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.
Northern Ireland Electricity Networks Limited's Unaudited Interim Report and
Financial Statements for the six months ended 30 June 2021 (non statutory) have
been submitted to the National Storage Mechanism and will shortly be available
for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and
are available on Northern Ireland Electricity Networks Limited's website at
http://www.nienetworks.co.uk/about-us/investor-relations
Contact for enquiries: NIE Networks Corporate Communications - telephone 0845
300 3356
The report and financial statements follow below.
INTERIM MANAGEMENT REPORT six months to 30 June 2021
The directors present their interim management report for Northern Ireland
Electricity Networks Limited (NIE Networks or the Company) and its subsidiary
undertakings (the Group) for the six months ended 30 June 2021.
This interim financial report does not include all the notes of the type
normally included in an annual financial report. Accordingly, this report
should be read in conjunction with the annual report for the year ended 31
December 2020.
NIE Networks is part of the Electricity Supply Board (ESB), the vertically
integrated energy group based in the Republic of Ireland. NIE Networks is an
independent business within ESB with its own Board of Directors, management and
staff. Directors who held office during the period and to the date of
approving this report are: Dame Rotha Johnston (independent non-executive Chair
of the Board), Alan Bryce (independent non-executive Director), Keith Jess
(independent non-executive Director), Paul Stapleton (Managing Director) and
Gordon Parkes (Human Resources Director).
NIE Networks is the owner of the electricity transmission and distribution
networks in Northern Ireland and is the electricity distribution network
operator, serving around 895,000 customers connected to the network.
The Group's principal activities are:
- constructing and maintaining the electricity transmission and distribution
networks in Northern Ireland and operating the distribution network;
- connecting demand and renewable generation customers to the transmission and
distribution networks; and
- providing electricity meters in Northern Ireland and providing metering data
to suppliers and market operators to enable wholesale and retail settlement.
Business Update
Price Control
NIE Networks is regulated by the Northern Ireland Authority for Utility
Regulation (the Utility Regulator) and is subject to periodic reviews in
respect of the prices it may charge for use of the transmission and
distribution networks in Northern Ireland.
Regulatory Period 6 (RP6) commenced on 1 October 2017 and will apply for the
period to 31 March 2024.
The RP6 price control set ex-ante allowances of £745 million for capital
investment and £487 million in respect of operating costs (2020-21 prices). The
allowances in respect of major transmission load growth projects are considered
on a case-by-case basis, for example, the North-South Interconnector. The
allowances will be adjusted to reflect 50% of the difference between
the allowances and actual costs incurred. NIE Networks' Connections business is
largely outside the scope of the RP6 price control following the introduction
of contestability.
The RP6 baseline rate of return of 3.14% plus inflation (weighted average cost
of capital based on pre-tax cost of debt and post-tax cost of equity) will be
adjusted to reflect the cost of new debt raised in RP6. This mechanism was
introduced at the start of RP6, departing from the former approach of setting
an ex-ante allowance, and will align the cost of debt component of the return
more closely with prevailing market conditions at the time of drawdown of new
debt.
Covid-19
NIE Networks' Crisis Management Team and Executive Committee continue to
co-ordinate the Company's response to addressing the challenges posed by the
ongoing Covid-19 pandemic in line with Government guidance, restrictions and
safety protocols. At the onset of the pandemic in 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.
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 has been able to deliver planned work programmes and maintain a
reliable electricity service to its customers. Management continues to monitor
the ongoing impact of the pandemic and has taken steps to mitigate the
operational and financial impacts on the Company and ensure the health, safety
and wellbeing of its employees.
Financial results
Operating Profit
The Group's operating profit for the six-month period decreased from £67.9m to
£60.7m. Group revenue of £146.5m has decreased by £9.3m primarily reflecting an
£18.0m decrease in revenues associated with the Public Service Obligation
(PSO); offset by a £7.6m increase in Distribution Use of System (DUoS) revenue.
Higher DUoS revenue is reflective of an increase in the Group's investment in
its Regulated Asset Base. Group operating costs of £85.8m have decreased by £
2.1m, predominantly due to the non-recurrence of additional operational costs
incurred in the prior period when restrictions on capital work programmes
resulted in higher net payroll costs being charged to the Income Statement.
