatory
requirements and to promote continual improvement. NIE Networks seeks to be an
industry leader, developing standards and 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 2020 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 97% (2019 - 98%);
- 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.
To support its environmental programme, ISO 14001 targets and continual
improvement of its management system, NIE Networks has developed a number of
key partnerships with local bodies including Ulster Wildlife, The Conservation
Volunteers and RSPB NI. As part of these partnerships NIE Networks has worked
to develop employee understanding of wildlife they may come across in their
day-to-day duties, facilitated tree planting sessions across the province and
continued to develop a programme to help reduce its single use plastic
consumption.
NIE Networks is one of only 22 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. NIE Networks was also named as a Business in the Community
Responsible Business Champion in the Environmental Leadership category. This
award recognises significant commitment and contribution to environmental
sustainability in Northern Ireland.
Network Investment
In 2020 NIE Networks invested a total of £80.1m (2019 - £93.9m) (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 reduction in investment from the prior
year primarily reflects the impact of the Covid-19 pandemic on work programmes
particularly during Q2 when the first national lockdown was in place. During
this time works were scaled back until risk assessments could be completed to
permit the development and implementation of safe working practices taking
account of revised Government guidelines on working safely while respecting
Covid-19 requirements.
Notwithstanding the impact of the unprecedented pandemic, almost 1,300km of
transmission and distribution overhead lines were addressed as part of an
ongoing refurbishment programme during the year. 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 7,100km
of overhead lines.
Significant volumes of asset replacements were also delivered on underground
and substation assets totalling 4,500 units during the year.
Substantial progress was also made in delivering the ongoing Electricity
Safety, Quality & Continuity Regulations (ESQCR) programme of work to improve
the safety of equipment on the network. Following a risk assessment, permanent
solutions were put in place at 76 locations with significant volumes of signs,
stays and clearances delivered against planned programmes.
Other key investments included the completion 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. This will allow
construction works necessary to refurbish the line to commence in 2021.
During 2020, NIE Networks continued to make progress in its transition from a
Distribution Network Operator (DNO) to a Distribution System Operator (DSO).
This included the continued progression of six innovation projects with the
objective of developing cost-effective alternatives to conventional network
investment while maintaining system capacity and capability. Moreover, a number
of DSO transition related requests were made to the Utility Regulator under the
RP6 re-opener mechanism, associated with managing the uptake of low carbon
technologies, increasing network monitoring and enhancing control systems.
Market Services
NIE Networks continued to achieve full compliance with its regulatory
obligations in respect of customer appointments for metering work. In addition,
each year approximately three million visits are made to customer properties to
take meter readings to ensure that electricity consumption is calculated
accurately, thereby minimising the number of estimated bills issued by
electricity suppliers. Although the number of visits to customer properties
during the year understandably reduced as a result of Covid-19 restrictions,
additional interventions (including increased use of online and mobile text
messaging for customers to submit meter readings) were introduced to try to
ensure that meter reading levels met the required standard.
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 compliant with these
obligations throughout 2020 with the exception of one technical default.
A major programme to replace meters that have reached the end of their life
cycle continued during 2020 with the replacement of approximately 28,500
meters. Approximately 40% of customers meters have now been replaced since this
programme commenced in 2015.
Sustainability
As a Distribution Network Operator and Transmission Asset Owner, NIE Networks
plays a key facilitating role in decarbonisation and has the opportunity and
capability to directly affect carbon emissions in Northern Ireland. NIE
Networks is paving the way to a decarbonised economy by promoting and
facilitating the connection of renewable generation and low carbon technologies
as well as operating the distribution system in a more dynamic, flexible and
economic manner while maintaining high safety standards alongside security and
reliability of supply.
NIE Networks is committed to ensuring its business has a minimal or positive
impact on the local and global environment, community, society and economy. The
Group's commitment to the European Distribution System Operators Sustainable
Grid Charter underscores its intentions in this regard and also its commitment
to addressing climate change and its wider societal impacts. Against this
context, and in line with statutory reporting requirements, NIE Networks aims
to demonstrate its commitment to managing its business activities in a more
sustainable manner and take steps to reduce its Carbon Footprint. As such the
Group's Sustainability Action Plan, launched in November 2020 and endorsed by
the NIE Networks Board, is influenced by moral, legal and economic
responsibilities and will be essential in securing a low carbon future. At the
heart of the delivery of this action plan is creating personal accountability
of employees through a behavioural change programme with monthly company-wide
communications on the topic.
Progress against energy and carbon reduction targets is provided in more detail
as part of the Streamlined Energy and Carbon Reporting (SECR) statement on
pages 36 - 37.
Business Carbon Footprint
NIE Networks' business carbon footprint is a measure of the impact that its
operational activities have on the environment. NIE Networks reports its
business carbon footprint in tonnes of carbon dioxide equivalent 'tCO2e' per
employee.
The Group's reported business related emissions have reduced by 11% during the
year. This is largely due to the restrictions associated with the Covid-19
pandemic, resulting in short-term stand-down of some operational activities and
increased working from home. Further details on carbon emissions are included
as part of SECR statement on pages 36 - 37.
Buildings Energy Use
NIE Networks operates an aged office building stock and has made significant
concerted efforts to reduce energy consumption over recent years.
Following a number of energy performance improvement initiatives across the
office building portfolio there has been, on average, a 13% reduction in
electricity consumption over the last five years. In 2020 there was a 6%
reduction in electricity and 9% reduction in gas consumption compared with
2019. While Covid-19 restrictions did reduce office occupation (and thus
electricity and gas consumption), all of the Company's office buildings
remained open during the Covid-19 pandemic to support NIE Networks' activities
as an Essential Service Provider.
There are a number of upcoming office building refurbishment and replacement
projects that will contribute to our carbon reduction targets in future years.
Our Dargan office in Belfast will undergo a significant refurbishment in 2021
which will deliver a major energy performance enhancement during.
Fuel Usage and Business Travel
After a long-term initiative to reduce the fuel usage of NIE Networks' fleet
vehicles, we continue to strive to maintain this usage at the lowest possible
level whilst meeting the operational needs of the business. During 2021 NIE
Networks will introduce the first electric vehicles to its fleet, which will
reduce the future carbon impact in this area.
Following a number of reviews into fleet efficiency, NIE Networks has seen
fleet fuel reduce consumption by over 9% in the last five years. Additionally,
the Group rolled out a new vehicle tracking system during 2020, which will
provide more information to help inform sustainable driving going forward. The
data from this new vehicle tracking system will be used to help identify the
first vehicles suitable for transition to an electric equivalent.
As part of the Company's response to the restrictions associated with the
Covid-19 pandemic, some teams were temporarily stood down in 2020 during the
months of March to May. Following implementation of additional safe working
practices many of these teams were able to return to work due to 28 new
temporary vehicles being added to the fleet in June to facilitate social
distancing. The net impact of these changes saw a reduction in fuel consumption
by fleet vehicles of almost 7% during the year.
NIE Networks has reduced non-operational business mileage during 2020 by almost
32% compared to the previous year primarily due to increased working from home
by employees. NIE Networks plans to maintain a level of agile working from home
in the future along with minimising inter-location travel by maximising the use
of video conferencing and collaborative working technologies, which is expected
to contribute to an enduring reduction in business mileage.
Consumption of bottled gas in the form of Liquefied Petroleum Gas (LPG) (used
in operational activities such as underground cable jointing) decreased by 12%
during 2020, primarily due to the temporary stand down of some teams during the
March to May period.
People
Central to NIE Networks' people strategy is to recruit, develop and train and
retain 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. Having this agility and
flexibility during 2020 has been essential in dealing with the Covid-19
pandemic, allowing employees to operate effectively while also responding
positively to the challenges and opportunities for employees at all levels.
Against the challenges of delivering the outputs required in the RP6 price
control within the allowances set, management has continued to focus on cost
reduction by challenging resourcing across the business while also recognising
the need to ensure the business has the appropriate skills for its current
challenges and the future. This has created upskilling and development
opportunities for employees by increasing their responsibilities and also
offering opportunities for retraining.
The number of employees at the end of 2020 was 1,200 (2019 - 1,216).
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. Our 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. During 2020 NIE Networks
has been exploring the opportunities of higher level apprenticeships as a way
to attract people from a wider external pool into roles the organisation finds
more difficult to recruit.
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.
The Covid-19 pandemic created a number of initial difficulties for training
delivery but it also created opportunities to redesign a number of programmes,
enabling them to be delivered digitally to ensure a strong focus on development
continued during the year. A high percentage of employees were 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. In addition, all of the Leadership team completed a 360 degree
feedback process which has resulted in each participant having a personal
development action plan to progress during 2021.
NIE Networks continues to promote the professional development of engineers
through the Institution of Engineering and Technology (IET) Professional
Registration Scheme and encourages and supports more employees to become IET
members and Chartered Engineers. During 2020, five 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. Outreach initiatives are
used to actively seek female applications in male dominated job roles. NIE
Networks successfully retained the Bronze Diversity Charter Mark during 2020,
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 is in place
covering areas such as stress management, 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. These
programmes were adapted to be delivered virtually to ensure accessibility to
the relevant guidance and training for all employees during the Covid-19
pandemic. Sickness absence during the year was 2.57% (excluding Covid-19
related absences) a decrease of 0.70% from the previous year. The figure
including Covid-19 related absences was 2.86%.
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. To
ensure that strong engagement links were maintained with employees during
challenging times in 2020, meetings were facilitated both virtually and
face-to-face where appropriate measures could be put in place in line with
government guidance. The Managing Director and non-executive members of the
Board attended a number of the meetings. The focus in 2020 was participative
group work, idea sharing and two way feedback in relation to the Company's
response to Covid-19, its approach to safety and a review of the Vision and
Values. In addition, meetings included updates on key areas of the business.
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 either 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 and 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.
Two separate Employee Relations Forums, comprising management and the relevant
trade union representatives, continued to meet 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
full-time 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 50 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, both as
employees and on Company developments generally. All employees can attend a
session with line management at their local workplace or virtually, and can
also access the material via the Company's intranet. Ordinarily, all
employees would 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.
Additionally, new employees would participate in a formal induction programme
including meeting with senior management. Given the restrictions imposed by the
pandemic, a range of virtual sessions and video messages from the Managing
Director were used in place of face-to-face meetings.
