TIDM35LK TIDM46RT
Northern Ireland Electricity Networks Limited's Report and Accounts for the
year ended 31 December 2017 have been submitted to the National Storage
Mechanism and will shortly be available for inspection at: http://
www.morningstar.co.uk/uk/NSM and are available on Northern Ireland Electricity
Networks Limited's website at:
http://www.nienetworks.co.uk/about-us/investor-relations
Contact for enquiries:
NIE Networks Corporate Communications - telephone 0845 300 3356
AT A GLANCE
- Continued focus on the health and safety of staff, contractors and the
general public
- 7% increase in network investment reflecting ramp up in work to deliver the
physical outputs required under the RP5 price control
- Renewable generation connected to the electricity network reached over 1.4GW
with 0.4GW connected during 2017
- Continued focus on customer service through the "Think Customer" initiative
with a 4% reduction in customer complaints
- Significant progress in preparing for full connections market opening on 28
March 2018
- Replacement of 101,000 meters under the meter recertification programme
- Operating profit of GBP94.9m and profit after tax of GBP44.7m
- Over GBP180m contributed to the Northern Ireland economy through employment of
circa 1,300 people and payments to local businesses and authorities
- Acceptance and commencement of the RP6 price control
GROUP STRATEGIC REPORT
The directors present their annual report and accounts for Northern Ireland
Electricity Networks Limited (NIE Networks or the Company) and its subsidiary
undertakings (the Group) for the year ended 31 December 2017.
The Board of directors of the Group who served during the year are outlined in
the Group Directors' Report on page 22.
NIE Networks' subsidiary companies are NIE Networks Services Limited and NIE
Finance PLC.
The Group accounts have been prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC)
interpretations as adopted by the European Union and with the Companies Act
2006 applicable to companies reporting under IFRS.
The Company accounts 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) 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 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 market
settlement.
NIE Networks is a regulated company and its business activities are regulated
by the Northern Ireland Authority for Utility Regulation (the Utility
Regulator). Under its Transmission and Distribution licences NIE Networks is
required to develop, maintain and, in the case of the distribution system,
operate an efficient, co-ordinated and economical system of:
- electricity transmission - the bulk transfer of electricity across the high
voltage network of overhead lines, underground cables and associated equipment
mainly operating at 275kV and 110kV; and
- electricity distribution - the transfer of electricity from the high voltage
transmission network and its delivery to consumers across a network of overhead
lines and underground cables operating at 33kV, 11kV and lower voltages.
NIE Networks manages the assets of the transmission and distribution networks
on an integrated basis. The transmission and distribution networks comprise a
number of interconnected networks of overhead lines and underground cables
which are used for the transfer of electricity to around 870,000 consumers via
a number of substations. This network sits between electricity generators and
consumers. NIE Networks does not buy or sell electricity, or send any bills to
electricity consumers (apart from charges for new connections to the network).
During the year an estimated 7.7TWh of electricity was transmitted and
distributed to consumers in Northern Ireland. There are 2,200km of
transmission lines, 47,000km of distribution lines and over 300 major
substations. NIE Networks' transmission system is connected to that of the RoI
through a 275kV interconnector and to that in Scotland via the Moyle
Interconnector. There are also two standby 110kV connections to the RoI.
In addition to its core network activities, NIE Networks provides meters to
consumers and takes meter readings. It is responsible for managing market
registration processes and the provision and maintenance of accurate data to
support the operation of the competitive retail and wholesale electricity
markets.
Market Registration and Change of Supplier processes facilitate consumers
switching suppliers in a timely manner in accordance with retail market rules
and aggregated data is provided to the Single Electricity Market Operator on a
daily basis for settlement of the wholesale market.
The Group also provides connections to the network for customers requiring a
new electricity supply (demand connections) and those seeking to generate
electricity (generation connections).
The market for greater than 5MW distribution connections has been open to
competition since May 2016. For 'contestable' elements of these connections,
customers can choose whether to accept a quotation from NIE Networks or to
engage an accredited Independent Connection Provider (ICP) to construct the
connection.
NIE Networks is completing its preparations for market opening of distribution
connections lower than 5MW on 28 March 2018.
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 and 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 the Statement of Connection Charges, which is revised at least annually.
Price controls
NIE Networks is subject to periodic reviews in respect of the prices it may
charge for use of the transmission and distribution networks in Northern
Ireland.
The price control in respect of the fifth regulatory period since privatisation
(RP5) applied for the period from 1 April 2012 to 30 September 2017. 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 GBP697 million for capital
investment and GBP456 million in respect of operating costs (2017-18 prices). The
allowances in respect of major transmission load growth projects will be
considered on a case-by-case basis, for example, the North-South
Interconnector. The allowances will be adjusted to reflect 50% of the
difference between the allowances and actual costs incurred. NIE Networks'
Connections business is largely outside the scope of the RP6 price control
following the introduction of contestability as referred to above.
The RP6 baseline rate of return of 3.18% plus inflation (weighted average cost
of capital based on pre-tax cost of debt and post-tax cost of equity) will be
adjusted to reflect the cost of new debt raised in RP6. This mechanism is new
for RP6, departing from the former approach of setting an ex-ante allowance,
and will align the cost of debt component of the return more closely with
prevailing market conditions at the time of drawdown of new debt.
Strategy
NIE Networks' strategic direction is determined primarily by obligations under
its Transmission and Distribution Licences. Its vision is to be a
high-performing electricity networks company that makes a positive contribution
to the local community. Its mission is to distribute electricity in a safe,
reliable, efficient and environmentally sound manner. The Group works to its
stated values concerning safety, employees, customer service, innovation,
integrity, efficiency and community.
NIE Networks' strategic objectives are:
- the health and safety of employees, contractors and the general public;
- continued investment in Northern Ireland's electricity infrastructure to:
replace worn assets; facilitate increased customer demand; strengthen the
reliability of the rural network in severe weather events; and facilitate the
connection of further renewable generation;
- performance through people by ensuring a working environment that maximises
the potential of employees;
- value growth incorporating a competitive and transparent cost base;
- maintaining a strong investment grade credit rating;
- strong customer service performance; and
- effective stakeholder engagement.
NIE Networks seeks to discharge its statutory and regulatory obligations in a
manner which meets these strategic objectives.
Financial Review
Financial Key Performance Indicators (KPIs)
Operating Profit
The Group's operating profit as reported in the accounts was GBP94.9m for the
year to 31 December 2017, an increase of GBP3.2m on the previous year. Group
revenue of GBP261.1m reflects an increase of GBP14.3m from the previous year
primarily due to a change of accounting estimate in respect of revenue from
customer connections, together with the phasing of RP5 tariffs. Group
operating costs of GBP166.2m increased by GBP11.1m on the previous year primarily
due to higher depreciation charges reflecting the continual investment in the
network, together with higher employee costs owing to increased current service
costs for defined benefit pensions.
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. The ratio, as shown in note 6 to the
accounts, at 3.3 times for the year (2016 - 3.2 times) is above the target
level of 3.0 times and confirms the Group's continuing financial strength.
Net Assets
The Group's net assets of GBP327.4m increased by GBP33.5m on the previous year
largely reflecting profit after tax of GBP44.7m together with re-measurement
gains (net of tax) of GBP6.8m on net pension scheme liabilities partly offset by
a dividend paid to the shareholder during the year of GBP18.0m.
Cash Flow
Cash and cash equivalents increased by GBP1.9m during the year reflecting net
cash flows from operating activities of GBP132.8m together with a drawdown on the
Group's Revolving Credit Facility (RCF) of GBP94.9m, partly offset by investing
activity out flows of GBP207.8m and a dividend paid of GBP18.0m. Cash flows from
operating activities of GBP132.8m are GBP53.6m lower than the previous year largely
reflecting a reduction in trade and other payables as a result of payments on
account decreasing as the pipeline of generation connections nears completion.
Financial Risk Management
The main financial risks faced by the Group relate to liquidity, funding,
investment and financial risk, including interest rate and counterparty credit
risk. The Group's objective is to manage financial risks at optimum cost. The
Group employs a continuous forecasting and monitoring process to manage risk.
Capital Management and Liquidity Risk
The Group is financed through a combination of equity and debt finance.
Details in respect of the Group's equity are shown in the Statement of Changes
in Equity and in note 22 to the accounts. The Group's debt finance at the year
end comprised bonds of GBP175.0m and GBP400.0m (GBP174.8m and GBP398.5m respectively
net of issue costs) which are due to mature in September 2018 and June 2026
respectively and GBP114.0m drawn down from a GBP150.0m RCF from ESB which is due to
mature in September 2018.