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 expense included in operating profit in the current period is £7.1m (2020:
net PSO income £11.2m).
Tax Charge
In March 2021 the UK Government announced that future Corporation Tax rates
would increase from the current rate of 19% to 25%, effective from 1 April
2023. The effect of the increase in the expected future Corporation Tax rate
has resulted in a one-off charge to the Income Statement of £35.8m in the
current period.
FFO Interest Cover
The ratio of Funds from Operations (FFO) to interest paid decreased to 3.3
times for the period (six months to 30 June 2020 - 3.5 times), reflecting a
decrease in funds from operations during the period.
Net Assets
The Group's net assets of £499.2m have increased by £74.2m in the six months to
30 June 2021 reflecting re-measurement gains (net of tax) on pension scheme
liabilities of £65.6m and a deferred tax credit recognised in equity relating
to the change in future tax rate of £11.0m; offset by a loss after tax of £
2.4m.
Cash Flow
Cash and cash equivalents decreased by £1.7m in the period reflecting net cash
inflows from operating activities of £50.6m, investing activity outflows of £
50.7m reflecting the Group's continued investment in the network and financing
activity outflows of £1.6m. The Group's Revolving Credit Facility (RCF) was not
utilised during the period.
Operations
Key Performance Indicators (KPIs) are used to measure progress towards
achieving operational objectives. Performance during the period is summarised
below:
KPIs Six months Year ended
ended
30 June 31 December
2021 2020 2020
Health and Safety:
Fatality None None 1
Lost time incidents (number of) None None 2
Network Performance:
Customer Minutes Lost (CML):
- Planned CML (minutes) 18 12 33
- Fault CML (minutes) 16 22 41
Customer Service:
Overall standards - failures (number of) 1 None None
Guaranteed standards - defaults (number None None None
of)
Stage 2 complaints to the Consumer None None 2
Council
Connections:
Customer demand connections completed 2,293 1,829 4,051
including non-recoverable alterations
(number of)
Sustainability:
Reduction in non-network carbon 5.9% 18.7% 11.0%
emissions
Waste recycling rate (%) 97.3% 97.0% 92.7%
Staffing:
Headcount (at 30 June/31 December) 1,205 1,202 1,200
Absenteeism (%) 3.21% 3.11% 2.86%
Health and Safety
Ensuring the safety of employees, contractors and the general public continued
to be the number one value at the core of all NIE Networks' business
operations. The aim is to provide a zero harm working environment where risks
to health and safety are assessed and controlled. There were no lost time
incidents during the period (2020 - None).
The Company's "Safer Together - Our Pathway to Zero Harm" plan was developed as
an enabling action plan to improve adherence to our safety value, reduce the
risk of harm and improve the wellbeing of our staff within the organisation.
It was developed using feedback from safety focus groups held in October 2020
and the wider organisation learning arising from inquiries into a number of
serious incidents and a fatal incident at Drumnakelly Main substation in August
2020.
The Safer Together Programme aims to refocus our commitment to our safety
value, through promoting an open and proactive safety culture with the full
involvement of all. This is being reinforced through strong and visible
leadership and the development of a series of safety improvements.
A significant number of initiatives have been identified across the Company,
with the majority of these expected to be completed and implemented by the end
of 2021.
Network Performance
The average number of minutes lost per consumer through pre-arranged shutdowns
for maintenance and construction (Planned CML) increased from 12 to 18 minutes
from the same period last year, primarily due to reduced work programmes in
2020 as a result of Covid-19 restrictions which resulted in fewer outages for
customers. CML through distribution fault interruptions (Fault CML) decreased
from 22 minutes in the prior period to 16 minutes in the current period.
Customer Service
The Utility Regulator sets overall and guaranteed standards for NIE Networks'
performance. There were no defaults against the guaranteed standards for
customer service activities during the period (2020 - none) and the overall
standards were achieved with the exception of one standard in relation to
obtaining customer meter readings which was impacted by Covid-19 restrictions.