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 at GSCE and 'A' level, 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:
- links, either face to face or virtually with over 50 schools, the majority of
further educational colleges and the two universities in NI to promote
opportunities to study Science, Technology, Engineering and Maths (STEM)
subjects;
- offering four further scholarships to students studying either Electrical &
Electronic Engineering or Software and Electronic Systems Engineering at
Queen's University Belfast taking the total number of NIE Networks' scholarship
students to 20. In addition, NIE Networks has one employee participating in our
Apprentice to Graduate scheme; and two past apprentices who were sponsored
through their degree programmes have returned to the business in graduate
engineering positions;
- offering an industrial placement opportunity for a Geography undergraduate to
obtain a Diploma in Professional Practice;
- working in partnership with Woman in Science and Engineering (WISE) as they
launch a WISE NI hub to address the lack of girls taking up STEM careers in NI;
- providing mentors to three grammar schools as part of Sentinus R&D Programme,
enabling students to work with companies on research and development, design,
management and marketing; and
- providing support in partnership with a school under the Royal Society
Partnership Grant to carry out investigative STEM research projects.
NIE Networks remains committed for the fifth year to being the main sponsor of
"Skills NI" 2020, a two-day careers event in Northern Ireland for 14-19 year
olds connecting young people with job, career and skills opportunities across
Northern Ireland which has been postponed to Autumn 2021 due to the Covid-19
pandemic.
Community Initiatives
NIE Networks continues to be a member of Business in the Community (BiTC).
Throughout 2020, employees served on the boards of 13 local voluntary,
community and social enterprise organisations.
During 2020, employees raised over £25,000 for Air Ambulance NI and commenced
fund raising for Public Initiative for Prevention of Suicide (PIPS) as NIE
Networks' charity of the year, nominated by employees through the engagement
process.
Charitable giving by employees is promoted through the Staff and Pensioners'
Charity Fund, to which the Company contributed £10,000 during the year. In
2020 the Charity Fund donated £50,000 to local charities.
During the Covid-19 pandemic the positive impact made by NIE Networks employees
extended to many local neighbourhoods and communities. Employees - on their
own initiative in many cases - supported community initiatives by volunteering
to make face visors, hand sewing scrubs, delivering prescriptions and groceries
to elderly neighbours, proactively calling vulnerable customers on NIE
Networks' medical care register and undertaking a wide range of other
fundraising activities.
Looking Forward
Key priorities for 2021:
- implementation of the 'Safer Together - Our Pathway to Zero Harm' Plan
together with the ongoing management of the risks to Safety, Health and
Wellbeing;
- Covid-19 response and recovery;
- ongoing focus on delivery against RP6 price control allowances and outputs
while maintaining a safe and secure network;
- delivering a Customer Service Action Plan that will drive further improvement
in customer service and development of a customer centric culture;
- competing successfully in the open connections market;
- providing effective employee engagement across the business;
- maintaining a strong investment grade credit rating;
- 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) of the Companies Act 2006 in performing their
duties during 2020 and forms the directors' statement required under the
Companies (Miscellaneous Reporting) Regulations 2018.
Strategy and long-term decision making
NIE Networks' strategic objectives as detailed on pages 5 - 6 of the Group
Strategic Report reflect that the Board is focussed on promoting the success of
the business by delivering customer focused performance in a manner that is
environmentally sustainable, provides long term stability and meets the needs
of its key stakeholders.
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.
In responding to the Covid-19 crisis during the year the directors considered
the long-term impact of the pandemic on the Company's operations as well as the
efficacy of the shorter term decisions taken to respond to public health
guidelines. The directors have considered plans to address strategic issues
arising from the impact of the pandemic over the short, medium and longer term
and the Board will monitor progress against those plans.
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. The Health & Safety section of the Operational
Review provides detail on how the Company sought to achieve this during 2020.
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.
From March onwards the Board considered regular updates on management's
response to the Covid-19 pandemic to ensure that the health and safety of
employees were protected: with appropriate Covid secure measures in place for
those employees required to work providing essential works on the network;
alternative works provided for those whose normal functions could not proceed
until Covid secure measures were in place and Government restrictions eased;
and supports in place to ensure the wellbeing of the employees who were
required to work from home. Offices and depots remained open throughout for
employees whose roles required attendance at Company locations and for those
who were not able to work from home due to personal circumstances. During the
period of eased restrictions during the summer and autumn, a phased return was
implemented with employees working from the office on a rota basis. The HR
Director led the development of an Agile Working from Home Policy to enable
future flexibility and smart working for employees following the pandemic.
The Company worked in partnership with the trade unions representing employees,
Prospect and UNITE, to agree and implement arrangements to protect the health
of employees and the general public during the Covid-19 pandemic.
As well as protecting the health and safety of employees during the pandemic
the directors sought to protect the resilience of the business to safeguard
employment and enable a successful return to normal operations. The Company
did not avail of the Government's Coronavirus Job Retention Scheme and no
redundancies were made during the year.
Following the tragic death of Richard Scott, an NIE Networks employee, while
working on the network in August, and other serious safety incidents during the
year, the directors have ensured that thorough internal investigations have
been undertaken to understand the causes of these incidents and to ensure that
any learning from them can be implemented to support the achievement of zero
harm in the future. The Board has considered the findings and recommendations
(or interim findings and interim recommendations as appropriate) from these
investigations and has also considered the feedback from focus groups,
involving all staff, considering safety issues. In order to progress towards
our ultimate goal of zero harm at NIE Networks, the Board has endorsed a safety
improvement plan for implementation in 2021: "Safer Together - Our Pathway to
Zero Harm".
NIE Networks depends on highly trained, skilled and engaged employees to
achieve its objectives. The HR Director (an executive director of the Board),
oversees the development and implementation of NIE Networks' HR strategies
which are considered regularly by the Board. During the year the Board
considered developments to ensure greater equality and diversity in the
workforce endorsing specific initiatives to drive a positive gender balance and
promote a positive and inclusive workplace.
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.
With most employees being members of the Northern Ireland Electricity Pension
Scheme's defined contribution scheme, and with over 4,000 members or 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. The Board oversees the triennial
valuation to ensure that employer contributions match the funding requirements
of the defined benefit section of the scheme, with the most recent valuation
undertaken as at 31 March 2020 currently being finalised.
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 Consumer Council (NI), are key
stakeholders with well-established engagement channels in place.
The Board approved the 2020 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 developments in 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 focussed
engagement with customer representatives to receive feedback on our customer
performance during RP6 to date and begin to engage with customers on their
priorities for the next price control period. This work is overseen by the
Consumer Engagement Advisory Panel (CEAP) comprising the UR, CCNI, DfE and NIE
Networks with developments monitored by the Board.
From the outset of the Covid-19 pandemic our priorities were to protect the
safety, health and wellbeing of customers, as well as our employees, and to
maintain a reliable electricity supply to customers across Northern Ireland.
Critical operations were maintained throughout the most significant Covid-19
restrictions to ensure reliable supply, and further works programmes resumed as
quickly as possible, with updated standard operating procedures to ensure the
safety of customers and employees whilst working on customer premises. From
the outset of the crisis directors engaged closely with the Minister and the
Department for the Economy (DfE) and the Utility Regulator (UR) to provide
assurance, and seek their support where needed, in relation to protecting the
reliability of electricity supplies during the pandemic.
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 and the provision of essential
managed services to the business. From the outset of the pandemic in early
2020 there has been close engagement with contractors, to ensure those required
to operate during the pandemic were able to do so safely and viably, and with
key service providers to ensure continuity of service and timely implementation
of changes required to enable home working. We worked closely with our
materials suppliers to ensure additional stocks of key items to mitigate
against potential shortages during the pandemic and the end of the Brexit
Transition Period.
NIE Networks' procurement practices are governed by the UK Utilities Contract
Regulations 2016 (applicable to procurement by UK utilities). 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
continued to monitor supplier payment practices to ensure ongoing improvement.
Regulators
In addition to 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. All key
communications and engagement with the UR are discussed at Board meetings and
there is Board level engagement with the UR on specific significant matters.
The 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 throughout 2020, providing input and
support to the electricity aspects of the DfE's development of a new energy
strategy for Northern Ireland, with the Board being kept updated on progress
throughout the year.
The Health and Safety Executive Northern Ireland (HSENI) is a key regulator.
The Board seeks to ensure open and transparent engagement between management
and the HSENI on ongoing operational health and safety issues, and in relation
to investigations undertaken by the HSENI, and the Board considers updates on
any health and safety incidents, including those reported to the HSENI, at each
meeting. Similarly, the Northern Ireland Environment Agency (NIEA) is a key
stakeholder with the Board receiving a report to each meeting on any
environmental incidents including any matters reported to the NIEA.
Other key stakeholders
In addition to employees, customers and their representative bodies, suppliers
and regulators, other key stakeholders to which NIE Networks directors have
regard include government ministers and departments, local political
representatives, electricity market participants, including SONI, other utility
companies, industry and business representative bodies and bond investors.
Throughout 2020 the directors have engaged with relevant Northern Ireland
Executive Ministers, their departments and Assembly Committees on future energy
policy and on the impact of Covid-19, and during the latter part of the year on
the potential for NIE Networks to support a Green Recovery for Northern Ireland
following the Covid-19 pandemic.
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 which was
submitted to the DfE at the end of the year.
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 and during the pandemic engaging on
maintaining our essential services for customers. 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.
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.
Members of the Board and senior management are active participants in the
Energy Networks Association, 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, with particular focus on
DIY and farm safety messaging via radio and newspaper during the pandemic. The
Network Performance and Customer Service and Care sections of the Operational
Review set out the good performance during 2020 in providing a reliable and
responsive electricity service, and provides information on services to
domestic customers with specific needs. During the strict Covid-19
restrictions in the spring, NIE Networks engaged with local charitable and
community organisations and facilitated employees unable to work at their
normal roles to support the wider community making face shields for residential
homes, delivering essential medical and food supplies and assisting consumers
topping up energy prepayment cards.
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.
Further to the Board's 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, the Board endorsed a Sustainability Action Plan for 2021 -
2024, targeting an ambitious 12.5% reduction in business carbon footprint from
2019 levels in a phased approach over the four years. Further information is
provided in the Sustainability section of the Operational Review. The Board
reviewed and approved the Environmental Policy and the 2020 Environmental
Business Plan.
Reputation for high standards and business conduct
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.
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 and regulators 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.
In responding to the Covid-19 pandemic crisis, and the UK Government's guidance
in March, the directors considered the health and safety of employees and
contractors working on the network and the need to maintain a reliable
electricity supply to all our customers across Northern Ireland, at a time when
most were based at home with enhanced dependency on electricity, whilst
protecting individual customers by not entering premises to undertake works.
The interests of employees were considered in senior management's engagement
with trade union representatives on a daily basis and that of contractors'
staff during senior management's close engagement with individual contractors.
In considering these interests, and our responsibilities, it was decided to
cease all but essential operations to maintain electricity supplies, ensure the
safety and integrity of the network and critical customer connections.