The Group's liquidity risk is assessed through the preparation of cash flow
forecasts. The Group's policy is to have sufficient funds in place to meet
funding requirements for the next 12 - 18 months. In light of the maturity of
the GBP175.0m bond and GBP150.0m RCF in September 2018, the Group is currently
assessing longer term financing options in conjunction with its parent, ESB.
The Group is satisfied that it will have access to funds in advance of the
maturity of existing facilities as it has secured an option to extend the
existing GBP150.0m RCF from ESB to GBP400.0m with maturity deferred until March
2019.
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 investment grade credit rating from Standard & Poor's
during the year.
Interest Rate Risk
The GBP175.0m and GBP400.0m bonds are denominated in sterling and carry fixed
interest rates of 6.875% and 6.375% respectively. The RCF is denominated in
sterling and carries a floating interest rate based on LIBOR.
Given that 83% of the Group's total borrowings carry a fixed interest rate, the
Group does not consider that it is significantly exposed to interest rate risk.
Since December 2010, NIE Networks has held a GBP550m portfolio of RPI linked
interest rate swaps. The RPI swaps were put in place by the Viridian Group (the
Group's previous parent undertaking) in 2006 to better match NIE Networks' debt
and related interest payments with its inflation-linked regulated assets and
associated revenue. The swaps are considered to be economic hedges for NIE
Networks' regulated revenue and asset base. As part of the acquisition of NIE
Networks by ESB in 2010, the swaps were novated to NIE Networks.
Following a restructuring in 2014 the swaps have a mandatory break period in
2022. At the same time that the restructuring took effect, and in order to
maintain the back to back matching put in place with ESBNI Limited (ESBNI) in
2011, 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 accounts of the Company and
that any risk to financial exposure is borne by ESBNI. Further details of the
swaps, including fair values, are disclosed in note 17 to the accounts.
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 2017 2016
GBPm GBPm
Cash and cash equivalents 11.2 9.3
Trade and other receivables (excluding prepayments and 55.2 58.4
accrued income)
Other financial assets - current and non-current 579.5 598.0
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645.9 665.7
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The Group's credit risk in respect of trade receivables from licensed
electricity suppliers is mitigated by appropriate policies with security
received in the form of cash deposits, letters of credit or parent company
guarantees. With the exception of certain public bodies, payments in relation
to new connections or alterations are received in advance of the work being
carried out. Payments received on account are disclosed in note 15 to the
accounts.
Other financial assets comprise RPI linked interest rate swap arrangements
entered into with ESBNI as outlined above. The counterparty risk from ESBNI is
not considered significant given ESB's investment in the Group and ESB's strong
investment grade credit rating.
The Group may be exposed to credit-related loss in the event of non-performance
by bank counterparties. This risk is managed through conducting business only
with approved counterparties which meet the criteria outlined in the Group's
treasury policy.
Further information on financial instruments is set out in the notes to the
accounts.
Going Concern
The Group's business activities, together with the principal risks and
uncertainties likely to affect its future performance, are described in this
Group Strategic Report. As noted in the section on capital management and
liquidity risk, the Group is financed through a combination of equity and debt
finance with elements of existing debt finance expected to mature in September
2018.
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 accounts and consideration of the
option to extend and increase the existing RCF from ESB, the directors have a
reasonable expectation that the Group will have adequate financial resources
for the 12-month period. Accordingly the directors continue to adopt the going
concern basis in preparing the annual report and accounts.
Operational Review
Operational KPIs
Throughout this Operational Review reference is made to the KPIs used to
measure progress towards achieving operational objectives. Performance during
the year is summarised below:
KPIs - Year to 31 December 2017 2016
Health & Safety:
Lost time incidents (number of) 1 1
Network Performance:
Customer Minutes Lost (CML)
- Planned CML (minutes) 62 65
- Fault CML (minutes) 57 56
Customer Service:
Overall standards - defaults (number of) None None
Guaranteed standards - defaults (number of) 1 None
Stage 2 complaints to the Consumer Council (number 2 None *
of)
Connections:
Customer demand connections completed (number of) 5,557 5,984
Renewable generation connected (MW):
- Small scale (< 5MW) 71 74
- Large scale (>5MW) 287 160
Sustainability:
Waste recycling rate (%) 98 98
*Subsequent to publication of the 2016 Annual Report and Accounts, the Company
successfully appealed one Stage 2 complaint therefore one complaint disclosed
in the prior year has been restated to 'None'
Health & Safety
Ensuring the health, safety and wellbeing 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. 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 OHSAS 18001 standard
and based on best practice guidance from the Health and Safety Executive for
Northern Ireland (HSENI) and the Institute of Directors. NIE Networks
continues to engage with various organisations including the HSENI, the NI
Utilities Safety Group, the NI Authority for Roads and Utilities Committee, the
NI Environment Agency and various Energy Networks Association (ENA) health and
safety committees to share information and improve safety performance and
learning.
The target for lost time incidents continues to be set at zero: there was one
incident during the year (2016 - one) caused by the failure of a mobile
elevated work platform which resulted in lost working time for an employee.
Safety Engineers are aligned with organisational structures on a 'Business
Partner' relationship which facilitates integration of skills and allows
influence and support. During 2017 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 improving safety performance. The quality of reports continued to improve
with approximately 58% of incidents classed as "good catch". 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;
- formalisation of all incident investigation procedures with appropriate
monthly reporting;
- completion of process safety workshops examining maintenance and
communication processes with recommendations to be implemented during 2018;
- three external audits were completed with zero non-conformances;
- continued programme of formal safety training for employees and contractors
including; safety seminars delivered to all staff to increase risk awareness
and perception, the publication of a monthly Safety newsletter and
comprehensive contractor management arrangements to ensure that contractors
adhere to the same safety rules and requirements as employees;
- 80 employees have attained certificates in Construction, Health and Safety
from the National Examination Board in Occupational Safety and Health (NEBOSH);
- site safety inspections continued throughout the year with over 4,000
inspections completed: the focus of the inspections was coaching and
encouraging good site behaviours while ensuring compliance was achieved. In
line with the Leadership and Engagement principles these were completed by a
range of staff including the Managing Director, Executive Committee members,
business unit managers and front-line managers;
- continued focus on identifying the causes of road traffic incidents including
post-incident driver appraisals and training where required; and
- a programme of health and wellbeing checks, health screening and lifestyle
advice was made available to all staff to coincide with "European Health &
Safety Week".
Updates on safety performance are provided to each Executive Committee and
Board meeting. This provides a level of regular assurance against objectives
agreed in the annual Health, Safety and Wellbeing Business Plan.
In recognition of its strong safety focus, NIE Networks won two awards at the
All-Ireland Occupational Safety Awards in 2017.
Network Performance and Customer Service
The provision of a safe, reliable and responsive electricity service, which
endeavours to meet the standards customers expect, and to deal with customers
professionally, courteously and respecting their individual needs, is key to
NIE Networks values.
Against the backdrop of the ramp up in the network investment programme during
2017, NIE Networks continued to manage outages required for essential
maintenance and development in order to minimise the occasions and length of
time that customers are off supply. Performance of the distribution network
is measured in its availability - the number of minutes lost per customer
(CML).
CML due to planned outages is the average number of minutes lost per customer
for the period through pre-arranged shutdowns for maintenance and construction:
the number of planned CML for 2017 was 62 minutes (2016 - 65 minutes). The
average number of CML due to faults on the distribution network in 2017 was 57
minutes, a slight increase on the previous year (2016 - 56 minutes) reflecting
less favourable weather conditions during the early part of the year.
The Utility Regulator sets overall and guaranteed standards of performance.
The majority apply to services provided, for example the timely restoration of
customers' supplies following an interruption, and prescribed times for
responding to customers' voltage complaints. All of the overall standards were
achieved. In 2017 there was one default against Guaranteed Standards of
Performance for customer service activities delivered (2016 - none). During
the year 91.5% (2016 - 90%) 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 all staff
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 three occasions (wind and gales in February, a
lightning storm in August, and Storm Ophelia in October) where adverse weather
caused damage to the network and affected thousands of customers supplies. 98%
of customers were restored within 24 hours.
The focus on reducing the number of avoidable complaints continued and the
number of complaints received from customers was 4% 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. During the year
two complaints were taken up by the CCNI on behalf of customers (Stage 2
Complaints to the CCNI) (2016 - none).