As a result of Covid-19 restrictions, the number of visits to customer
properties to obtain a meter reading reduced, however additional interventions
including increased use of online and mobile text messaging for customers to
submit meter readings were introduced, resulting in obtaining a meter reading
for 99.1% of customers against an overall target of 99.5%. There were no Stage
2 complaints taken up by the Consumer Council during the period (2020 - none).
Connections
The number of customer demand connections completed during the period increased
compared with the prior period due to fewer Covid-19 related restrictions on
work programmes in the six months to June 2021.
A significant milestone in Northern Ireland's energy history was reached during
2019 when the long-term target of '40% of electricity consumption being
produced from renewable sources by 2020' was achieved. The latest statistics
show that over 45% of annual electricity consumption in Northern Ireland for
the twelve months to 30 June 2021 was generated from renewable sources. This
has been supported through the connection of approximately 1.7GW of renewable
capacity to the network by NIE Networks and with a further 0.3GW capacity
committed to be connected, the total connected renewable capacity is expected
to reach nearly 2.0GW by 2023.
NIE Networks has continued to participate in the Connections Innovation Working
Group to consider and progress appropriate solutions which facilitate the
connection of further Distributed Energy Resources in Northern Ireland.
Sustainability
The Company has reduced its non-network carbon emissions by 5.9% during the
current period against the 2019 baseline year. The Company has achieved this
through a range of measures including improving the energy efficiency of work
locations and reducing business travel.
The recycling rate for all hazardous and non-hazardous waste (excluding
excavation from roads and footpaths, civil projects excavation and asbestos
removal) continued at a high level with 97.3% of waste recycled during the
period.
Staffing
The total number of staff employed by the Company remained broadly consistent
with the prior period. Absenteeism levels, including absences attributable to
Covid-19, have also remained broadly consistent at 3.21% (2020: 3.11%).
Principal Risks and Uncertainties
The principal risks and uncertainties facing NIE Networks for the remainder of
the financial year, which are managed under NIE Networks' risk management
framework, are as set out in the Group's latest annual report for the year to
31 December 2020 which is available at www.nienetworks.co.uk.
Related parties
Related party disclosures are given in note 9.
GROUP INCOME STATEMENT
Six months ended Year ended
30 June 31 December
2021 2020 2020
Note Unaudited Unaudited Audited
£m £m £m
Revenue 2 146.5 155.8 302.2
Operating costs (85.8) (87.9) (172.5)
-------------- -------------- --------------
OPERATING PROFIT 60.7 67.9 129.7
-------------- -------------- --------------
Finance revenue - - 0.1
Finance costs (17.5) (17.5) (35.3)
Net pension scheme interest (0.6) (1.0) (1.8)
-------------- -------------- --------------
Net finance costs (18.1) (18.5) (37.0)
-------------- -------------- --------------
PROFIT BEFORE TAX 42.6 49.4 92.7
Tax charge 3 (45.0) (21.3) (29.3)
-------------- -------------- --------------
(LOSS) / PROFIT FOR THE PERIOD / YEAR
ATTRIBUTABLE TO THE EQUITY HOLDERS OF
THE PARENT COMPANY (2.4) 28.1 63.4
======== ======== ========
GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
(Loss) / profit for the financial period (2.4) 28.1 63.4
/ year
-------------- -------------- --------------
Other comprehensive income / (expense):
Re-measurement gains / (losses) on
pension scheme assets and liabilities 87.4 (75.3) (17.8)
Deferred tax (charge) / credit relating
to components of other comprehensive (21.8) 14.3 3.4
income
Change in deferred tax rate relating to
components of other comprehensive income 11.0 3.3 3.3
-------------- -------------- --------------
Net other comprehensive income /
(expense) for the period / year 76.6 (57.7) (11.1)
-------------- -------------- --------------
Total net comprehensive income /