Representatives of the unions worked together with management to develop new
operating procedures to ensure the health and safety of employees working on
the network during the pandemic, and that of customers and the general public,
which enabled the decision to implement a phased resumption of all work
programmes thereby ensuring the longer-term resilience of the network for the
benefit of customers.
Following the serious safety incidents during the year and with the ultimate
objective of achieving zero harm to employees, customers and the general public
in our operations, the directors have endorsed a major safety improvement plan,
'Safer Together - Our Pathway to Zero Harm', which will be the most important
initiative within NIE Networks during 2021, developed following consideration
of views from all employees across the organisation.
Northern Ireland's immediate and longer term environmental and economic
interests were considered in the Company's engagement with stakeholders in
relation to the ongoing development of a new energy strategy for Northern
Ireland, and also in relation to the potential for a Green Recovery, following
the Covid-19 pandemic. The Company has worked collaboratively with SONI, DfE,
UR and other stakeholders in contributing to energy policy development. The
Northern Ireland Executive's medium-term recovery strategy 'Rebuilding A
Stronger Economy' recognises that there is a substantial economic recovery
opportunity in decarbonising energy as part of growing the green economy across
Northern Ireland and has highlighted clean energy as one of the potential areas
for growth. NIE Networks has put forward practical proposals that could
contribute to creating higher paying jobs; developing a highly skilled and
agile workforce; and delivering a more regionally balanced economy to support
the delivery of that strategy.
Risk Management
Principal Risks and Uncertainties
The outbreak of the Covid-19 global pandemic during the first quarter of 2020
resulted in the identification of a new principal risk ("Challenges and Risks
associated with Covid-19 pandemic and its impacts") through existing risk
management processes. NIE Networks' other principal risks remained consistent
between 2019 and 2020, 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, Planned delivery of the 'Safer Together' safety
contractors and the general improvement plan.
public to risk of injury or harm.
A comprehensive annual Health, Safety and Wellbeing
Business Plan approved annually by the NIE Networks
Board which sets out detailed targets for the
management of health and safety. These targets are
continually monitored as part of the Group's ISO
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.
Ongoing programme of education for key staff on
regulatory and compliance requirements.
Regular engagement with regulatory stakeholders on
key 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 employ professional advisers in
not covered by regulatory the management of the Scheme's assets and
allowances. liabilities.
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 formal valuation as
at 31 March 2020 is currently ongoing.
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: The risk is minimised through ongoing assessment of
Widespread and prolonged failure the network condition and development of asset
of the transmission or management techniques to inform maintenance and
distribution network. 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 is
infrastructure or IT systems carried out by the IT team and its professional
arising from a successful cyber advisers.
attack or non-malicious failure.
NIE Networks is engaged in an ongoing programme of
review and upgrade of IT software and hardware with
IT partners.
There is a comprehensive process in place through our
Managed Service Provider to carry out monitoring of
technical performance and reliability of key systems.
Disaster Recovery and failover arrangements are
documented and tested regularly.
IT Security Forum is in place to develop and
implement policies and procedures to protect against
cyber-attack as well as to ensure delivery of 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: The Group's Data Protection Officer, supported by a
Loss of data integrity or breach Data Protection Forum, implements and monitors
of Data Protection Act. compliance with data protection policy and
procedures.
Governance structures are in place throughout the
business 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.
COVID-19
Covid-19: There are a series of arrangements identified in the
Challenges and risks associated NIE Networks Pandemic Preparedness Plan, Crisis
with Covid-19 pandemic and its Management Plans and Business Continuity Plans, with
impacts particular focus on arrangements for ensuring
response efforts are aligned.
These plans also identify the controls and supports
required to minimise any risk to the safety, health
and wellbeing of all NIE Networks' employees and
contractors, their families, our customers, and the
public at large.
Critical employees and alternates for all key
processes have been identified and arrangements are
in place for those employees to carry out these roles
- as well as succession plans in the event of their
absence.
Established arrangements are in place to ensure that
we engage with key stakeholders so that we can
deliver our services during Covid-19.
Brexit
A free trade agreement between the UK and the EU was agreed on 24 December 2020
and approved by the UK parliament on 30 December 2020. Although the UK-EU Trade
and Cooperation Agreement (TCA) provides for trade without significant tariffs
and duties, the NI Protocol, which came into effect from 1 January 2021, means
new customs procedures (including additional declarations) for GB/NI trade are
required from that date. NIE Networks has taken appropriate steps to comply
with the new obligations arising from the implementation of the post-Brexit
regime and will continue to monitor and assess the impact of Brexit throughout
2021.
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 2020 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: 11 March 2021
BOARD OF DIRECTORS
DAME ROTHA JOHNSTON DBE was appointed as independent non-executive Chair of the
Board in March 2020, having been an independent non-executive director since
2011. She is Chairperson of Northern Ireland Screen, a member of KPMG's
Northern Ireland Advisory Board, a member of Belfast Harbour Commissioners and
a director of QUBIS Ltd and Ulster Garden Villages Ltd. 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
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.
ALAN BRYCE was appointed as an independent non-executive director in January
2018. He is a non-executive director of Jersey Electricity plc. He has
extensive relevant experience and knowledge of the energy sector as he formerly
held senior executive positions at Scottish Power including as UK Planning and
Strategy Director, Managing Director of Generation and Managing Director of
Energy Networks. He was previously a non-executive director of Scottish Water,
Infinis Energy plc and at Iberdrola USA. He is a Fellow of the Institution of
Engineering and Technology.
PAUL STAPLETON, Managing Director, was appointed to the Board in May 2018. He
is a director of Energy Networks Association Ltd, European Distribution System
Operators (E.DSO), the Northern Ireland Centre for Competitiveness and a
committee member of the Institute of Directors (IoD) 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 an IoD Chartered Director
and 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 or Head of Human Resources positions
at Norbrook Laboratories Ltd, Tyrone Crystal Ltd and Charnos/Adria Ltd. He has
been a Board member at the Labour Relations Agency and a member of the CBI
Employment and Skills Committee. Since 2013 he has been a Chartered Fellow of
the Chartered Institute of Personnel and Development (CIPD) and, in 2019, was
awarded Chartered Companion status by the CIPD Board. 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 (together, the Group) for the year ended 31
December 2020.
Results and Dividends
The results for the year ended 31 December 2020 show a profit after tax of £
63.4m (2019 - £59.1m). During the year the Company paid a dividend of £18.0m
(2019 - £23.7m). 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.
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 principles below have been
applied throughout the year ended 31 December 2020.
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 for 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.
NIE Networks' Purpose aligns with ESB Group's Purpose 'to create a brighter
future for the customers and communities we serve and will do this by leading
the transition to reliable, affordable, low carbon economy'. At its strategy
session in November the Board approved an updated Vision statement for NIE
Networks. Our vision of 'Delivering a Sustainable Energy System for All' sets
the specific goal NIE Networks aspires to in the future, providing direction
for the Company within the changing external landscape in which it operates.
The Board also endorsed redefined and simplified Values of being Safety,
People, Customer, Commercially and Future focussed. Our redefined Purpose,
Vision and Values will provide direction and motivation to employees and
external stakeholders in relation to our future purpose and on the principles,
beliefs and standards that will guide both employees' and management's actions
as the Company moves in that direction.
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. Each year the Board reviews the succession management and
leadership development arrangements for the senior management team.
In line with NIE Networks' Purpose and Vision, the Board considers long term
developments for the energy system, principally the need to decarbonise the
energy system before 2050, 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 and planning for these long-term developments for the Company,
providing challenge and guidance to management. During 2020 the Board
considered the Company's internal business decarbonisation journey and endorsed
a Sustainability Action Plan for NIE Networks to achieve a significant
reduction in its internal business carbon footprint over the next four years.
In addition to the Board's leadership and oversight in ensuring that the
Company progresses its strategic objectives, the Board provided leadership
throughout the particular operational challenges faced during the year. In
responding to the impact of the Covid-19 pandemic on the Company's operations
and resilience, and in addressing safety challenges following the fatality of a
colleague in August whilst working on the network as well as other serious
safety incidents, the Board provided direction and support to management, had
oversight of crisis management and considered and addressed the impact on
employees and external stakeholders.
NIE Networks' Code of Ethics, setting out our approach to responsible and
ethical business behaviour, has been approved by the Board. 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 related 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 throughout
the year on safety incidents, absenteeism, employee turnover, internal control
weaknesses and employee engagement outcomes which during 2020 included feedback
on safety issues and the Company response to the pandemic as well as
considering the key outcomes from a 360 degree feedback process covering around
200 managers. Non-executive directors also engage directly with employees. The
Board also monitors culture by considering stakeholder and customer surveys.
The Board ensures that there are well embedded arrangements for engagement with
employees on NIE Networks' purpose, strategy and business activities and on the
behaviours expected of all employees arising from the Company's values and
culture. This includes monthly briefings, video messages from the Managing
Director, Employee Engagement Board and local meetings, as well as engagement
with trade unions. In addition, a new comprehensive messaging handbook was made
available to all employees in 2020. During the year non-executive directors
also attended a number of briefings with senior management.
Board Composition
The NIE Networks Board comprises a majority of independent non-executive
directors, currently three independent non-executive directors together with
two executive directors. From September 2019 to early March 2020 there were
four non-executive directors, enabling a smooth transition of
responsibilities.
Dame Rotha Johnston DBE was appointed Chair of the Board on 4 March 2020
following Stephen Kingon CBE stepping down. Throughout 2020, Alan Bryce and
Keith Jess were the Board's other independent non-executive directors. Paul
Stapleton, Managing Director, and Gordon Parkes, Human Resources Director, were
executive directors throughout 2020.
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 28. 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. 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 provided 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 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 five scheduled meetings each year and a separate annual meeting to focus on
longer term strategic issues. Additional meetings on specific matters are held
as required and during 2020 there were a number of additional Board meetings to
consider the Company's response to the Covid-19 pandemic and serious safety
incidents.
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 with new terms
of reference for the Committee approved by the Board during the year. 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 pages 34 - 35.
Current membership of the Board, the Audit & Risk Committee and the Executive
Committee is as follows:
BOARD OF DIRECTORS:
Rotha Johnston DBE (Chair)
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)
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
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 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.
Members of the Executive Committee and senior management are invited to attend
Board meetings to present and discuss specific matters to enable the Board to
question and challenge management directly.
The corporate relationship between NIE Networks and its ultimate parent, 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
Opportunity
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 also has a regulatory allowance 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. In the shorter
term, the directors have identified areas where swift action will maximise
opportunities for Northern Ireland as it recovers from the Covid-19 crisis,
alongside supporting net zero carbon ambitions for the industry.