Across NIE Networks there has been a focus on reviewing customer service
activities in order to improve delivery in all areas. Identified improvements
will continue throughout 2018 as part of the Group's "Customer Service Action
Plan" including a multi-channel approach to communication with the NIE Networks
Facebook and Instagram channels launched during 2017.
Connections
NIE Networks' Connections business provides safe, secure, reliable and timely
electricity connections within Northern Ireland. The purpose of the
Connections business is to provide an excellent customer experience through the
connection process and to provide least cost technically acceptable
connections. Focus throughout 2017 remained on improving customer service
throughout the connections process and connecting as much generation capacity
as possible given the transmission capacity constraints on the network.
The majority of connections work undertaken relates to demand or load
connections, covering: the provision of new connections to homes, businesses,
farms and housing developments; altering existing connections including
replacing electrical equipment, installing new earthing or diverting equipment;
and increasing or decreasing the load of electrical equipment to cater for new
requirements. The number of applications during the year for these types of
"demand" connections was lower than the previous year. The number of demand
connections completed during the year was also lower than in 2016.
During 2017, the Connections business was restructured in response to evolving
customer needs with process and technology improvements, and increased customer
and stakeholder engagement. Average life cycle times from initial job
registration to connection to the network reduced by around 10%. This was
achieved at a time when significant volumes of generation connections were also
delivered.
Generation connections fall into three broad categories - large scale, small
scale and micro:
- Large scale generation (typically 5 - 40MW) mainly takes the form of
windfarms connected to the transmission and distribution networks;
- Small scale generation (typically 20kW - 5MW) takes the form of single wind
turbines, anaerobic digesters, photovoltaic and hydro installations connected
to the distribution network; and
- Micro-generation (4 - 12kW) is typically photovoltaic panels on domestic
rooftops and normally connects directly to customer premises.
Significant progress was made during 2017 in completing generation connections
in line with developers' requirements to meet accreditation deadlines for the
Northern Ireland Renewables Obligation (NIRO) scheme.
During 2017, 287MW of large scale generation was connected to the network,
taking the total large scale generation connected to the network to 1,105MW
(76% of total renewable generation capacity). A substantial proportion of
large scale generation (150MW) was connected through windfarm clusters at Gort,
Rasharkin and Tremoge. Windfarm clusters are 110kV connection nodes established
in the vicinity of a number of windfarm projects to enable more efficient
connection on a 'hub and spoke' basis with associated environmental, technical
and operational benefits. In overall terms they reduce the route length
required to connect all projects and enable additional capacity to be
connected.
During 2017, 71MW of small scale generation was connected to the network,
taking the total connected for small scale generation to 260MW (18% of total
renewable generation capacity). A further 37MW is committed and is at various
stages of the connection process. Micro-generation connections to the network
increased to 82MW (6% of total renewable generation capacity) including 3MW
added in 2017.
With over 1.4GW of renewable generation connected to the network by the end of
2017 and over 0.3GW of further capacity committed to be connected, the total
connected renewable capacity is expected to reach more than 1.7GW by 2020.
NIE Networks continues to seek ways to connect generators to the network and,
following consultation with the industry to assess how best to maximise the
uptake of remaining capacity on the transmission and distribution networks, a
decision paper was published jointly by NIE Networks and SONI during 2016.
Since then 185 generation connection offers totalling circa 250MW have been
issued.
Due to the lack of further capacity on the transmission and distribution
networks, NIE Networks initiated a joint consultation with SONI in January 2018
to develop alternative approaches to conventional investment. The aim of this
consultation is to bring forward solutions which are commercially viable for
developers and facilitate the adoption of SMART solutions to connect additional
renewable generation. The consultation closes in March 2018 with a decision
paper expected to be published before the end of June 2018.
The market for greater than 5MW distribution connections has been open to
competition since May 2016. For 'contestable' elements of these connections,
customers can choose whether to accept a quotation from NIE Networks or to
engage an accredited Independent Connection Provider (ICP) to construct the
connection.
NIE Networks is completing its preparations for market opening of distribution
connections lower than 5MW on 28 March 2018 which has involved significant IT
development, implementation of new processes and staff training to facilitate
competition.
Sustainability
NIE Networks' Environmental Policy commits to protecting the environment and
mitigating the impact of its activities upon the environment. The environmental
management system is accredited to ISO 14001 and transitioned to the new
version of the standard in 2017. It is designed to ensure compliance with all
relevant legislative and regulatory requirements and, where practical and
economically viable, NIE Networks seeks to develop standards in excess of such
requirements, introducing best practice solutions where possible. The annual
environmental business plan sets out detailed plans 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 2017 there was continued focus on each of the following areas:
- reducing the number of environmental incidents, with a 23% reduction
achieved, and NIE Networks' remediation process deemed 'best practice' by the
British Standards Institute;
- waste management targets with the recycling rate for all hazardous and
non-hazardous waste (excluding excavation from roads and footpaths, civil
projects excavation and asbestos removal) remaining high at 98% (2016 - 98%);
and
- improving the management of biodiversity working closely with Ulster
Wildlife.
In Business in the Community's 2017 Northern Ireland Environmental Benchmarking
Survey NIE Networks retained its top level Platinum Award, again performing
well in excess of the utility sector average.
Network Investment
During the year the level of capital investment undertaken increased to
successfully deliver the physical outputs specified in the RP5 network
investment plan. In 2017 NIE Networks invested a total of GBP108.9m (2016 - GBP
101.4m) (net of customer contributions) in transmission and distribution
networks, representing an increase of 7% on the prior year. The investment was
primarily in relation to the refurbishment and replacement of worn transmission
and distribution assets to maintain reliability of supply and ensure the safety
of the network.
During the year over 1,800km of transmission and distribution overhead lines
were refurbished as part of an on-going programme. Tree cutting is an
essential ongoing programme to maintain the networks' resilience to storm
conditions and during the year tree cutting was carried out along 8,600km of
overhead lines.
Other key investments during the year included:
- completion of refurbishment works at three 110/33kV substations;
- substantial completion of three 275/110kV substations (at Kells, Castlereagh
and Tandragee); and
- completion of a 50km 110kV circuit between Tamnamore and Omagh required to
reinforce the existing transmission overhead line infrastructure in Northern
Ireland to facilitate the flow of power from renewable generation in the west
to the demand centres in the east of Northern Ireland.
Market Operations
NIE Networks continued to achieve full compliance with its regulatory
obligations in respect of customer appointments for metering work. Each year
approximately three million visits to customer properties are made to take
meter readings and, in 2017, NIE Networks continued to meet its regulatory
standard to obtain actual meter readings from 99.5% of all customers once per
year, therefore ensuring that electricity consumption is calculated accurately
and minimising the number of estimated bills issued by electricity suppliers.
NIE Networks also has certain obligations under the Trading and Settlement Code
to provide aggregated meter data for the purposes of settlement of the
wholesale Single Electricity Market. NIE Networks continued to be fully
compliant with these obligations with no breaches of the Code since its
introduction in 2007.
A major programme to replace meters that have reached the end of their life
cycle continued during 2017 with NIE Networks replacing 101,000 meters during
the year in line with programme targets. This programme has involved the
replacement of circa 25% of customers' meters since it commenced in 2015.
People
NIE Networks' resourcing strategy is to use highly skilled insourced labour 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.
The organisation continues to face a number of demanding challenges.
Organisation management structures have continued to be streamlined creating
development opportunities for all levels of employees. The number of employees
at the end of 2017 was 1,273 (2016 - 1,277).
Against the backdrop of the RP6 price control determination and cost reduction
challenges due to market opening in NIE Networks' Connections business,
management considered a range of cost reduction initiatives including a
restructuring voluntary exit arrangement under which 61 employees left the
business during 2017.
On 5 February 2018, management tabled further cost reduction proposals as part
of a consultation with employee representatives which aims to reduce the number
of job roles by 90 across the Group (7% of the workforce) and align future pay
increases with RP6 allowances.
Training and Development
NIE Networks seeks to attract, develop and retain highly skilled people through
its apprenticeship, graduate, apprentice-to-graduate, scholarship and
sponsorship programmes. The Group's Technical Training Centre, which includes
Apprentice Training, continued to maintain its extremely high standards and
again achieved an "Outstanding" classification in its annual inspection by the
Education and Training Inspectorate. The Group's Technical Training Centre also
received accreditation from the Institution of Engineering and Technology (IET)
for its apprenticeship programme.