(expense) for the period / year 74.2 (29.6) 52.3
======== ======== ========
GROUP BALANCE SHEET
As at As at
30 June 31 December
2021 2020 2020
Note Unaudited Unaudited Audited
£m £m £m
Non-current assets
Property, plant and equipment 4 1,917.7 1,862.2 1,888.3
Intangible assets 4 17.4 18.0 17.8
Right of use leased assets 4 10.5 12.0 11.7
Derivative financial assets 6 530.0 530.6 513.0
-------------- -------------- --------------
2,475.6 2,422.8 2,430.8
-------------- -------------- --------------
Current assets
Inventories 17.2 17.3 18.3
Trade and other receivables 42.5 47.9 60.6
Current tax asset 2.0 1.9 -
Derivative financial assets 6 22.9 17.0 19.0
Cash and cash equivalents 19.8 30.4 21.5
-------------- -------------- --------------
104.4 114.5 119.4
-------------- -------------- --------------
TOTAL ASSETS 2,580.0 2,537.3 2,550.2
-------------- -------------- --------------
Current liabilities
Trade and other payables 69.0 79.0 84.6
Current tax payable - 2.8 2.7
Deferred income 20.3 19.2 21.3
Financial liabilities:
Derivative financial 6 22.9 17.0 19.0
liabilities
Lease financial liabilities 6, 7 2.1 2.7 2.4
Other financial liabilities 6, 7 7.9 7.9 16.4
Provisions 2.9 3.3 2.9
-------------- -------------- --------------
125.1 131.9 149.3
-------------- -------------- --------------
Non-current liabilities
Deferred tax liabilities 126.7 66.2 78.5
Deferred income 529.5 516.5 518.7
Financial liabilities:
Derivative financial 6 530.0 530.6 513.0
liabilities
Lease financial liabilities 6, 7 8.6 9.4 9.5
Other financial liabilities 6, 7 747.8 747.4 747.6
Provisions 3.8 3.7 3.7
Pension liability 8 9.3 170.5 104.9
-------------- -------------- --------------
1,955.7 2,044.3 1,975.9
-------------- -------------- --------------
TOTAL LIABILITIES 2,080.8 2,176.2 2,125.2
-------------- -------------- --------------
NET ASSETS 499.2 361.1 425.0
======== ======== ========
Equity
Share capital 36.4 36.4 36.4
Share premium 24.4 24.4 24.4
Capital redemption reserve 6.1 6.1 6.1
Accumulated profits 432.3 294.2 358.1
-------------- -------------- --------------
TOTAL EQUITY 499.2 361.1 425.0
======== ======== ========
The financial statements were approved by the Board of directors and signed on
its behalf by:
Paul Stapleton
Director
16 September 2021
GROUP STATEMENT OF CHANGES IN EQUITY
Capital
Share Share redemption Accumulated
capital premium reserve profits Total
£m £m £m £m £m
At 1 January 2020 36.4 24.4 6.1 323.8 390.7
---------- ---------- ---------- ---------- ----------
Profit for the year - - - 63.4 63.4
Net other comprehensive expense - - - (11.1) (11.1)
for the year
---------- ---------- ---------- ---------- ----------
Total net comprehensive income - - - 52.3 52.3
for the year
Dividends to the shareholder - - - (18.0) (18.0)
---------- ---------- ---------- ---------- ----------
At 1 January 2021 36.4 24.4 6.1 358.1 425.0
---------- ---------- ---------- ---------- ----------
(Loss) for the period - - - (2.4) (2.4)
Net other comprehensive income - - - 76.6 76.6
for the period
---------- ---------- ---------- ---------- ----------
Total net comprehensive income - - - 74.2 74.2
for the period
---------- ---------- ---------- ---------- ----------
At 30 June 2021 36.4 24.4 6.1 432.3 499.2
===== ======= ======= ======= ======
Capital
Share Share redemption Accumulated
Capital premium reserve profits Total
£m £m £m £m £m
At 1 January 2020 36.4 24.4 6.1 323.8 390.7
---------- ---------- ---------- ---------- ----------
Profit for the period - - - 28.1 28.1
Net other comprehensive expense - - - (57.7) (57.7)
for the period
---------- ---------- ---------- ---------- ----------
Total net comprehensive expense - - - (29.6) (29.6)
for the period
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
At 30 June 2020 36.4 24.4 6.1 294.2 361.1
===== ====== ====== ====== ======
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Cash flows from operating activities
(Loss) / profit for the period/year (2.4) 28.1 63.4
Adjustments for:
Tax charge 45.0 21.3 29.3
Net finance costs 18.1 18.5 37.0
Depreciation of property, plant and 40.4 38.7 80.2
equipment
Depreciation of right of use leased 1.6 1.5 3.2
assets