Risk
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. During the spring, additional risk
reviews were conducted in light of the Covid-19 pandemic which identified a
number of areas where the impact of the pandemic resulted in an elevated risk
profile and mitigation plans were reviewed and updated and continued to be
closely monitored over the remainder of the year.
The Board has approved 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 within NIE Networks 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 (as
well as emerging risks and HILPs) 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 23 - 26 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.
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.
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 reviewed and
approved by the Board 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
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. A separate benchmarking policy, setting out the
benchmarking process, is subject to Board approval.
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 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, and members of the public in relation to safety and to the
environment.
Key external stakeholder groups comprise the Utility Regulator, policy makers
including relevant government departments and agencies; customers and their
representative groups; local political representatives; 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
strategy was revised in the light of the impact of the Covid-19 pandemic to
ensure that stakeholder engagement focussed on developing and implementing our
changed operational arrangements and their impact on customers and the
community during the pandemic. Later in the year the strategy focussed on
engaging on our proposals for a green economic recovery in Northern Ireland,
and our role in the recovery.
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 19 -
23 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, an executive
director of the Board, oversees and leads the employee engagement processes and
during the year provided regular updates to the Board on the processes and
matters being addressed, through the various forums, particularly in relation
to responding to the pandemic (including the feedback from an employee
engagement survey on the Company's response and what improvements could be made
and plans to progress). Later in the year the Board received feedback from
company-wide employee focus groups considering the approach to safety within
the organisation and proposals for an improvement plan. Each non-executive
director attended a meeting of the Employee Engagement Board during the year to
participate in the discussions.
The non-executive directors' planned informal engagement with employees at
various work locations was impacted by the pandemic however a number of
non-executive directors had the opportunity to engage with employees at a depot
on the new working arrangements and protocols in place to ensure employees'
health and safety during the pandemic.
Details of the employee engagement processes are provided on pages 17, 19 and
20 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.
Rotha Johnston chaired the Committee to early March 2020, until her appointment
as Chair of the Board, with Keith Jess chairing the Committee since that point.
The Board is satisfied that at least one member of the Committee is competent
in accounting and auditing. The Committee had six meetings during 2020.
The terms of reference set out the duties of the Audit & Risk Committee. The
most significant issues considered by the Committee during 2020, 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 Controls and Risk Management
- considered and approved the Risk Management Committee's work programme for
2020 and received regular updates on progress;
- considered the Group's principal risks faced, together with mitigating
actions being taken to manage the risks, and their alignment to the risk
tolerance levels agreed;
- considered the outcome of risk reviews undertaken to assess the potential
impact of Covid-19 pandemic, including stress testing of specific risk areas
and activities, and mitigation plans;
- 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 the Northern Ireland Protocol 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 and considered cyber security;
- 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 2019;
- reviewed and approved the 2020 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
2020;
- reviewed reports detailing the results of internal audits and the timeliness
of the implementation of actions; and
- reviewed and approved the 2021 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 the external auditor on the audit of the 2019 statutory
financial statements and March 2020 regulatory financial statements;
- reviewed the proposed external audit plan for the 2020 statutory financial
statements to ensure that the external auditor had identified all key audit
risks and developed robust audit procedures;
- considered the external auditor's adherence to independence requirements; and
- reviewed the report from the external auditor on the audit of the 2020
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 the
external auditor 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;
- senior 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
2020, 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.
Streamlined Energy and Carbon Reporting (SECR) statement
This statement is made in compliance with the Companies (Directors' Report) and
Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018
(SECR Regulations) which introduced energy and carbon reporting requirements
for large unquoted companies. NIE Networks is a large unquoted company
according to the SECR Regulations.
This SECR Compliance report is prepared for the period from 1 January 2020 to
31 December 2020, NIE Networks' first reporting year under the SECR scheme.
Methodology used in calculating energy and carbon reporting data
The methodology chosen for calculating Greenhouse Gas (GHG) emissions is the
GHG Protocol Corporate Standard (the GHG Protocol). The GHG Protocol is a
multi-stakeholder partnership of businesses, non-government organisations, and
governments, led by the World Resources Institute and the World Business
Council for Sustainable Development. It serves as the premier source of
knowledge on corporate GHG accounting and reporting and draws on the expertise
and contributions of individuals and organisations from around the world. It is
internationally accepted as best practice.
In line with the GHG Protocol, NIE Networks has adopted the operational control
approach and therefore accounts for all of the emissions from operations over
which it has operational control. All of NIE Networks' operations take place
within NI.
Defining the operational boundary involves the identification of emissions
associated with energy consumption, categorising them as direct and indirect
emissions, and choosing the scope of accounting and reporting for them. The
following NIE Networks activities and associated GHG emissions have been
included in this SECR report:
UK energy use
- activities for which NIE Networks is responsible which involve the combustion
of gas, or consumption of fuel for the purposes of transport;
- the purchase of electricity by the NIE Networks for its own use, including
for the purposes of transport; and
- associated greenhouse gas emissions.
In addition, petrol, gas oil, heating oil, air travel, transmission and
distribution losses and fugitive emissions from air-conditioning have also been
included voluntarily.
Energy and carbon information in relation to hire cars has been excluded on the
basis that this accounts for an insignificant proportion of NIE Networks'
overall energy use and carbon emissions. NIE Networks is committed to
developing a process to record hire car fuel consumption for business purposes
for future reporting periods.
Certain energy and carbon information has been estimated with the reasons
provided below:
- electricity data for December for two premises was not available and has been
estimated based on historical consumption patterns
- gas data for December for two premises was not available and has been
estimated based on historical consumption patterns.
NIE Networks' Environmental Management System is accredited to ISO 14001. Its
carbon targets, performance and trends are tracked on a monthly basis and
presented to an internal Environmental Management Committee (EMC) for
governance purposes. The EMC is chaired by the Network Assets Director.
Routine internal quality audits are undertaken on the source data and
scorecards to ensure compliance.
Energy and Carbon Data
Energy consumption data and associated scope 1, 2 and 3 emissions were collated
for NIE Networks' operations in line with the methodologies outlined above. The
table below provides details of NIE Networks' energy consumption in kWh and the
quantity of emissions using tonnes of carbon dioxide equivalent (tCO2e).
While the inclusion of petrol, gas oil, heating oil, air travel, transmission
and distribution losses, and fugitive emissions from air conditioning is not
mandatory under SECR requirements, NIE Networks has voluntarily included the
information in this report.
2020 2019
Scope and Categories 2020 Energy 2020 GHG 2019 Energy 2019 GHG
Data (kWh) Emission Data (kWh) Emission
(Tonnes of (Tonnes of
CO2e) CO2e)
Scope 1
Combustion of Natural Gas 600,621 110 660,455 121
Combustion of Liquefied
Petroleum Gas (LPG) 49,738 11 56,863 12
Combustion of Diesel for
transport purposes 12,945,859 3,114 13,865,878 3,399
Voluntary Disclosures - 382 - 371
--------------- --------------- --------------- ---------------
Scope 1 Total (mandatory) 13,596,218 3,235 14,583,196 3,532
Scope 1 Total (incl. --------------- --------------- --------------- ---------------
voluntary disclosures) - 3,617 - 3,903
--------------- --------------- --------------- ---------------
Scope 2
Purchase of grid 3,222,009 1,092 3,327,090 1,128
electricity
--------------- --------------- --------------- ---------------
Scope 3
Grey Fleet Mileage 2,153,396 549 3,144,043 825
(voluntary)
Business Air Travel (incl. - 7 - 52
radiative forces)
(voluntary)
--------------- --------------- --------------- ---------------
Total (mandatory) 16,818,227 4,327 17,910,286 4,660
======== ======== ======== ========
Total (incl. voluntary - 5,265 - 5,908
disclosures) --------------- --------------- --------------- ---------------
Intensity Ratio
SECR regulations require a statement of relevant intensity ratios which are an
expression of the quantity of emissions in relation to a quantifiable factor of
the business activity. NIE Networks' chosen intensity measurement is tonnes of
carbon dioxide equivalent (tCO2e) per employee. The intensity ratio for 2020
was 3.5855 tCO2e (2019: 3.8610 tCO2e).
Only mandatory scope 1 and 2 emissions are relevant in the calculation of the
intensity ratio.
Measures for increasing the Group's efficiency during the year
NIE Networks operates an aged office building stock but have made concerted
efforts to reduce energy consumption over the last number of years. Over the
last five years, energy performance initiatives such as installing LED lighting
and PIR sensors have contributed, on average, to a 13% reduction in electricity
consumption over that period.
The electricity consumption at 10 of 16 office buildings has reduced in 2020
due to the increased working from home by employees associated with the
Covid-19 pandemic. Overall there has been a 6% reduction in electricity and 9%
reduction in gas consumption during 2020 when compared with 2019. As NIE
Networks is an Essential Service Provider all our buildings remained open
during the restrictions which limited the reductions that may have been seen in
other businesses.
After a long-term initiative to reduce fuel usage of NIE Networks' fleet
vehicles, NIE Networks continues to strive to maintain this usage at the lowest
possible level whilst meeting the operational needs of the business. Following
a number of reviews into fleet efficiency, fleet fuel consumption has reduced
by over 9% over the last five years. NIE Networks will welcome the first
electric vehicles onto its fleet in 2021 which will reduce the future carbon
impact of the fleet.
During 2020, the Group has implemented the following energy efficiency
measures:
- a Sustainability Forum has been established tasked with identifying,
developing and implementing initiatives associated with reducing NIE Networks'
carbon footprint culminating in the approval of NIE Networks' Sustainability
Action Plan to 2024;
- quarterly-billed electricity meters were upgraded at seven of our 16 premises
to provide more detailed data on electricity consumption;
- progressed refurbishment and replacement building projects for existing
premises that will contribute to carbon reduction targets in future years;
- commenced a trial to introduce electric operational fleet vehicles; and
- introduced a new vehicle tracking system to provide more information that
will help inform future sustainable driving strategies, including the
identification of vehicles suitable for transition to an electric equivalent.
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,
PricewaterhouseCoopers LLP (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 (2019 - £
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 - 19);
- the Group's objectives and policies for financial risk management (including
liquidity risk and credit risk) (see pages 7 - 8);
- a statement on the policy for disabled employees (see page 17);
- an indication of activities in the Group in the field of research and
development (see pages 12 - 14);
- arrangements for employees to participate in the affairs of the Group (see
page 17);
- 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 17, 19 - 23); 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 20 - 23).
Statement of Directors' Responsibilities in respect of the financial statements
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 accounting standards in conformity
with the requirements of the Companies Act 2006 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 international accounting standards in conformity with the
requirements of the Companies Act 2006 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
11March 2021
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 2020 and of the group's and company's profit and the group's cash
flows for the year then ended;
- the group financial statements have been properly prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006;
- 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.