NIE Networks is committed to a working environment which enables employees to
realise their maximum potential and to be appropriately challenged and fully
engaged in the business, with opportunities for skills enhancement and personal
development. Human Resources policies are aligned with key business drivers
including: performance and productivity improvement; clearly defined values and
behaviours; a robust performance management process; and a strong commitment to
employee development.
A strong focus on development continued during the year with a high percentage
of employees involved in a variety of training and development programmes and
initiatives which included leadership skills programmes, formal qualifications,
role enhancement, role changes, team development initiatives, coaching and
mentoring.
NIE Networks continues to promote the professional development of its engineers
through the IET Professional Registration Scheme and proactively encourages and
supports more employees to become IET members and Chartered Engineers. During
2017 14 engineers and technicians achieved IET professional membership at
varying levels.
Equality and Diversity
NIE Networks is proactive in implementing and reviewing human resource policies
and procedures to ensure compliance with fair employment, sex discrimination,
equal pay, disability discrimination, race discrimination, sexual orientation
and age discrimination legislation. NIE Networks is committed to providing
equality of opportunity for all employees and job applicants with ongoing
monitoring to ensure that equality of opportunity is provided in all employment
practices. The Group uses outreach initiatives to actively seek female
applications in male dominated job roles.
Group policy is to provide people with disabilities equal opportunities for
employment, training and career development, having regard to aptitude and
ability. Any member of staff who becomes disabled during employment is given
assistance and re-training where possible.
Sickness Absence
The proactive management of absenteeism is to the mutual benefit of the
organisation and its employees. An employee health and wellbeing policy
covering stress management is in place, with specific policies on mental
health, alcohol and drug-related problems and non-smoking. External
occupational health and counselling services are available for all employees.
The Health and Wellbeing Forum and champions across the business rolled out
various initiatives during the year to provide additional guidance and support
to enable employees to proactively manage their own health and wellbeing.
Sickness absence during the year was 3.1%, an increase of 0.5% from the
previous year owing to long-term sickness absences.
Employee Engagement
NIE Networks won the 2017 UK Chartered Institute of Personnel and Development
Award for Employee Engagement Strategy in recognition of its efforts in
engaging with its employees. NIE Networks places considerable emphasis on
employee participation and engagement. The Employee Engagement Board ensures,
through local representatives of employee Focus Groups, that there is a strong
focus on continued engagement. Company wide employee forums focussing on the
areas of Health & Wellbeing, Digital Strategy, Innovation and Employee Voice
continue to grow.
Employee relations are positive and constructive. During 2017 the monthly
Employee Relations Forums, comprising management and trade union
representatives, have progressed a wide range of employee relations issues.
More formal meetings are held regularly between senior managers and
representatives of employees and their trade unions to discuss more complex
issues.
There is a formal induction programme for all new-starts including meeting with
senior management. During the year employees were kept informed of NIE
Networks' objectives, plans, financial and operational performance and their
effect on them as employees through the monthly newsletter, monthly team
briefings and via presentations by the Managing Director. A significant
portion of staff have performance bonus arrangements which are partly aligned
to the Group's financial and operational performance.
Investors in People
During 2017 NIE Networks was accredited with Gold level following assessment
against the Investors in People Sixth Generation Standard.
Looking Forward
Key priorities for 2018:
- ensuring the health and safety of employees, contractors and the general
public will continue to be the top priority: achieving a zero-harm work
environment through implementation of injury and accident-free initiatives;
- delivering the cost reduction plan against the backdrop of the RP6 price
control determination and market opening in customer connections;
- securing efficient financing to fund the RP6 programme;
- delivering the generation connections pipeline;
- delivering improved customer service through the continuing "Think Customer"
programme;
- opening the connections market to further competition with full market
opening on 28 March 2018;
- continued investment in employees to enhance NIE Networks' capability; and
- engaging effectively with key stakeholders.
Risk Management
Risk Management Framework
The Board has overall responsibility for risk management and internal control.
The Board ensures that the Group's risk exposure remains proportional to the
pursuit of its strategic objectives and longer term stakeholder value. It has
adopted a Risk Management Policy and Governance Framework to support its
oversight of risk throughout the Group.
The Board delegates responsibility for oversight of risk to the Audit & Risk
Committee in accordance with the Committee's Terms of Reference. The Audit &
Risk Committee retains overall responsibility for ensuring that enterprise
risks are properly identified, assessed, reported and controlled on behalf of
the Board in its consideration of overall risk appetite, risk tolerance and
risk strategy. As a regulated utility NIE Networks is prudent in its overall
management of the business and has a limited appetite for and tolerance of
risk.
The process of considering the Group's exposure to risk and the changes to key
risks has assisted the Board in its review of strategy and the operational
challenges faced by the Group.
NIE Networks' risk management framework provides clear policies, processes and
procedures to ensure a consistent approach to risk identification, evaluation
and management across the Group and includes appropriate structures to support
risk management and the formal assignment of risk responsibilities to
facilitate managing and reporting on individual risks.
The Risk Management Policy is reviewed annually by the Board and sets out the
high level principles and policy requirements that form the basis of risk
management within NIE Networks and also outlines the risk management roles and
responsibilities and the main organisational and procedural arrangements that
apply to support the effective management of risk. At Executive level, the
Risk Management Committee (RMC) oversees and directs risk management in
accordance with the approved policy. The RMC comprises a number of Executive
Committee members and senior managers and is chaired by the Finance Director.
The RMC considers risk assessments carried out by each business unit and the
risk status and mitigation strategies are reviewed biannually. The RMC reports
on its activities to the Executive Committee, Audit & Risk Committee and the
Board throughout the year. The internal audit function reports to the Audit &
Risk Committee, independent of management, and has provided independent
assurance to the Audit & Risk Committee on the adequacy and effectiveness of
NIE Networks' system of governance, risk management and control.
Principal Risks and Uncertainties
NIE Networks principal risks persisted from 2016 into 2017, although with some
movement on the relative ranking of risks and some changes to the key risk
drivers. The Board agreed the principal risks and the detailed risk plan
following consideration and recommendation by the Audit & Risk Committee. The
principal risks and uncertainties that affect the Group along with the main
mitigating strategies deployed are outlined on the following pages.
Risk & Risk Description Mitigating Strategies
HEALTH & SAFETY RISKS
Health & safety:
Exposure of employees, A comprehensive annual Health, Safety and Wellbeing
contractors and the general Business Plan approved annually by the NIE Networks
public to risk of injury and the Board which sets out detailed targets for the
associated potential liability management of health and safety. These targets are
and/or loss of reputation for NIE continually monitored as part of the Group's OHSAS
Networks. 18001 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 appointed a Compliance Manager for
licence obligations. the purpose of monitoring compliance with all
regulatory licence obligations and reporting to the
Utility Regulator on financial and other regulatory
matters.
FINANCIAL RISKS
Funding & liquidity:
Inability to secure adequate NIE Networks employs a continuous forecasting and
funding at appropriate cost for monitoring process to ensure adequate funding is
planned investments and secured.
maintaining NIE Networks' credit
metrics within Credit Rating
Agency investment grade targets.
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: "Focus" has been closed to new entrants since 1998.
Increase in the deficit costs or Since then new members have joined the money purchase
ongoing accrual costs in the section of the NIEPS ("Options").
defined benefit section of the
Northern Ireland Electricity The NIEPS trustees seek the advice of professional
Pension Scheme (NIEPS) ("Focus") investment managers regarding the scheme's
not covered by regulatory investments.
allowances.
The current deficit repair plan was implemented
following conclusion of the last actuarial review as
at 31 March 2014.
An actuarial review, based on the position as at 31
March 2017, is in progress and is expected to be
completed by June 2018.
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:
Significant loss of market share The Business Transformation Programme has delivered
arising from contestability in structure changes, process improvements and IT system
connections. enhancements underpinned by an excellent customer
service and a strong commercial focus to address the
challenges and opportunities associated with full
market opening.
OPERATIONAL RISKS
Networks infrastructure failure:
Widespread and prolonged failure The risk is minimised through ongoing assessment of
of the transmission or the network condition and development of asset
distribution network. management techniques to inform maintenance and
replacement strategies and priorities. NIE Networks'
asset management practices are certified to ISO
55001, the internationally recognised standard for
asset management.
The network is strengthened through appropriate
investment, a reliability-centred approach to
maintenance and a systematic overhead line
refurbishment and tree cutting programme. NIE
Networks' strategy is to continue to maintain and
develop a safe and secure network to meet market
demands.