Release of customers' contributions and (9.8) (9.3) (20.6)
grants
Amortisation of intangible assets 2.9 5.2
2.6
Defined benefit pension charge less (8.8) (9.7) (18.6)
contributions paid
Net movement in provisions 0.1 (0.2) (0.7)
---------- ---------- ----------
Operating cash flows before movement in 87.1 91.5 178.4
working capital
(Increase)/Decrease in working capital (4.4) 10.5 (5.6)
---------- ---------- ----------
Cash generated from operations 82.7 102.0 172.8
Interest received - - 0.1
Interest paid (25.6) (25.6) (34.6)
Lease interest paid (0.2) (0.2) (0.3)
Current taxes received/(paid) (6.3) (1.8) (2.7)
---------- ---------- ----------
Net cash flows from operating activities 50.6 74.4 135.3
---------- ---------- ----------
Cash flows used in investing activities
Purchase of property, plant and equipment (67.8) (55.4) (118.8)
Customers' cash contributions 19.6 10.1 25.6
Purchase of intangible assets (2.5) (3.7)
(1.3)
---------- ---------- ----------
Net cash flows used in investing (96.9)
activities (50.7) (46.6)
---------- ---------- ----------
Cash flows (used in) / from financing
activities
Dividends paid to shareholder - - (18.0)
Payments in respect of lease liabilities (1.6) (1.4) (2.9)
Amounts received from group undertakings - 8.0 8.0
Amounts repaid to group undertakings - (13.0) (13.0)
---------- ---------- ----------
Net cash flows (used in) financing (1.6) (6.4) (25.9)
activities
---------- ---------- ----------
Net increase/(decrease) in cash and cash (1.7) 21.4 12.5
equivalents
Cash and cash equivalents at beginning of 9.0
period / year 21.5 9.0
---------- ---------- ----------
Cash and cash equivalents at end of period 19.8 30.4 21.5
/ year ====== ====== ======
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash at bank and in hand, short-term bank deposits and bank overdrafts.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1. Basis of Preparation
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
Northern Ireland Electricity Networks Limited transitioned to UK-adopted
International Accounting Standards in its consolidated financial statements on
1 January 2021. This change constitutes a change in accounting framework.
However, there is no impact on recognition, measurement or disclosure in the
period reported as a result of the change in framework.
The condensed interim financial statements for the period ended 30 June 2021
have been prepared in accordance with the UK-adopted International Accounting
Standard (IAS) 34 "Interim Financial Reporting" and the Disclosure Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct Authority.
The condensed interim financial statements consolidate the results of Northern
Ireland Electricity Networks Limited (NIE Networks or the Company) and its
subsidiary undertakings, NIE Networks Services Limited and NIE Finance PLC (the
Group).
The condensed interim financial statements have been prepared on the basis of
the accounting policies set out in the financial statements for the year ended
31 December 2020.
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
at least 12 months from the date of approval of the condensed interim 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 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 condensed interim financial statements.
The condensed interim financial statements have not been audited or reviewed by
auditors pursuant to the Auditing Practices Board guidance on "Review of
Interim Financial Information performed by the Independent Auditor of the
Entity".
The condensed interim financial statements for the period ended 30 June 2021 do
not constitute statutory financial statements within the meaning of Section 434
of the Companies Act 2006. The report of the auditors on the financial
statements contained within the Group's annual report for the year ended 31
December 2020 was unmodified and did not contain a statement under either
Section 498(2) or Section 498(3) of the Companies Act 2006 regarding inadequate
accounting records or a failure to obtain necessary information and
explanations. This report should be read in conjunction with the annual report
for the year ended 31 December 2020.