We have audited the financial statements, included within the Annual Report and
Financial Statement (the "Annual Report"), which comprise: the group and the
company balance sheets as at 31 December 2020; the group income statement and
statement of comprehensive income, the group cash flow statement and the group
and company statements of changes in equity for the year then ended; and the
notes to the financial statements, which include a description of the
significant accounting policies.
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, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
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 parent)
- Impact of Covid 19 (group and parent)
Materiality
- Overall group materiality: £4,632,701 (2019: £3,647,709) based on 5% of
profit before tax.
- Overall company materiality: £4,632,701 (2019: £3,647,709) based on 5% of
profit before tax.
- Performance materiality: £3,474,526 (group) and £3,474,526 (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
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
in the Auditors' responsibilities for the audit of the financial statements
section, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the
principal risks of non-compliance with laws and regulations related to 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. Audit
procedures performed by the engagement team 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. We are
less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected
in the financial statements. 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.
The key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit
matter
Accounting estimates - unbilled debt
(group and parent)
Unbilled revenue is based on an We understood and tested the
estimation in respect of consumption processes and internal controls which
derived using historical data and Northern Ireland Electricity Networks
detailed assumptions. Estimation Limited has in place for the
uncertainty and the complexity of estimation of unbilled revenue. We
calculations give rise to heightened selected a sample of unbilled revenue
misstatement risk and are therefore a amounts and checked the calculation
focus of our audit work. of these amounts in light of actual
billings subsequent to 31 December
2020 in order to ensure that the
estimates made were not materially
different.
Impact of Covid 19 (group and parent)
The ongoing and evolving Covid-19 We held discussions with the
pandemic is having a significant impact Directors and reviewed board papers
on the global economy and the economy that modelled the sensitivity of cash
of Northern Ireland. There is flow forecasts to possible changes
significant uncertainty as to the resulting from Covid-19. We
duration of the pandemic and what its challenged the key assumptions used
impact will be on the local economy. in those sensitivities and the
The related financial impact on the Group's and Company's ability to
group's and company's cash flow mitigate adverse cash flow impacts
forecasts, headroom against facilities, that may arise from fluctuating
and therefore their ability to continue electricity demands and changes in
as a going concern, is expected to be payment profiles of trade
primarily in terms of fluctuating receivables. The group has an
electricity demand and changes in unutilised revolving credit facility
payment profiles of trade receivables. for £200m as at the year end.
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:
Financial statements - group Financial statements - company
Overall £4,632,701 (2019: £3,647,709). £4,632,701 (2019: £3,647,709).
materiality
How we 5% of profit before tax 5% of profit before tax
determined
it
Rationale Based on the benchmarks used in We believe that profit before
for the annual report, profit before tax is the primary measure
benchmark tax is the primary measure used by used by the shareholders in
applied the shareholders in assessing the assessing the performance of
performance of the group, and is a the entity, and is a generally
generally accepted auditing accepted auditing benchmark.
benchmark.
For each component in the scope of our group audit, we allocated a materiality
that is less than our overall group materiality. The range of materiality
allocated across components was equal to our overall group materiality. Certain
components were audited to a local statutory audit materiality that was also
less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% of overall
materiality, amounting to £3,474,526 for the group financial statements and £
3,474,526 for the company financial statements.
In determining the performance materiality, we considered a number of factors -
the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with those charged with governance that we would report to them
misstatements identified during our audit above £175,000 (group audit) (2019: £
182,000) and £175,000 (company audit) (2019: £182,000) as well as misstatements
below those amounts that, in our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's and the company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors' use
of the going concern basis of accounting in the preparation of the financial
statements is appropriate.
However, because not all future events or conditions can be predicted, this
conclusion is not a guarantee as to the group's and the company's ability to
continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
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 our work undertaken in the course of the audit, the Companies Act 2006
requires 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 2020 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 Statement of Directors' Responsibilities, 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.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However, it
typically involves selecting a limited number of items for testing, rather than
testing complete populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases, we will
use audit sampling to enable us to draw a conclusion about the population from
which the sample is selected.
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 obtained 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.
Kevin MacAllister (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Belfast
12 March 2021
GROUP INCOME STATEMENT
for the year ended 31 December 2020
Note 2020 2019
£m £m
Revenue 3 302.2 276.3
Operating costs 4 (172.5) (166.0)
------------ -----------
OPERATING PROFIT 129.7 110.3
Finance revenue 6 0.1 0.3
Finance costs 6 (35.3) (35.3)
Net pension scheme interest 6 (1.8) (2.4)
Net finance costs 6 (37.0) (37.4)
------------ -----------
PROFIT BEFORE TAX 92.7 72.9
Tax charge 7 (29.3) (13.8)
------------ -----------
PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY
HOLDERS OF THE PARENT COMPANY 63.4 59.1
======= =======
STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 December 2020
Group and Company
Note 2020 2019
£m £m
Profit for the financial year 63.4 59.1
----------- -----------
Other comprehensive income:
Items not to be reclassified to profit or loss
in subsequent periods:
Re-measurement (losses) on pension scheme 22 (17.8) (22.1)
assets and liabilities
Deferred tax credit relating to components of
other comprehensive income 7 6.7 3.8
----------- -----------
Net other comprehensive expense for the year
(11.1) (18.3)
----------- -----------
Total comprehensive income for the year
attributable to the equity holders of the 52.3 40.8
parent company ======= =======
BALANCE SHEETS
as at 31 December 2020
Group Company
Note 2020 2019 2020 2019
£m £m £m £m
Non-current assets
Property, plant and 9 1,888.3 1,849.3 1,889.1 1,850.1
equipment
Right of use assets 10 11.7 11.9 11.7 11.9
Intangible assets 11 17.8 19.4 17.8 19.4
Derivative financial 18 513.0 492.2 513.0 492.2
assets
Investments 12 - - 7.9 7.9
----------- ------------ ----------- ------------
2,430.8 2,372.8 2,439.5 2,381.5
Current assets ----------- ------------ ----------- ------------
Inventories 13 18.3 14.8 18.3 14.8
Trade and other 14 60.6 53.3 60.6 53.3
receivables
Current tax receivable - 1.9 - 1.9
Derivative financial 18 19.0 14.4 19.0 14.4
assets
Cash and cash equivalents 15 21.5 9.0 21.5 9.0
----------- ------------ ----------- ------------
119.4 93.4 119.4 93.4
----------- ------------ ----------- ------------
TOTAL ASSETS 2,550.2 2,466.2 2,558.9 2,474.9
----------- ------------ ----------- ------------
Current liabilities
Trade and other payables 16 84.6 71.0 93.8 80.2
Lease liabilities 10 2.4 2.8 2.4 2.8
Current tax payable 2.7 - 2.7 -
Deferred income 17 21.3 19.1 21.3 19.1
Financial liabilities:
Derivative financial 18 19.0 14.4 19.0 14.4
liabilities
Other financial 19 16.4 21.4 16.4 21.4
liabilities
Provisions 21 2.9 3.4 2.9 3.4
----------- ------------ ----------- ------------
149.3 132.1 158.5 141.3
Non-current liabilities ----------- ------------ ----------- ------------
Deferred tax liabilities 7 78.5 71.2 78.5 71.2
Deferred income 17 518.7 516.0 518.7 516.0
Lease liabilities 10 9.5 9.1 9.5 9.1
Financial liabilities:
Derivative financial 18 513.0 492.2 513.0 492.2
liabilities
Other financial 19 747.6 747.2 747.6 747.2
liabilities
Provisions 21 3.7 3.8 3.7 3.8
Pension liability 22 104.9 103.9 104.9 103.9
----------- ------------ ----------- ------------
1,975.9 1,943.4 1,975.9 1,943.4
----------- ------------ ----------- ------------
TOTAL LIABILITIES 2,125.2 2,075.5 2,134.4 2,084.7
----------- ------------ ----------- ------------
NET ASSETS 425.0 390.7 424.5 390.2
====== ======= ====== =======
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 23 6.1 6.1 6.1 6.1
reserve
Accumulated profits 23 358.1 323.8 357.6 323.3
----------- ------------ ----------- ------------
TOTAL EQUITY 425.0 390.7 424.5 390.2
====== ======= ====== =======
The profit after tax of the Company for the year is £63.4m (2019 - £59.1m).
The financial statements on pages 45 to 76 were approved by the Board of
Directors on 11 March 2021 and signed on its behalf by:
Paul Stapleton
Director
Date: 11 March 2021
Company number: NI026041
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2020
Group
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
£m £m £m £m £m
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 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 6.1 323.8 390.7
Profit for the year - - - 63.4 63.4
Net other comprehensive
expense for the year - - - (11.1) (11.1)
Total comprehensive income --------- --------- --------- --------- ---------
for the year - - - 52.3 52.3
Dividends to the 23 - - -
shareholder (18.0) (18.0)
====== ====== ====== ====== ======
At 31 December 2020 36.4 24.4 6.1 358.1 425.0
====== ====== ====== ====== ======
Company
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
£m £m £m £m £m
At 1 January 2019 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
Profit for the year - - - 63.4 63.4
Net other comprehensive
expense for the year - - - (11.1) (11.1)
Total comprehensive income -------- -------- -------- -------- --------
for the year - - - 52.3 52.3
Dividends to the 23 (18.0) (18.0)
shareholder - - -
====== ====== ====== ====== ======
At 31 December 2020 36.4 24.4 6.1 357.6 424.5
====== ====== ====== ====== ======
CASH FLOW STATEMENT
for the year ended 31 December 2020
Group
Note 2020 2019
£m £m
Cash flows generated from operating activities
Profit for the year 63.4 59.1
Adjustments for:
- Tax charge 29.3 13.8
- Net finance costs 37.0 37.4
- Depreciation of property, plant and equipment 80.2 74.3
- Depreciation of leased assets 3.2 2.9
- Amortisation of intangible assets 5.2 4.9
- Release of customers' contributions and grants (20.6) (18.5)
- Defined benefit pension charge less contributions (18.6) (18.2)
paid
- Net movement in provisions (0.7) (0.6)
---------- ----------
Operating cash flows before movement in working 178.4 155.1
capital
(Increase) / decrease in inventories (3.5) (1.4)
(Increase) / decrease in trade and other receivables (7.3) 0.6
Increase / (decrease) in trade and other payables 5.2 (6.0)
---------- ---------
Increase in working capital (5.6) (6.8)
---------- ---------
Cash generated from operations 172.8 148.3
Interest received 0.1 0.3
Interest paid (34.6) (35.4)
Lease interest paid (0.3) (0.3)
Current taxes (paid) / received (2.7) 1.4
---------- ---------
Net cash flows generated from operating activities 135.3 114.3
---------- ---------
Cash flows used in investing activities
Purchase of property, plant and equipment (118.8) (133.8)
Customers' cash contributions 25.6 22.8
Purchase of intangible assets (3.7) (3.1)
---------- ---------
Net cash flows used in investing activities (96.9) (114.1)
---------- ---------
Cash flows generated from financing activities
Dividends paid to shareholder (18.0) (23.7)
Amounts (repaid to) / received from group undertakings (5.0) 5.0
Payment of lease liabilities (2.9) (2.9)
---------- ---------
Net cash flows (used in)/generated from financing (25.9) (21.6)
activities
---------- ---------
Net increase / (decrease) in cash and cash equivalents 12.5 (21.4)
Cash and cash equivalents at beginning of year 9.0 30.4
---------- ----------
Cash and cash equivalents at end of year 15 21.5? 9.0
====== ======
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
No new standards, amendments or interpretations, effective for the first time
for the financial year beginning on or after 1 January 2020, have had a
material impact on the financial statements of the Group or Company.