Emergency response:
Failing to respond adequately System risk assessments are completed regularly and
following damage to the weather forecasts actively monitored daily.
electricity network from adverse
weather conditions. There is a comprehensive Emergency Plan and Storm
Action Plan in place, each reviewed and tested
regularly with emergency simulations carried out at
least annually. Duty incident teams provide cover
365 days a year with arrangements in place for access
to external utility resources if required.
IT failure:
Major failure of IT Regular review of IT systems and their resilience.
infrastructure or IT systems
arising from a successful cyber Ongoing monitoring of technical performance and
attack or non-malicious failure. reliability.
Disaster Recovery and failover arrangements
documented and tested regularly.
IT Security Forum responsible for policies and
procedures and staff awareness training and
communication.
Preparations well advanced and Governance structures
in place to ensure ongoing compliance with the
Network and Information Systems Directive.
Data loss:
Loss of data integrity or breach Data Protection Forum implements and monitors
of Data Protection Act. compliance with data protection policy and
procedures.
Preparations well advanced and governance structures
have been established to ensure the Group will be
compliant with the new General Data Protection
Regulation.
Ongoing data protection training for all staff.
PEOPLE RISKS
Knowledge, skills and succession
management:
Inadequate resources with the
necessary knowledge and skills. NIE Networks' strategy is to attract, recruit and
develop 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. People development is a key priority for the Group
with continued investment in staff training, skills
development and on-going performance improvement.
Focused management development programmes are in
place to maximise the potential of staff and ensure
adequate succession planning.
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 2017 and agreed by the Board.
Business Continuity
NIE Networks is responsible for the provision of critical infrastructure and
disruptions to certain services and operations are potentially damaging to the
economy, to society and to NIE Networks' business. The Group has in place a
robust set of business continuity plans and processes to ensure that our
responses are well managed and executed. The exercising and testing of these
plans is key to ensuring NIE Networks' preparedness.
On behalf of the Board
Nicholas Tarrant
Managing Director
Northern Ireland Electricity Networks Limited
Registered Office:
120 Malone Road
Belfast BT9 5HT
Registered Number: NI026041
Date: 15 March 2018
CORPORATE SOCIAL RESPONSIBILITY
NIE Networks provides a vital service to every home, farm and business in
Northern Ireland as part of its day-to-day work in delivering electricity
supplies. Through its mainstream business activities and various specific
initiatives the Group seeks to make a positive impact on the communities in
which it operates. Details of health and safety management, employment
policies and initiatives and sustainability performance during 2017 can be
found in the Operational Review on pages 8 to 14. Initiatives undertaken
during the year to support NIE Networks' principal Corporate Social
Responsibility (CSR) themes and priorities are described below.
During the year NIE Networks employees attended around 160 events to promote
safety around electricity and provide skills, careers advice and guidance.
Safety
Electricity provides a vital service for all people in Northern Ireland,
however it is dangerous and NIE Networks aims to continually heighten and
improve the awareness of those working in the close vicinity of the electricity
network to stay safe and to teach children how to identify electricity
equipment and to avoid it. A major ongoing safety programme involves employees
at all levels and is developed to address new safety concerns such as drones or
other objects which come into close proximity with the electricity network.
During 2017, around 28,000 farmers and contractors received safety advice from
NIE Networks at farm safety events. Safety presentations were made to
contractors in the transport industry and to other utilities and their
contractors.
NIE Networks' "Kidzsafe" programme continued with over 10,000 schoolchildren
participating in the interactive programme to educate and raise awareness of
the dangers of the electricity network in an effort to reduce incidences of
electricity-related injuries. NIE Networks continued to utilise the dedicated
safety training facility for children and young people, known as RADAR (Risk
Avoidance and Danger Awareness Resource).
The Group continued to work with the Police Service of Northern Ireland (PSNI),
the network operators in Great Britain and other utilities in Northern Ireland
to address the dangerous issue of metal theft. Thieves targeting electrical
installations endanger themselves, employees and the wider public.
NIE Networks' safety advice is supplemented by a proactive media campaign,
social media campaign and information available on its website at
www.nienetworks.co.uk/Safety.
Customer Care
NIE Networks aims to deliver electricity safely and reliably to customers and
to respond quickly and efficiently should a power cut occur unexpectedly. A
series of presentations were made to key customer and government bodies and
elected representatives on how NIE Networks repairs network faults and the
Group's investment plans during the RP6 price control.
Arrangements are in place with ESB Networks, Northern Ireland Water, BT and
Phoenix Natural Gas to provide mutual support, for example by sharing resources
and equipment, so that customers' utility supplies can be restored more quickly
during periods of severe weather or other emergency situations. In addition,
together with the councils, emergency planners, health trusts and other
organisations, NIE Networks has arrangements in place to respond to wider
community needs in the event of customers being without electricity for an
extended period of time due to severe weather or an emergency situation.
NIE Networks' critical care information service is a priority service for 8,000
customers who rely on electricity for their healthcare needs with customers or
their carers receiving prioritised information on faults or planned work on the
network.
The Group works with electricity suppliers to offer a Password scheme to
reassure customers that the employee visiting their home or premises is a
genuine caller, whereby NIE Networks delivers a pre-agreed password to the
customer before being allowed to enter a property.
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, coupled with the need to invest heavily in
network renewal and investment projects, the electricity industry faces a
significant skills shortage in the future. NIE Networks therefore continues to
engage proactively with students to consider engineering as a career, through a
wide range of educational outreach initiatives including:
- main sponsor of "Skills NI", a two day careers event for 14-19 year olds with
around 75 exhibitors and connecting around 8,000 young people with job, career
and skills opportunities across Northern Ireland;
- links with over 80 schools, most of the further educational colleges and the
two universities to promote opportunities from taking Science, Technology,
Engineering and Maths (STEM) subjects;
- offering 4 further Electrical & Electronic Engineering scholarships at
Queen's University Belfast taking the total number of NIE Networks' scholarship
students to 25;
- work experience for GCSE and A-Level students studying STEM subjects and
sponsoring, mentoring and the facilitation of a four week research and
development experience for two A-Level students via the Nuffield Bursary as
well as bursaries for two Arkwright students;
- sponsoring the IET Northern Ireland First Lego League, a global robotics
challenge, supporting participating schools with engineering mentoring and
providing a bursary for the winning team to represent Northern Ireland in the
UK First Lego League final;`
- engineering mentoring to school children participating in the Sentinus "SMART
Energy", "Team R&D" and "Engineering Futures" programmes;
- providing advice and assistance at numerous interview skills and assessment
sessions in conjunction with eye4education;
- working with Malone College in supporting young people via the delivery of
site visits and skill development workshops; and
- providing financial support to "Little Women NI" for a workshop encouraging
young girls to develop skills in confidence, communication, creativity,
leadership and teambuilding.
Community Initiatives
NIE Networks continues to be a member of Business in the Community (BiTC).
Throughout 2017 employees served on the boards of 18 local voluntary, community
and social enterprise organisations through BiTC's "Business on Board"
programme. NIE Networks also participates in BiTC's "PLACE" Leadership Team,
which seeks opportunities to promote community regeneration through employee
volunteering.
The Group continues to support the PSNI Quick Check Scheme which encourages
homeowners and particularly the elderly and vulnerable to check the identity of
callers at their homes and provides a 24 hour telephone helpline.
Charitable Giving and Sponsorship
Charitable giving by employees is promoted through the NIE Networks Staff and
Pensioners Charity Fund, in addition to which the Group contributed GBP10,000
during the year. In 2017 the Charities Fund supported Autism projects,
including Adam's Camp and Autism NI, by donating GBP9,500.
NIE Networks is an active member of and provides financial support to the CBI,
the Chamber of Commerce, Women in Business, the Institute of Directors and the
Centre for Competiveness in Northern Ireland.
BOARD OF DIRECTORS
STEPHEN KINGON CBE was appointed independent non-executive Chairman of the
Board in March 2011. He is Chairman of the NI Centre for Competitiveness, and
Lagan Group (Holdings) Limited. He is Pro-Chancellor at Queen's University
Belfast and a non-executive director of Anderson Spratt (Holdings) Ltd, Balcas
Limited and Dale Farm Ltd. He was formerly Chairman of Invest Northern Ireland
and Managing Partner of PricewaterhouseCoopers in NI.