New and revised accounting standards, amendments and interpretations not yet
adopted
No new standards, amendments or interpretations, effective for the first time
during the period, have had a material impact on these condensed interim
financial statements.
A number of new standards and amendments to standards and interpretations are
effective for annual periods beginning after 1 January 2021 and have not been
applied in preparing these condensed interim financial statements. None of
these are expected to have a significant effect on the financial statements of
the Group.
2. Revenue
Six months ended Year ended
30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Revenue:
Sales revenue 136.9 146.7 282.0
Amortisation of customer contributions from 9.6 9.1 20.2
deferred income
---------- ---------- ----------
146.5 155.8 302.2
====== ====== ======
The Group's operating activities, which are described in the interim management
report, comprise one operating segment. Sales revenue consists largely of
income from regulated tariffs.
3. Tax Charge
Six months Year ended
ended 31 December
30 June
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Current tax charge
UK corporation tax at 19.0% (2019 - 19.0%) 7.6 8.6 15.5
Adjustments in respect of prior periods - - (0.2)
---------- ---------- ----------
Total current tax 7.6 8.6 15.3
---------- ---------- ----------
Deferred tax charge
Origination and reversal of temporary 1.6 1.0 2.4
differences in current period
Origination and reversal of temporary - - (0.1)
differences in prior period
Effect of increase in tax rate on opening 35.8 11.7 11.7
liability
--------- --------- ---------
Total deferred tax charge 37.4 12.7 14.0
--------- --------- ---------
Total tax charge 45.0 21.3 29.3
====== ====== ======
4. Capital Additions
Six months Year ended
ended 31 December
30 June
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Property, plant and equipment 69.8 51.6 119.2
Intangibles assets - computer software 2.5 1.2 3.7
Right of use leased assets 0.7 1.6 3.0
--------- --------- ---------
73.0 54.4 125.9
====== ====== ======
Depreciation of £44.9m (30 June 2020 - £42.8m) was charged in the period.
5. Capital Commitments
At 30 June 2021 the Group had contracted future capital expenditure in respect
of property, plant and equipment of £23.5m (June 2020 - £11.2m) and computer
software assets of £3.4m (June 2020 - £3.5m).
6. Financial Instruments
An overview of financial instruments, other than cash, short-term deposits,
prepayments and tax and social security costs held by the Group as at 30 June
2021 is as follows:
As at 30 June 2021 Held at Fair value
amortised profit or
Financial assets: cost loss
Unaudited Unaudited
£m £m
Trade and other receivables 39.6 -
Interest rate swaps - 22.9
--------- ---------
Total current 39.6 22.9
--------- ---------
Interest rate swaps - 530.0
--------- ---------
Total non-current - 530.0
--------- ---------
Total financial assets 39.6 552.9
====== ======
Financial liabilities:
Trade and other payables 64.8 -
Interest rate swaps - 22.9
Lease liabilities 2.1 -
Interest bearing loans and borrowings 7.9 -
--------- ---------
Total current 74.8 22.9
--------- ---------
Interest rate swaps - 530.0
Lease liabilities 8.6 -
Interest bearing loans and borrowings 747.8 -
--------- ---------
--------- ---------
Total non-current 756.4 530.0
--------- ---------
Total financial liabilities 831.2 552.9
====== ======
The directors consider that the carrying amount of financial instruments equals
fair value.
NIE Networks has held a £550m portfolio of inflation linked interest rate swaps
since December 2010. The fair value of inflation linked interest rate swaps is
affected by relative movements in interest rates and market expectations of
future retail price index (RPI) movements.
The RPI swaps were originally put in place by the Viridian Group (the Group's
previous parent undertaking) in 2006 to better match NIE Networks' debt and
related interest payments with its inflation-linked regulated assets and
associated revenue - in the nature of economic hedge. As part of the
acquisition of NIE Networks by ESB in 2010, the swaps were novated to NIE
Networks.