New and revised accounting standards, amendments and interpretations not yet
adopted
A number of new standards and amendments to standards and interpretations are
effective for annual periods beginning after 1 January 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 accounting standards in conformity with the requirements of the
Companies Act 2006.
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 (£) with all values rounded
to the nearest £100,000 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 £350.0m and £400.0m (£348.6m and £399.0m
respectively net of issue costs) which are due to mature in October 2025 and
June 2026 respectively and a £200.0m Revolving Credit Facility (RCF) from ESB.
None of the RCF was drawn down at 31 December 2020. The RCF is due to mature in
December 2023.
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 to 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 along with
potential downside sensitivities, the directors have a reasonable expectation
that the Group will have adequate financial resources for the 12-month period.
While the Covid-19 pandemic continues to impact on both the Group and the wider
economy, the directors have considered the possible financial impact on the
Group's financial position and 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 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 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 life which is between three and
ten years. Costs include direct labour relating to software development and an
appropriate portion of directly attributable overheads. Interest on funding
attributable to significant capital projects is capitalised during the period
of construction provided it meets the recognition criteria in IAS 23 and is
written off as part of the total cost of the asset.
The carrying value of computer software is reviewed for impairment annually
when the asset is not yet in use and subsequently when events or changes in
circumstances indicate that the carrying value may not be recoverable.
Gains or losses arising from de-recognition of computer software are measured
as the difference between the net selling price and the carrying amount of the
asset.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
calculated as the weighted average purchase price. Net realisable value is the
estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.
Financial instruments
The accounting policies for the financial instruments of the Group are set out
below. The related objectives and policies for financial risk management
(including capital management and liquidity risk, credit risk and interest rate
risk) are included in the Group Strategic Report.
The Group classifies its financial instruments into one of the categories
discussed below, depending on the purpose for which the instrument was
acquired. The Group's accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises derivative assets and liabilities. Derivatives are
carried in the balance sheet at fair value with changes in fair value
recognised in the income statement within net finance costs.
Financial assets measured at amortised cost
Assets measured at amortised cost principally arise from the provision of
services to customers (trade receivables) but also incorporate other types of
financial assets where the objective is to hold assets in order to collect
contractual cash flows and the contractual cash flows are solely payments of
principal and interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their acquisition or issue,
and are subsequently carried at amortised cost using the effective interest
rate method, less provision for impairment.
The Group's financial assets 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 the Group incurs in connection with the borrowing
of funds.
Revenue
Revenue is principally derived through charges for use of the distribution
system (DUoS) levied 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:
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 lives of the related assets.
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.
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.
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.
2020 2019
£m £m
Revenue:
Regulated tariff revenue 254.1 242.5
Release of customers' contributions 20.2 18.1
PPB PSO 20.2 6.8
Other unregulated revenue 7.7 8.9
---------- ----------
302.2 276.3
====== ======
Revenue of £302.2m (2019 - £276.3m) includes £23.1m (2019 - £9.6m) recognised
at a point in time comprising PPB PSO revenue of £20.2m (2019 - £6.8m) and
elements of other unregulated revenue £2.9m (2019 - £2.8m).
As outlined in note 14, the Group does not have contract assets arising from
contracts with customers (2019 - 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 £20.0m (2019 - £17.9m) 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 (2019 - none) relates to
performance obligations satisfied in prior years.
During the year, four customers accounted for sales revenue totalling £207.5m
(2019 - four customers accounted for £191.6m).
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:
2020 2019
£m £m
Employee costs (note 5) 28.4 23.4
Depreciation and amortisation 88.0 81.7
Other operating charges 56.1 60.9
---------- ---------
172.5 166.0
====== ======
Operating costs include:
Depreciation charge on property, plant and equipment 80.2 74.3
Depreciation on right of use assets 3.2 2.9
Amortisation of intangible assets 5.2 4.9
Amortisation of grants (0.6) (0.4)
Cost of inventories recognised as an expense 0.9 1.1
Operating costs include:
2020 2019
Auditors' remuneration £'000 £'000
PricewaterhouseCoopers LLP:
Fees payable to the Group and Company auditors for the 75.0 30.0
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 10.0 4.0
legislation
Audit related assurance services 10.0 14.0
5. Employees
Employee costs - Group and Company
2020 2019
£m £m
Wages and salaries 52.6 50.9
Social security costs 5.5 5.5
Pension costs
- defined contribution plans 7.4 6.5
- defined benefit plans 6.5 6.9
--------- ---------
72.0 69.8
Less: amounts capitalised to
property, plant and equipment and (43.6) (46.4)
intangible assets
--------- ---------
Charged to the income statement 28.4 23.4
====== ======
Average and actual headcount for the Group and Company are disclosed in the
table below:
Actual headcount
Average as at 31 December
2020 2019 2020 2019
Number Number Number Number
Management, administration and 317 298 320 306
support
Electrical services 888 906 880 910
--------- --------- --------- ---------
Employee numbers 1,205 1,204 1,200 1,216
====== ====== ====== ======
Directors' emoluments
The remuneration of the directors paid by the Company was as follows:
2020 2019
£'000 £'000
Emoluments in respect of qualifying services 550 589
Emoluments in respect of qualifying services include deferred remuneration
awarded in the current and prior year but payable in future years. There were
no amounts payable to directors in respect of termination benefits (2019 - £
50,000). 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:
2020 2019
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 £72,381 (2019 -
£60,771).
The total remuneration in respect of the highest paid director, which includes
all elements of remuneration except the Company's contributions to the
Company's defined contribution pension scheme, was as follows:
For the year ended 2020 2019
£'000 £'000
Emoluments 257 266
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 £35,960 (2019 - £34,846).
6. Net Finance Costs
2020 2019
£m £m
Finance revenue:
Bank interest receivable 0.1 0.3
---------- ---------
Finance costs:
£400m bond (25.5) (25.5)
£350m bond (8.8) (8.8)
Amounts payable to group undertakings (note 26) (0.3) (0.3)
Lease liabilities (0.3) (0.3)
---------- ---------
(34.9) (34.9)
Less: capitalised interest - -
---------- ---------
Total interest charged to the income statement (34.9) (34.9)
---------- ---------
Other finance costs:
Amortisation of financing charges (0.4) (0.4)
---------- ---------
Total finance costs (35.3) (35.3)
---------- ---------
Net pension scheme interest (1.8) (2.4)
---------- ---------
Net finance costs (37.0) (37.4)
====== ======
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:
2020 2019
£m £m
Operating profit 129.7 110.3
Add back depreciation and 88.0 81.7
amortisation
Add back pension administration 1.1 1.6
costs, curtailments and past
service credits
Deduct amortisation of customer (20.0) (17.9)
contributions
Deduct tax paid (including group (17.1) (10.0)
relief paid) ----------- -----------
Funds from operations 181.7 165.7
Gross interest paid (34.9) (35.7)
----------- -----------
FFO to interest paid (times) 5.2 4.6
====== ======
7. Tax Charge
(i) Analysis of charge during the year
2020 2019
Group Income Statement £m £m
Current tax charge
UK corporation tax at 19.0% (2019 - 19.0%) 15.5 10.8
Adjustments in respect of previous periods (0.2) -
---------- -----------
Total current income tax 15.3 10.8
---------- -----------
Deferred tax charge
Origination and reversal of temporary differences in 2.4 3.0
current year
Adjustments in respect of previous periods (0.1) -
Effect of increased rate on opening liability 11.7 -
---------- -----------
Total deferred tax charge 14.0 3.0
Total tax charge for the year 29.3 13.8
====== ======
Tax relating to items credited in other comprehensive
income
Deferred tax credit
Arising on re-measurement losses on pension scheme (3.4) (3.8)
assets and liabilities
Effect of increased rate on opening asset (3.3) 0.0
---------- -----------
Deferred tax credit relating to components of other (6.7) (3.8)
comprehensive income ====== ======
(ii) Reconciliation of total tax charge
The tax charge in the Group Income Statement for the year is higher than (2019
- same as) the standard rate of corporation tax in the UK of 19.0% (2019 -
19.0%). The differences are reconciled below:
2020 2019
£m £m
Profit before tax 92.7 72.9
---------- ----------
Profit before tax multiplied by the UK standard rate 17.6 13.8
of corporation tax of 19.0% (2019 - 19.0%)
Tax effect of:
Impact of deferred tax at increased / (reduced) rate 11.7 (0.3)
Other permanent differences / expenses not deductible 0.3 0.3
Adjustments in respect of previous periods (0.3) -
---------- ----------
Total tax charge for the year 29.3 13.8
(iii) Deferred tax
The deferred tax included in the Group Balance Sheet is as follows:
2020 2019
£m £m
Deferred tax assets
Pension liability 19.9 17.7
Other temporary differences 0.2 0.2
---------- ----------
20.1 17.9
---------- ----------
Deferred tax liabilities
Accelerated capital allowances (97.7) (88.3)
Held-over losses on property disposals (0.9) (0.8)
---------- ----------
(98.6) (89.1)
---------- ----------
Net deferred tax liability (78.5) (71.2)
====== ======
Deferred tax has been calculated at 19.0% as at 31 December 2020 (2019 - 17.0%)
reflecting the future corporation tax rate enacted at the balance sheet date.
The deferred tax charge included in the Group Income Statement is as follows:
2020 2019
£m £m
Accelerated capital allowances 9.4 0.3
Temporary differences in respect of pensions 4.5 2.7
Other temporary differences 0.1 -
---------- ---------
Deferred tax charge 14.0 3.0
====== ======
8. Profit for the Financial Year
The profit of the Company is £63.4m (2019 - £59.1m). No separate income
statement is presented for the Company as permitted by Section 408 of the
Companies Act 2006.