DAME ROTHA JOHNSTON DBE was appointed as an independent non-executive director
in March 2011. She is Chairperson of Northern Ireland Screen, the
Government-backed lead agency in Northern Ireland for the film, television and
digital content industry, a member of KPMG's Northern Ireland Advisory Board, a
member of Belfast Harbour Commissioners and a director of QUBIS Limited. In
the past she has been a BBC Trustee for Northern Ireland and Pro-Chancellor at
Queen's University Belfast. In 2016 she was awarded Dame Commander of the
Order of the British Empire for services to the Northern Ireland economy and
public service. Ms Johnston chairs the Audit & Risk Committee.
ALAN BRYCE was appointed as an independent non-executive director in January
2018. He is a non-executive director of Jersey Electricity plc and of Scottish
Water and Chair of the windfarm developer Viking Energy Shetland LLP. He is a
member of Ofgem's Network Innovation Competition Electricity Advisory Panel. 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
Infinis Energy plc and at Iberdrola USA. He is a Fellow of the Institution of
Engineering and Technology
RONNIE MERCER CBE was appointed as an independent non-executive director in
March 2011. He is a member of the University of Glasgow Court. He was
Chairman of Scottish Water from 2006 to 2015 and in 2013 was awarded the CBE
for his services to Scottish Water. He has extensive relevant experience and
knowledge of the energy sector as he formerly held senior executive positions
at Scottish Power including Group Director Infrastructure, Executive Vice
President Operations of the PacifiCorp subsidiary, Generation Director and
Managing Director of Southern Water. Mr Mercer retired from the Board on 3
March 2018.
NICHOLAS TARRANT, Managing Director, was appointed to the Board in December
2014. He joined ESB in 1993 where he has held a number of senior management
positions including Generation Manager with responsibility for ESB's 4,800MW
generation and lead manager on ESB's EUR200m Novus Modus Clean Tech Fund. He is
a chartered engineer at the Institute of Engineers of Ireland and holds an MSc
(Management) from Trinity College, Dublin.
PETER EWING, Deputy Managing Director and Director of Regulation and Market
Operations, was appointed to the Board in July 2011. He is Chairman of the NIE
Pension Scheme Board and is a non-executive director and Treasurer of Radius
Housing. He formerly held Finance Director positions at Viridian Group, NIE
and Moy Park Group. He is a Fellow of Chartered Accountants Ireland.
GROUP DIRECTORS' REPORT
The directors present their report and audited financial statements for
Northern Ireland Electricity Networks Limited (NIE Networks or the Company) and
its subsidiary undertakings (the Group).
Results and Dividends
The results for the year ended 31 December 2017 show a profit after tax of GBP
44.7m (2016 - GBP45.5m). During the year the Company paid a final dividend of GBP
18.0m (2016 - GBP16.0m). The business and financial review, together with future
business developments, are provided in the Group Strategic Report.
Corporate Governance
The Board believes that effective corporate governance is a fundamental aspect
of a well-run business and is committed to achieving the highest standards of
corporate governance, corporate responsibility and risk management in directing
and controlling the business.
NIE Networks' regulatory licences require it to establish, and at all times
maintain, full managerial and operational independence within the ESB Group.
Throughout 2017 the NIE Networks' Board comprised three independent
non-executive directors and two executive directors. Stephen Kingon CBE
chaired the Board. Dame Rotha Johnston DBE and Ronnie Mercer CBE were the
Board's other independent non-executive directors. Nicholas Tarrant, Managing
Director and Peter Ewing, Deputy Managing Director and Director of Regulation
and Market Operations are executive directors. Alan Bryce was appointed as an
independent non-executive director from 1 January 2018. Following seven years
of service Ronnie Mercer retired from the Board on 3 March 2018. The Board
expresses its gratitude to Ronnie Mercer for his significant contribution to
the Board and the Audit & Risk Committee over these years. Directors'
biographies are provided on page 21.
The Board has a formal schedule of matters specifically reserved to it
including:
- approval of the annual financial plan;
- approval of annual statutory, interim and regulatory accounts;
- approval of major capital expenditure;
- approval of major regulatory submissions and certain annual regulatory
reports;
- approval of key corporate policies;
- approval of the annual Health, Safety and Wellbeing Plan;
- review of financial and operational performance; and
- review of internal control and risk management.
During the year the Board conducted a review of its performance, and that of
the Audit & Risk Committee, in order to identify ways to improve
effectiveness.
The Board has overall responsibility for the long-term success and management
of the Company. The Board has delegated authority to the Executive Committee
of the Board, within pre-defined authority limits, to undertake much of the
day-to-day business and management and operation of NIE Networks. It meets
monthly and on other occasions as necessary and reports on its activities to
each Board meeting.
Membership of the Board, the Audit & Risk Committee and the Executive Committee
is outlined as follows:
Board of Directors
Stephen Kingon CBE (Chair)
Rotha Johnston DBE (Independent Non-Executive Director)
Ronnie Mercer CBE (Independent Non-Executive Director) (retired March 2018)
Alan Bryce (Independent Non-Executive Director) (appointed January 2018)
Nicholas Tarrant (Managing Director)
Peter Ewing (Deputy MD and Director of Regulation and Market Operations)
Audit & Risk Committee
Rotha Johnston DBE (Chair)
Stephen Kingon CBE
Ronnie Mercer CBE (retired March 2018)
Alan Bryce (appointed January 2018)
Executive Committee
Nicholas Tarrant, Managing Director (Chair)
Peter Ewing, Deputy MD and Director of Regulation and Market Operations
Con Feeney, Network Performance & Safety Director
Roger Henderson, Network Connections Director
Bob Sweeney, Network Construction Director
Eddie Byrne, Finance Director
Gordon Parkes, Human Resources Director
Audit & Risk Committee
The Audit & Risk Committee is a formally constituted committee of the Board
with responsibility for overseeing the Group's financial reporting process and
internal control and risk management systems.
The Audit & Risk Committee comprises the three independent non-executive
directors and is chaired by Rotha Johnston. The Board is satisfied that at
least one member of the Committee is competent in accounting and auditing. The
Committee had six meetings during the year.
The terms of reference sets out the duties of the Audit & Risk Committee. The
issues considered by the Committee during 2017, and up to the date of this
report, are outlined below:
Financial Reporting
- reviewed the annual, interim and regulatory accounts for NIE Networks and
annual accounts for NIE Finance PLC and NIE Networks Services Limited,
considering the appropriateness of accounting policies, whether the accounts
give a true and fair view, the appropriateness of the going concern assumption
and reviewing the significant issues and judgements; and
- reviewed various regulatory submissions.
Internal Control and Risk Management
- considered and approved the Risk Management Committee's work programme for
2017 and received regular updates on progress;
- considered key risks faced together with mitigating actions being taken and
their alignment to the risk tolerance levels agreed;
- reviewed and monitored the effectiveness of internal controls and the risk
management framework;
- considered an updated risk appetite assessment relating to the Company's
principal risks and other key business activities;
- assessment of 'High Impact Low Probability' risks;
- reviewed the IT Governance and Risk Framework;
- monitored preparations for compliance with the General Data Protection
Regulation from May 2018;
- reviewed the Company's statements for publication on the prevention of
slavery and human trafficking; and
- reviewed the operation of the Company's key ethics policies including the
adequacy of the arrangements in place for employees to raise concerns about
possible wrongdoing.
Internal Audit
- considered the annual report of the internal audit plan for 2016 and met with
the outgoing internal auditors, PwC, without the presence of management;
- in early 2017 approved the appointment of Deloitte as internal auditors of
the Company;
- reviewed and approved the 2017 internal audit plan and monitored progress
against this plan to assess the effectiveness of this function;
- reviewed reports detailing the results of internal audits and the timeliness
of the implementation of actions;
- reviewed and approved the 2018 internal audit plan; and
- the Chair had discussions with Deloitte without the presence of management.
External Audit
- oversaw the transition from EY to PwC as external auditors which completed in
mid 2017 following a competitive tendering process during 2016;
- reviewed reports from EY on the audit of the 2016 statutory accounts and
March 2017 regulatory accounts and on EY's independence, and met with EY
without the presence of management;
- considered PwC's review of the interim accounts;
- reviewed and challenged the proposed external audit plan for the 2017
statutory accounts to ensure that PwC had identified all key risks and
developed robust audit procedures; and
- reviewed the report from PwC on its audit of the 2017 statutory accounts and
its comments on accounting, financial control and other audit issues.