In 2011, following the novation of the swaps to NIE Networks, the Company
entered into back-to-back RPI linked interest rate swap arrangements with ESBNI
Limited, the immediate parent undertaking of the Company, which had identical
matching terms to the swaps. The back-to-back matching swaps with ESBNI
Limited ensures that there is no net effect on the financial statements of the
Company and that any risk to financial exposure is borne by ESBNI Limited.
During 2021 the Company and its counterparty banks agreed a further
restructuring of the swaps, including amendments to certain critical terms.
These changes included an extension of the mandatory break period from 2022 to
2025 for the swaps maturing in 2036 and the removal of mandatory breaks for the
swaps maturing in 2026 to 2031. It also included amendments to the fixed
interest rate element of the swaps and a change to the number of swap
counterparties. Future accretion payments are now scheduled to occur every five
years from December 2023, with remaining accretion paid at maturity. In line
with the restructuring with the counterparty banks, the Company's back-to-back
matching swaps with ESBNI Limited were also restructured to ensure that there
is no effect on the financial statements of the Company and that any risk to
financial exposure is borne by ESBNI Limited.
Negative fair value movements (including interest and finance charges) of £
32.8m arose on the swaps in the six months ended 30 June 2021 (June 2020:
negative fair value movements of £37.0m) and were recognised within finance
costs in the income statement, as hedge accounting was not available. Given the
back-to-back arrangements with ESBNI Limited, there is a matching positive fair
value movement of £32.8m in the period (June 2020: matching positive fair value
movements of £37.0m).
In the six months to June 2021, the Company made swap interest payments of £
11.8m (2020: £6.9m). Due to the back-to-back arrangements with ESBNI Limited,
the Company had matching swap interest receipts of £11.8m (2020: £6.9m). No net
swap interest cost arises on these transactions and therefore they have been
netted in finance costs.
The fair value of interest rate swaps has been valued by calculating the
present value of future cash flows, estimated using forward rates from third
party market price quotations. The Company uses the hierarchy as set out in
IFRS 13 Fair Value Measurement. All assets and liabilities for which fair value
is disclosed are categorised within the fair value hierarchy described as
follows:
Level 1: quoted (unadjusted) market prices in active markets for identical
assets or liabilities;
Level 2: valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable;
and
Level 3: valuation techniques for which the lowest level input that is
significant to the fair value measurement is not observable.
The fair value of interest rate swaps as at 30 June 2021 is considered by the
Company to fall within the level 2 fair value hierarchy. The Company
determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each
reporting period. There have been no transfers between level 1 or 3 of the
hierarchy during the period.
7. Net Debt
30 June 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Cash at bank and in hand 19.8 30.4 21.5
----------- ----------- -----------
Debt due before 1 year:
Interest payable on £350m bond (5.9) (5.9) (1.6)
Interest payable on £400m bond (2.0) (2.0) (14.8)
Interest payable to parent undertaking (0.1) (0.1) (0.1)
Lease liability (2.1) (2.7) (2.4)
Amounts owed to parent undertaking - - -
----------- ----------- -----------
(10.1) (10.7) (18.9)
Debt due after 1 year: ----------- ----------- -----------
£350m bond (348.8) (348.5) (348.6)
£400m bond (399.0) (398.9) (399.0)
Lease liability (8.6) (9.4) (9.5)
----------- ----------- -----------
(756.4) (756.8) (757.1)
----------- ----------- -----------
Total net debt (746.7) (737.1) (754.5)
----------- ----------- -----------
8. Pension Commitments
Most employees of the Group are members of the Northern Ireland Electricity
Pension Scheme (NIEPS or the scheme). The scheme has two sections: 'Options'
which is a money purchase arrangement whereby the Group generally matches the
members' contributions up to a maximum of 8% of salary and 'Focus' which
provides benefits based on pensionable salary at retirement or earlier exit
from service. The assets of the scheme are held under trust and invested by
the trustees on the advice of professional investment managers. The trustees
are required by law to act in the interest of all relevant beneficiaries and
are responsible for the investment policy with regard to the assets and the
day-to-day administration of the benefits of the scheme.
As the benefits paid to members of the Options section of the scheme are
directly related to the value of assets for Options, there are no funding
issues with this section of the scheme. The remainder of this note is therefore
in respect of the Focus section of the scheme.