9. Property, Plant and Equipment
Group Non-operational Vehicles
land and Fixtures and mobile
Infrastructure buildings and plant
assets £m equipment £m Total
£m £m £m
Cost:
At 1 January 2019 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
Additions 110.3 - 8.8 0.1 119.2
----------- ----------- ----------- ----------- -----------
At 31 December 2020 3,007.8 5.1 110.5 3.3 3,126.7
----------- ----------- ----------- ----------- -----------
Depreciation:
At 1 January 2019 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
Charge for the year 71.5 0.1 8.4 0.2 80.2
----------- ----------- ----------- ----------- -----------
At 31 December 2020 1,152.7 2.2 80.8 2.7 1,238.4
----------- ----------- ----------- ----------- -----------
Net book value:
At 31 December 2019 1,816.3 3.0 29.3 0.7 1,849.3
======= ======= ======= ======= =======
At 31 December 2020 1,855.1 2.9 29.7 0.6 1,888.3
======= ======= ======= ======= =======
Infrastructure assets include amounts in respect of assets under construction
of £77.5m (2019 - £80.4m).
Company Non-operational Vehicles
land and Fixtures and
Infrastructure buildings and mobile
assets £m equipment plant Total
£m £m £m £m
Cost:
At 1 January 2019 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
Additions 110.3 - 8.8 0.1 119.2
----------- ----------- ----------- ----------- -----------
At 31 December 2020 3,009.4 5.1 110.5 3.3 3,128.3
----------- ----------- ----------- -----------
Depreciation:
At 1 January 2019 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
Charge for the year 71.5 0.1 8.4 0.2 80.2
----------- ----------- ----------- ----------- -----------
At 31 December 2020 1,153.5 2.2 80.8 2.7 1,239.2
----------- ----------- ----------- ----------- -----------
Net book value:
At 31 December 2019 1,817.1 3.0 29.3 0.7 1,850.1
======= ======= ======= ======= =======
At 31 December 2020 1.855.9 2.9 29.7 0.6 1,889.1
======= ======= ======= ======= =======
Infrastructure assets include amounts in respect of assets under construction
of £77.5m (2019 - £80.4m).
10. Right of Use Assets and Lease Liabilities
Group and Company
Land and Buildings
£m Vehicles Total
£m £m
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
Additions 1.0 2.0 3.0
Disposals - - -
----------- ----------- -----------
At 31 December 2020 8.6 9.2 17.8
----------- ----------- -----------
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
Charge for the year 0.9 2.3 3.2
----------- ----------- -----------
At 31 December 2020 1.6 4.5 6.1
----------- ----------- -----------
Net book value:
At 31 December 2019 6.9 5.0 11.9
====== ====== ======
At 31 December 2020 7.0 4.7 11.7
Lease liabilities
Current 0.7 1.7 2.4
Non-current 6.5 3.0 9.5
----------- ----------- -----------
7.2 4.7 11.9
====== ====== ======
Lease costs include:
Depreciation on right-of-use assets (note 0.9 2.3 3.2
4)
Lease liabilities finance cost (note 6) 0.2 0.1 0.3
Expense relating to short-term leases - 0.3 0.3
included in operating costs
----------- ----------- -----------
1.1 2.7 3.8
====== ====== ======
11. Intangible Assets
Computer software - Group and Company
2020 2019
£m £m
Cost:
At 1 January 112.4 109.3
Additions 3.7 3.1
----------- -----------
At 31 December 116.1 112.4
----------- -----------
Amortisation:
At 1 January 93.0 88.1
Amortisation charge for the year 5.2 4.9
----------- -----------
At 31 December 98.3 93.0
----------- -----------
Net book value:
At 1 January 19.4 21.2
====== ======
At 31 December 17.8 19.4
====== ======
Software assets include £5.1m (2019 - £8.6m) in respect of market and customer
software invested in following separation from the Viridian Group.
12. Investments
Company - Investment in subsidiaries
2020 2019
£m £m
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 £nil. 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 £400m and £350m 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 2020 is £nil (2019 - £nil).
13. Inventories
2020 2019
Group and Company £m £m
Materials and consumables 18.3 14.5
Work-in-progress - 0.3
---------- ----------
18.3 14.8
====== ======
14. Trade and Other Receivables
Group and Company 2020 2019
£m £m
Current
Trade receivables (including unbilled consumption) 48.1 46.1
Loss allowance (0.6) (0.5)
---------- ----------
Trade receivables (net of provision) 47.5 45.6
Other receivables - 0.2
Prepayments and accrued income 6.8 3.6
Amounts owed by fellow subsidiary undertakings (note 26) 6.3 3.9
---------- ----------
60.6 53.3
====== ======
Trade receivables include amounts relating to unbilled consumption of £20.2m
(2019 - £19.0m). The largest trade receivable at the year end, due from one
customer, is £9.1m (2019 - £7.6m).
Trade receivables include £nil (2019 - nil) in respect of contract assets
arising from contracts with customers.
Trade receivables are stated net of an allowance of £0.6m (2019 - £0.5m) for
estimated irrecoverable amounts based on the lifetime expected credit loss of
the trade receivable referencing the Group's past default experience. There
are no allowances for estimated irrecoverable amounts included in 'amounts owed
by fellow subsidiary undertakings.
2020 2019
Group and Company £m £m
At the beginning of the year 0.5 0.7
Increase in allowance 0.2 -
Bad debts written off (0.1) (0.2)
---------- ----------
At the end of the year 0.6 0.5
====== ======
The allowance of £0.6m (2019 - £0.5m) reflects individual balances impaired
based on past default experience.
The following shows an aged analysis of current trade receivables for the Group
and Company:
2020 2019
£m £m
Within credit terms:
Current 44.1 42.1
Past due but not impaired:
Less than 30 days 0.4 0.3
30 - 60 days 0.2 0.2
60 - 90 days 1.0 0.9
+ 90 days 1.8 2.1
---------- ----------
47.5 45.6
====== ======
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. Trade receivables are denominated in Sterling (£). 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. The
maximum exposure to credit risk at the reporting date is the carrying value of
trade receivables.
15. Cash and Cash Equivalents
Group and Company
2020 2019
£m £m
Cash at bank and in hand 4.5 9.0
Short term deposits 17.0 -
---------- ----------
21.5 9.0
====== ======
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
2020 2019 2020 2019
£m £m £m £m
Trade payables 15.0 15.0 15.0 15.0
Payments received on account 19.3 22.5 19.3 22.5
Amounts owed to fellow
subsidiary undertakings (note 1.7 7.7 1.7 7.7
26)
Amounts owed to subsidiary - - 9.2 9.2
undertakings
Tax and social security 26.4 4.7 26.4 4.7
Accruals 19.0 17.8 19.0 17.8
Other payables 3.2 3.3 3.2 3.3
---------- ---------- ---------- ----------
84.6 71.0 93.8 80.2
====== ====== ====== ======
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
£m £m £m
Current 0.5 18.1 18.6
Non-current 4.4 507.8 512.2
---------- ---------- ----------
Total at 1 January 2019 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
---------- ---------- ----------
Receivable - 25.7 25.7
Released to income statement (0.6) (20.2) (20.8)
---------- ---------- ----------
Current 0.4 20.9 21.3
Non-current 3.5 515.2 518.7
---------- ---------- ----------
Total at 31 December 2020 3.9 536.1 540.0
====== ====== ======
18. Derivative Financial Instruments
Group and Company - Interest rate swaps 2020 2019
£m £m
Current assets 19.0 14.4
Non-current assets 513.0 492.2
---------- ----------
532.0 506.6
====== ======
Current liabilities (19.0) (14.4)
Non-current liabilities (513.0) (492.2)
---------- ----------
(532.0) (506.6)
====== ======
The Company has held a £550m 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 £
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 2020 (2019 - £nil). From
2018, 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 Group nor
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, fair value movements of £
25.4m (negative) occurred in 2020 (2019 - negative fair value movements of £
20.4m). 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 £25.4m in 2020 (2019 - matching positive fair value
movement of £20.4m).
During 2020 the Company made swap interest payments of £15.7m (2019: £13.2m).
Due to the back-to-back arrangements, the Company had matching swap interest
receipts of £15.7m (2019: £13.2m). 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 £66m 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 was 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 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 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 £47.9m / (£50.9m) (2019 - £
49.9m / (£53.2m)). 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 £47.9m / (£50.9m) (2019 - £
49.9m / (£53.2m)) 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
2020 2019 2020 2019
£m £m £m £m
Current
Interest payable on £400m bond 14.8 14.8 - -
Interest payable on £350m bond 1.5 1.5 - -
Interest payable to group 0.1 0.1 0.1 0.1
undertaking (note 26)
Interest payable to subsidiary - - 16.3 16.3
undertaking
Amounts owed to group undertaking - 5.0 - 5.0
(note 26)
---------- ---------- ---------- ----------
16.4 21.4 16.4 21.4
====== ====== ====== ======
Non-current
£400m bond 399.0 398.8 - -
£350m bond 348.6 348.4 - -
Amounts owed to subsidiary - - 747.6 747.2
undertaking
---------- ---------- ---------- ----------
747.6 747.2 747.6 747.2
====== ====== ====== ======
Loans and other borrowings outstanding are repayable as follows:
Group and Company 2020 2019
£m £m
In one year or less or on demand 16.4 21.4
Between two and five years 348.6 -
In more than five years 399.0 747.2
---------- ----------
764.0 768.6
====== ======
Other financial liabilities are held at amortised cost.
The principal features of the Group's borrowings are as follows:
- the 15 year £400m 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 £2.1m of costs associated with raising finance. In back-to-back
arrangements, NIE Finance PLC has a loan of £400m with the Company, which was
issued net of £2.1m 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 £350m 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 £1.9m of costs associated with raising finance. In
back-to-back arrangements, NIE Finance PLC has a loan of £350m with the
Company, which was issued net of £1.9m 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 £400m and £350m bonds, which are listed on the London Stock Exchange's
regulated market, had fair values at 31 December 2020 of £535.2m (2019 - £
526.6m) and £381.5m (2019 - £364.2m) respectively, based on current market
prices. The Company's back-to-back loans had a fair value at 31 December 2020
of £535.2m (2019 - £526.6m) and £381.5m (2019 - £364.2m) respectively based on
the fair value of the £400m and £350m bonds.