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;
- the financial control framework reviewed in accordance with statutory and
regulatory obligations;
- a comprehensive set of policies and procedures relating to financial and
operational controls including health and safety, regulation, HR, asset
management, risk management and capital expenditure;
- a risk management framework including the maintenance of risk registers and
ongoing monitoring of key risks and mitigating actions;
- appropriately qualified and experienced personnel;
- governance team responsible for key controls testing;
- key managers formally evaluating the satisfactory and effective operation of
financial and operational controls;
- internal auditors testing management's implementation of their
recommendations following audit reviews, to include IT audit reviews of system
access controls;
- external auditors providing advice on specific accounting matters; and
- a confidential helpline service to provide staff with a confidential, and if
required, anonymous means to report fraud or ethical concerns.
The Board, supported by the Audit & Risk Committee, has reviewed the
effectiveness of the system of internal control.
Directors' Insurance
Insurance in respect of directors' and officers' liability is maintained by the
Company's ultimate parent, ESB.
Disclosure of Information to the Auditors
So far as each person who was a director at the date of approving this report
is aware, there is no relevant audit information, being information needed by
the auditors in connection with preparing their report, of which the auditors
are unaware. Having made enquiries of fellow directors and the Group's
auditors, each director has taken all the steps that he/she is obliged to take
as a director in order to make himself/herself aware of any relevant audit
information and to establish that the auditors are aware of that information.
Appointment of Auditors
Following the Board's appointment of PricewaterhouseCoopers LLP (PwC) as
external auditors of the Company and Group in July 2017, PwC have indicated
their willingness to continue in office and a resolution that they be
re-appointed will be proposed to the shareholder during the period for
appointing auditors.
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 (2016 - GBP
nil).
Group Strategic Report
The following information required in the Group Directors' Report has been
included in the Group Strategic Report:
- an indication of future developments in the business (see pages 4 - 14);
- the Group's objectives and policies for financial risk management (including
liquidity risk and credit risk) (see pages 6 - 8);
- a statement on the policy for disabled employees (see page 13);
- arrangements for employees to participate in the affairs of the Group (see
pages 13 - 14); and
- an indication of activities in the Group in the field of research and
development (see page 11).
Directors' Responsibilities Statement
The directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group financial
statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Company financial statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure
Framework", and applicable law).
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the Group and
Company for that period. In preparing the financial statements, the directors
are required to:
- select suitable accounting policies and then apply them consistently;
- state whether applicable IFRS as adopted by the European Union have been
followed for the Group financial statements and United Kingdom Accounting
Standards, comprising FRS 101, have been followed for the Company financial
statements, subject to any material departures disclosed and explained in the
financial statements;
- make judgements and accounting estimates that are reasonable and prudent; and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and Company will continue in business.
The directors are 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 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 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
Nicholas Tarrant
Managing Director
Northern Ireland Electricity Networks Limited
Registered Office:
120 Malone Road
Belfast BT9 5HT
Registered Number: NI026041
15 March 2018
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 2017 and of the group's profit and cash flows for the year then ended;
- the group financial statements have been properly prepared in accordance with
IFRSs as adopted by the European Union;
- the company financial statements have been properly prepared in accordance
with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and
applicable law); and
- the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and
Accounts (the "Annual Report"), which comprise: the group and parent company
Balance sheets as at 31 December 2017; the Group income statement and group and
company Statements 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 accounts, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the Audit & Risk Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are
further described in the Auditors' responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC's Ethical Standard, as applicable to listed public
interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by the FRC's Ethical Standard were not provided to the group or the
company.
Other than those disclosed in note 4 to the financial statements, we have
provided no non-audit services to the group or the company in the period from 1
January 2017 to 31 December 2017.
Our audit approach
Context
This was the first year of our appointment with Northern Ireland Electricity
Networks Limited (NIE Networks).
NIE Networks continues to operate against a backdrop of regulatory changes
including transition onto the RP6 price control towards the end of the
financial year.
Materiality
Overall group materiality: GBP2,650,000, based on 5% of profit before tax.
Overall company materiality: GBP2,550,000, based on 5% of profit before tax.
Audit scope
We performed full scope audit over financially significant components (Northern
Ireland Electricity Networks Limited, NIE Finance PLC and NIE Networks Services
Limited).
Key audit matters
Accounting estimates - unbilled debt.
SAP configuration and access control
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. 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.
We gained an understanding of the legal and regulatory framework applicable to
the group and the industry in which it operates, and considered the risk of
acts by the group which were contrary to applicable laws and regulations,
including fraud. We designed audit procedures at group and significant
component level to respond to the risk, recognising that 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. We focused on laws and regulations that could give rise to a
material misstatement in the group and company financial statements, including,
but not limited to, the Companies Act 2006, the Listing Rules, the requirements
of the Northern Ireland Utility Regulator. Our tests included, but were not
limited to, review of the financial statement disclosures to underlying
supporting documentation, review of correspondence with and reports to the
regulators, review of correspondence with legal advisors, enquiries of
management, review of significant component auditors' work and review of
internal audit reports in so far as they related to the financial statements.
There are inherent limitations in the audit procedures described above and the
further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we would
become aware of it.
We did not identify any key audit matters relating to irregularities, including
fraud. As in all of our audits we also addressed the risk of management
override of internal controls, including testing journals and evaluating
whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors' professional
judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the auditors,
including those which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. This is not a complete list of all
risks identified by our audit.
Key audit matter How our audit addressed the key audit
matter
Accounting estimates - unbilled debt
Unbilled revenue is based on an estimation We understood and tested the processes and
in respect of consumption derived using internal controls which NIE Networks has in
historical data and detailed assumptions. place for the estimation of unbilled
Estimation uncertainty and the complexity revenue.
of calculations give rise to heightened We performed testing over the systems that
misstatement risk and are therefore a focus support unbilled revenue to include
of our audit work. agreement of volume and pricing data
This key audit matter is applicable to the between the billing system and the unbilled
Group and Company. model, the appropriateness of underlying
assumptions (and their consistency), and
consideration of the outcome of prior
period estimates.
Our specialist data team provided support
in the assessment and testing of this
model.
We concluded that unbilled revenue was
appropriately stated.
SAP configuration and access control
NIE Networks utilise a number of complex IT We deployed a diagnostic tool on the core
systems to support financial reporting financial system in order to ensure
processes. Appropriate access controls and configurations and access levels were
system configurations contribute to appropriate. Some accesses and
mitigating the risk of potential fraud or configurations were not in line with good
errors. The core financial system is practice, however we were further able to
mature with no underlying changes in interrogate the system to ensure the
programmes during the year. However, due integrity of underlying data in key areas
to the complexity of the system, a change of audit reliance.
in an outsourced third party IT support This included confirmation of:
provider, and our appointment as first year - the operation of automated controls;
auditor, additional audit focus was given - the design of reports having not been
to this area. modified in the period (including testing
This key audit matter is applicable to the over completeness and accuracy);
Group and Company. - relevant calculations operated in the
period;
- sensitive access/ segregation of duty
controls operated in the period;
- the relevant interfaces being tested in
the period; and
- the appropriateness of the journal
testing criteria in place.
All areas of concern were mitigated as a
result of the testing performed.
NIE Networks have introduced a number of
improvements to strengthen the control
environment in this area. This includes
the development of detective controls to
flag any unexpected changes in the
systems.
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.
This was the first year of appointment of PwC. As part of our procedures to
prepare as incoming auditor and enable the development of our Audit Strategy,
as well as meeting with management, we attended Audit & Risk Committee meetings
throughout the year, reviewed our predecessor's working papers, engaged with
Internal Audit and performed interim review work.
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.
The Northern Ireland Electricity Networks Limited Group comprises of Northern
Ireland Electricity Networks Limited, NIE Finance PLC and NIE Networks Services
Limited. All companies are financially significant to the group and therefore
required an audit of their complete financial information.
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
looked at where the directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all of our
audits we also addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group financial statements Company financial statements
Overall materiality GBP2,650,000 GBP2,550,000
How we determined it 5% of profit before tax. 5% of profit before tax.
Rationale for Based on the benchmarks used in We believe that profit before
benchmark applied the annual report, profit before tax is the primary measure used
tax is the primary measure used by the shareholders in assessing
by the shareholders in assessing the performance of the entity,
the performance of the group, and is a generally accepted
and is a generally accepted auditing benchmark. The
auditing benchmark. benchmark was adjusted to comply
with ISA (UK) 600 which requires
component materiality to be
lower than overall group
materiality.
For each component in the scope of our group audit, we allocated a materiality
that is less than our overall group materiality. The range of materiality
allocated across components was between GBP93,980 and GBP2,550,000. Certain
components were audited to a local statutory audit materiality that was also
less than our overall group materiality.