30 June 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Market value of assets 1,219.1 1,143.3 1,204.0
Actuarial value of liabilities (1,228.4) (1,313.8) (1,308.9)
----------- ----------- -----------
Net pension liability (9.3) (170.5) (104.9)
====== ====== ======
Changes in the market value of assets
30 June 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Market value of assets at beginning of 1,204.0 1,127.0 1,127.0
the period / year
Interest income on scheme assets 7.8 11.1 22.1
Contributions from employer 12.5 12.4 25.1
Contributions from scheme members 0.1 0.1 0.3
Benefits paid (30.9) (36.4) (66.5)
Administration expenses paid (0.6) (1.4) (2.2)
Re-measurement gains on scheme assets 26.2 30.5 98.2
----------- ----------- -----------
Market value of assets at end of the 1,219.1 1,143.3 1,204.0
period / year ====== ====== ======
Changes in the actuarial value of liabilities
30 June 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
£m £m £m
Actuarial value of liabilities at 1,308.9 1,230.9 1,230.9
beginning of the period / year
Interest expense on pension liability 8.4 12.1 23.9
Current service cost 3.0 2.8 5.4
Curtailment costs 0.1 0.1 0.2
Past service credit - (1.6) (1.3)
Contributions from scheme members 0.1 0.1 0.3
Benefits paid (30.9) (36.4) (66.5)
Effects of changes in demographic - 5.1
assumptions -
Effect of changes in financial (61.2) 105.8 136.1
assumptions
Effect of experience adjustments - - (25.2)
----------- ----------- -----------
Actuarial value of liabilities at end of 1,228.4 1,313.8 1,308.9
the period / year ====== ====== ======
9. Related Party Transactions
The immediate parent undertaking of the Group and the ultimate parent company
in the UK is ESBNI Limited (ESBNI). The ultimate parent undertaking and
controlling party of the Group and the parent of the smallest and largest group
of which NIE Networks is a member and for which group financial statements are
prepared is Electricity Supply Board (ESB), a statutory corporation established
under the Electricity (Supply) Act 1927 domiciled in the Republic of Ireland.
A copy of ESB's financial statements is available from ESB's registered office
at Two Gateway, East Wall Road, Dublin 3, DOA A995.
Principal subsidiaries of ESB are related parties of the Group. Transactions
between the Group and related parties are disclosed below:
Amounts Amounts
Revenue Charges owed by owed to
from from related related
Interest related related party at party at
charges party party period end period end
Unaudited Unaudited Unaudited Unaudited Unaudited
£m £m £m £m £m
Six months ended
30 June 2021
ESB (0.2) - - - (0.1)
ESB subsidiaries - 22.9 (1.3) 3.1 (3.2)
----------- ----------- ----------- ----------- -----------
(0.2) 22.9 (1.3) 3.1 (3.3)
====== ====== ====== ====== ======
Six months ended
30 June 2020
ESB (0.2) - - - (0.1)
ESB subsidiaries - 17.4 (1.3) 2.8 (2.9)
----------- ----------- ----------- ----------- -----------
(0.2) 17.4 (1.3) 2.8 (3.0)
====== ====== ====== ====== ======
During the period ended 30 June 2021, the Group contributed £16.3m (2020 - £
16.0m) to the Northern Ireland Electricity Pension Scheme in respect of Focus
and Options employer contributions, including an element of deficit repair
contributions in respect of Focus.
10. Contingent Liabilities
In the normal course of business, the Group has contingent liabilities arising
from claims made by third parties and employees. Provision for a liability is
made when the directors believe that it is probable that an outflow of funds
will be required to settle the obligation where it arises from an event prior
to the period end.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the directors, named on page 1, confirms that to the best of their
knowledge:
(i) the condensed interim financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting" and give a true and fair
view of the assets, liabilities, financial position and loss of the Group for
the six months to 30 June 2021; and
(ii) the interim management report includes a fair review of the information
required by DTR 4.2.7R of the Disclosure and Transparency Rules.
By order of the Board
Paul Stapleton
Director
16 September 2021
END
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