The fair value of bonds as at 31 December 2020 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 100% (2019 - 99.3%) 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 2020
On demand Within 1 1 to 5 More than
Year years 5 years Total
£m £m £m £m £m
£400m bond (including interest - 25.5 102.0 425.5 553.0
payable)
£350m bond (including interest - 8.8 385.0 - 393.8
payable) - 0.1 - - 0.1
RCF (including interest
payable)
Trade and other payables 19.3 38.9 - - 58.2
Interest rate swap liabilities - 19.0 518.5 - 537.5
Lease Liabilities - 2.4 4.9 4.6 11.9
---------- ---------- ---------- ---------- ----------
19.3 94.7 1,010.4 430.1 1,554.5
====== ====== ====== ====== ======
At 31 December 2019 (Restated)
On demand Within 1 1 to 5 More than
Year years 5 years Total
£m £m £m £m £m
£400m bond (including interest - 25.5 102.0 451.0 578.5
payable)
£350m 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 - 14.5 537.1 - 551.6
Lease Liabilities - 2.8 5.1 4.0 11.9
---------- ---------- ---------- ---------- ----------
22.5 90.4 684.2 813.7 1,610.8
====== ====== ====== ====== ======
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 2020
On demand Within 1 1 to 5 More than
Year years 5 years Total
£m £m £m £m £m
Amounts owed to subsidiary - 34.3 487.0 425.5 946.8
undertaking
Trade and other payables 19.3 48.1 - - 67.4
Interest rate swap liabilities - 19.0 518.5 - 537.5
RCF (including interest - 0.1 - - 0.1
payable) - 2.4 4.9 4.6 11.9
Lease Liabilities
---------- ---------- ---------- ---------- ----------
19.3 103.9 1,010.4 430.1 1,563.7
---------- ---------- ---------- ---------- ----------
At 31 December 2019 (Restated)
On demand Within 1 1 to 5 More than
Year years 5 years Total
£m £m £m £m £m
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 - 14.5 537.1 - 551.6
RCF (including interest - - 5.0 - 5.0
payable) - 2.8 5.1 4.0 11.9
Lease Liabilities
---------- ---------- ---------- ---------- ----------
22.5 99.6 684.2 813.7 1,620.0
====== ====== ====== ====== ======
Inflation-linked interest rate swaps have been restated to reflect a mandatory
break in June 2022 on the RPI linked interest rate swap portfolio which brings
forward all of the £361.8m of contractual cashflows that were previously
presented as payable over more than five years. As a result, amounts payable
within 1 to 5 years increased by £361.8m to £537.1m. The swaps have maturities
in 2026, 2031 and 2036. At 31 December 2020, negotiations to extend the
mandatory break are at an advanced stage. Certain corresponding amounts have
been adjusted so that they are directly comparable with the amounts shown in
respect of the current financial year.
20. Analysis of Net Debt
Group At Non- At
1 January Cash cash 31
2020 flow movement December
2020
£m £m £m £m
Cash and cash equivalents 9.0 12.5 - 21.5
Interest payable on £400m bond (14.8) 25.5 (25.5) (14.8)
Interest payable on £350m bond (1.6) 8.8 (8.8) (1.6)
Interest payable to group undertaking (0.1) 0.3 (0.3) (0.1)
£400m bond (398.8) - (0.2) (399.0)
£350m bond (348.4) - (0.2) (348.6)
Amounts owed to group undertaking (5.0) 5.0 - -
Lease liabilities (11.9) 3.2 (3.2) (11.9)
---------- ---------- ---------- ----------
(771.6) 55.3 (38.2) (754.5)
====== ====== ====== ======
Company At Non- At
1 January Cash cash 31
2020 flow movement December
2020
£m £m £m £m
Cash and cash equivalents 9.0 12.5 - 21.5
Interest payable to group undertaking (0.1) 0.3 (0.3) (0.1)
Interest payable to subsidiary (16.4) 34.3 (34.3) (16.4)
undertaking
Amounts owed to group undertaking (5.0) 5.0 - -
Amounts owed to subsidiary undertaking (747.2) - (0.4) (747.6)
Lease liabilities (11.9) 3.2 (3.2) (11.9)
---------- ---------- ---------- ----------
(771.6) 55.3 (38.2) (754.5)
====== ====== ====== ======
21. Provisions
Group and Company Liability and
Environment damage claims Total
£m £m £m
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 1 January 2020 1.6 5.6 7.2
---------- ---------- ----------
Utilised in the year - (0.7) (0.7)
Charged to income statement - 0.1 0.1
---------- ---------- ----------
Current 0.6 2.3 2.9
Non-current 1.0 2.7 3.7
---------- ---------- ----------
Total at 31 December 2020 1.6 5.0 6.6
====== ====== ======
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 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.
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 £136.9m. The formal valuation as at 31 March
2020 is currently ongoing. The Company is paying deficit contributions of £
17.2m 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 £77,500 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 18% of the liabilities are attributable to
current employees, 5% to former employees and 77% 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 (2019 - 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 2020 based on the following assumptions (in nominal
terms) and using the projected unit credit method:
2020 2019
Rate of increase in pensionable salaries (per annum) 3.0% 2.75%
Rate of increase in pensions in payment (per annum) 2.3% 2.10%
Discount rate (per annum) 1.3% 2.00%
Inflation assumption (CPI) (per annum) 2.3% 2.10%
Life expectancy:
Current pensioners (at age 60) - males 26.7 years 26.3 years
Current pensioners (at age 60) - females 28.9 years 28.7 years
Future pensioners (at age 60) - males *28.1 *27.9 years
years
Future pensioners (at age 60) - females *30.4 *30.3 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 2020 shows a net pension liability
(before deferred tax) of £104.9m (2019 - £103.9m). 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
2020 2019 2020 2019
£m £m £m £m
0.5% change in rate of increase in (7.9) (9.3) 7.8 9.1
pensionable salaries
0.5% change in rate of pensions in (79.4) (67.2) 75.6 64.2
payments
0.5% change in annual discount rate 94.2 78.9 (99.8) (83.2)
0.5% change in annual inflation rate (88.8) (77.3) 84.2 73.6
(CPI)
1-year change in life expectancy (52.2) (46.9) 52.2 46.9
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
2020 2019
£m £m
Equities - quoted 272.9 215.1
Bonds - quoted 247.7 312.8
Diversified growth funds - quoted 383.6 371.8
Multi-asset credit investments 277.2 215.0
Cash 12.3
----------
22.6
----------
Total market value of assets 1,204.0 1,127.0
Actuarial value of liabilities (1,308.9) (1,230.9)
---------- ----------
Net pension liability (104.9) (103.9)
====== ======
Changes in the market value of assets - Group and Company
2020 2019
£m £m
Market value of assets at the beginning of the year 1,127.0 1,054.7
Interest income on scheme assets 22.1 28.9
Contributions from employer 25.1 25.0
Contributions from scheme members 0.3 0.4
Benefits paid (66.5) (67.9)
Administration expenses paid (2.2) (1.5)
Re-measurement gains on scheme assets 98.2 87.4
---------- ----------
Market value of assets at the end of the year 1,204.0 1,127.0
====== ======
Changes in the actuarial value of liabilities - Group and Company
2020 2019
£m £m
Actuarial value of liabilities at the beginning of the 1,230.9 1,152.2
year
Interest expense on pension liability 23.9 31.3
Current service cost 5.4 5.3
Curtailment costs 0.2 0.1
Past service credit (1.3) -
Contributions from scheme members 0.3 0.4
Benefits paid (66.5) (67.9)
Effect of changes in demographic assumptions 5.1 -
Effect of changes in financial assumptions 136.1 112.1
Effect of experience adjustments (25.2) (2.6)
---------- ----------
Actuarial value of liabilities at the end of the year 1,308.9 1,230.9
====== ======
The curtailment loss (cost) arising in 2020 and 2019 reflects past service
costs associated with employees leaving the company under a restructuring exit
arrangement.
Net past service credit of £1.3m in 2020 (2019 - £nil) reflects changes to
member benefits arising from a clarification of the law in respect of
Guaranteed Minimum Pension Equalisation for male and female members, and the
completion of a bulk pension increase exchange exercise offered to eligible
members during the year.
The Group expects to make contributions of approximately £24.9m to Focus in
2021.
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)
2020 2019
£m £m
Current service cost (5.4) (5.3)
Administration expenses paid (2.2) (1.5)
Curtailment costs (0.2) (0.1)
Past service credit 1.3 -
---------- ----------
Total operating charge (6.5) (6.9)
====== ======
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
2020 2019
£m £m
Interest income on scheme assets 22.1 28.9
Interest expense on liabilities (23.9) (31.3)
---------- ----------
Net pension scheme interest expense (1.8) (2.4)
====== ======
The actual return on Focus assets was a gain of £120.3m for the Group and
Company (2019 - gain of £116.3m for the Group and Company).
Analysis of amounts recognised in the Statement of Comprehensive Income
2020 2019
£m £m
Re-measurement gains on scheme assets 98.2 87.4
Actuarial losses on scheme liabilities (116.0) (109.5)
---------- ----------
Net losses (17.8) (22.1)
====== ======
The cumulative actuarial losses recognised in the Group and Company Statements
of Comprehensive Income since 1 April 2004 are £172.3m and £174.4m respectively
(2019 - £154.5m and £156.6m 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
2020 2019 2020 2019
£m £m £m £m
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 358.1 323.8 357.6 323.3
---------- ---------- ---------- ----------
425.0 390.7 424.5 390.2
====== ====== ====== ======
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: 2020 2019
£m £m
145,566,431 ordinary shares of 25p each 36.4 36.4
====== ======
Dividend
The following dividends were paid by the Company
2020 2019
£m £m
12.4 pence per allotted share (2019 - 16.3 pence) 18.0 23.7
====== ======
24. Commitments and Contingent Liabilities
(i) Capital commitments
At 31 December 2020 the Group and Company had contracted future capital
expenditure in respect of property, plant and equipment of £16.6m (2019 - £
16.5m) and computer assets of £4.3m (2019 - £4.5m).
(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 £400m and £350m 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 £400m and £350m 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.
2020 2019
£m £m
Salaries and short-term 1.3 1.5
employee benefits
Post-employment benefits 0.3 0.4
Termination benefits - 0.1
---------- ----------
1.6 2.0
====== ======
Parent undertaking
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
£m £m £m £m £m £m
Year ended
31 December 2020
ESB (0.3) - - - - (1.4)
ESB subsidiaries - 38.4 (2.8) (18.0) 6.3 (0.4)
---------- ---------- ---------- ---------- ---------- ----------
(0.3) 38.4 (2.8) (18.0) 6.3 (1.8)
====== ====== ====== ====== ====== ======
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)
====== ====== ====== ====== ====== ======
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 £32.5m (2019 - £31.5m 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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