We agreed with the Audit & Risk Committee that we would report to them
misstatements identified during our audit above GBP132,500 (Group and Company
audit) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to
which ISAs (UK) require us to report to you when:
- the directors' use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate; or
- the directors have not disclosed in the financial statements any identified
material uncertainties that may cast significant doubt about the group's and
company's ability to continue to adopt the going concern basis of accounting
for a period of at least twelve months from the date when the financial
statements are authorised for issue.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the group's and company's ability to
continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report
other than the financial statements and our auditors' report thereon. The
directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there
is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these
responsibilities.
With respect to the Group Strategic Report and Group Directors' Report, we also
considered whether the disclosures required by the UK Companies Act 2006 have
been included.
Based on the responsibilities described above and our work undertaken in the
course of the audit, ISAs (UK) require us also to report certain opinions and
matters as described below.
Group Strategic Report and Group Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Group Strategic Report and Group Directors' Report for
the year ended 31 December 2017 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 Group Strategic Report and Group Directors'
Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities set out
on page 26, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's and the company's ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the
group or the company or to cease operations, or have no realistic alternative
but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the
company's members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
- we have not received all the information and explanations we require for our
audit; or
- adequate accounting records have not been kept by the company, or returns
adequate for our audit have not been received from branches not visited by us;
or
- certain disclosures of directors' remuneration specified by law are not made;
or
- the company financial statements are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit & Risk Committee, we were appointed
by the Board on 17 October 2017 to audit the financial statements for the year
ended 31 December 2017 and subsequent financial periods. This is therefore our
first year of uninterrupted engagement.
Kevin MacAllister (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Belfast
16 March 2018
GROUP INCOME STATEMENT
for the year ended 31 December 2017
Note 2017 2016
GBPm GBPm
Revenue 3 261.1 246.8
Operating costs 4 (166.2) (155.1)
------- -------
OPERATING PROFIT 94.9 91.7
------- -------
Finance revenue 6 - 0.1
Finance costs 6 (38.5) (38.1)
Net pension scheme interest 6 (3.6) (3.5)
------- -------
Net finance costs 6 (42.1) (41.5)
------- -------
PROFIT BEFORE TAX 52.8 50.2
Tax charge 7 (8.1) (4.7)
------- -------
PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY
HOLDERS OF THE PARENT COMPANY 44.7 45.5
======= =======
STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 December 2017
Group Company
Note 2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Profit for the financial 44.7 45.5 44.7 45.5
year
----- ----- ----- -----
Other comprehensive
income / (expense):
Items not to be
reclassified to profit or
loss in subsequent
periods:
Re-measurement gains /
(losses) on pension
scheme assets and 21 8.2 (54.3) 8.2 (54.3)
liabilities
Deferred tax (charge) /
credit relating to
components of other 7
comprehensive income / (1.4) 8.0 (1.4) 8.0
(expense)
----- ----- ----- -----
Net other comprehensive
income / (expense) for 6.8 (46.3) 6.8 (46.3)
the year
Total comprehensive ----- ----- ----- -----
income / (expense) for
the year attributable to
the equity holders of the 51.5 (0.8) 51.5 (0.8)
parent company ===== ===== ===== =====
Group Company
Note 2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Non-current assets
Property, plant and 9 1,715.5 1,577.3 1,716.3 1,578.1
equipment
Intangible assets 10 20.0 24.3 20.0 24.3
Derivative financial 17 500.0 583.9 500.0 583.9
assets
Investments 11 - - 7.9 7.9
--------- --------- --------- ---------
2,235.5 2,185.5 2,244.2 2,194.2
Current assets --------- --------- --------- ---------
Inventories 12 15.2 12.9 15.2 12.9
Trade and other 13 57.1 60.9 57.1 60.9
receivables
Current tax receivable 1.4 - 1.4 -
Derivative financial 17 79.5 14.1 79.5 14.1
assets
Cash and cash equivalents 14 11.2 9.3 11.2 9.3
--------- --------- --------- ---------
164.4 97.2 164.4 97.2
--------- --------- --------- ---------
TOTAL ASSETS 2,399.9 2,282.7 2,408.6 2,291.4
--------- --------- --------- ---------
Current liabilities
Trade and other payables 15 89.2 136.6 98.4 145.8
Current tax payable - 1.9 - 1.9
Deferred income 16 18.0 16.2 18.0 16.2
Financial liabilities:
Derivative financial 17 79.5 14.1 79.5 14.1
liabilities
Other financial 18 307.2 18.3 307.2 18.3
liabilities
Provisions 20 1.1 1.7 1.1 1.7
--------- --------- --------- ---------
495.0 188.8 504.2 198.0
Non-current liabilities --------- --------- --------- ---------
Deferred tax liabilities 7 64.7 59.6 64.7 59.6
Deferred income 16 483.4 414.9 483.4 414.9
Financial liabilities:
Derivative financial 17 500.0 583.9 500.0 583.9
liabilities
Other financial 18 398.5 592.1 398.5 592.1
liabilities
Provisions 20 3.9 3.5 3.9 3.5
Pension liability 21 127.0 146.0 127.0 146.0
--------- --------- --------- ---------
1,577.5 1,800.0 1,577.5 1,800.0
--------- --------- --------- ---------
TOTAL LIABILITIES 2,072.5 1,988.8 2,081.7 1,998.0
--------- --------- --------- ---------
NET ASSETS 327.4 293.9 326.9 293.4
======= ======= ======= =======
Equity
Share capital 22 36.4 36.4 36.4 36.4
Share premium 22 24.4 24.4 24.4 24.4
Capital redemption 22 6.1 6.1 6.1 6.1
reserve
Accumulated profits 22 260.5 227.0 260.0 226.5
--------- --------- --------- ---------
TOTAL EQUITY 327.4 293.9 326.9 293.4
======= ======= ======= =======
The profit after tax of the Company for the year is GBP44.7m (2016 - GBP45.5m).
The financial statements on pages 32 to 65 were approved by the Board of
Directors on 14 March 2018 and signed on its behalf by:
Nicholas Tarrant
Director
Date: 15 March 2018
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2017
Group
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
GBPm GBPm GBPm GBPm GBPm
At 1 January 2016 36.4 24.4 6.1 243.7 310.6
Profit for the year - - - 45.5 45.5
Net other comprehensive
expense for the year - - - (46.3) (46.3)
Total comprehensive expense ----- ----- ----- ----- -----
for the year - - - (0.8) (0.8)
Effect of decreased tax
rate on opening asset 7 - - - 0.1 0.1
Dividends to the 22 - - - (16.0) (16.0)
shareholder
------- ------- ------- ------- -------
At 31 December 2016 36.4 24.4 6.1 227.0 293.9
Profit for the year - - - 44.7 44.7
Net other comprehensive
income for the year - - - 6.8 6.8
Total comprehensive income ------- ------- ------- ------- -------
for the year - - - 51.5 51.5
Dividends to the 22 - - - (18.0) (18.0)
shareholder
------- ------- ------- ------- -------
At 31 December 2017 36.4 24.4 6.1 260.5 327.4
===== ====== ====== ====== ======
Company
Capital
Share Share redemption Accumulated Total
Note capital premium reserve profits equity
GBPm GBPm GBPm GBPm GBPm
At 1 January 2016 36.4 24.4 6.1 243.2 310.1
Profit for the year - - - 45.5 45.5
Net other comprehensive
expense for the year - - - (46.3) (46.3)
Total comprehensive expense ------ ------ ------ ------ ------
for the year - - - (0.8) (0.8)
Effect of decreased tax rate
on opening asset - - - 0.1 0.1
Dividends to the shareholder 22 - - - (16.0) (16.0)
------ ------ ------ ------ ------
At 31 December 2016 36.4 24.4 6.1 226.5 293.4
Profit for the year - - - 44.7 44.7
Net other comprehensive
income for the year - - - 6.8 6.8
Total comprehensive income ------ ------ ------ ------ ------
for the year - - - 51.5 51.5
Dividends to the shareholder 22 - - - (18.0) (18.0)
------ ------ ------ ------ ------
At 31 December 2017 36.4 24.4 6.1 260.0 326.9
====== ====== ====== ====== ======
CASH FLOW STATEMENT Group
for the year ended 31 December 2017
Note 2017 2016
GBPm GBPm
Cash flows generated from operating activities
Profit for the year 44.7 45.5
Adjustments for:
Tax charge 8.1 4.7
Net finance costs 6 42.1 41.5
Depreciation of property, plant and equipment 9 66.0 60.5
Release of customers' contributions and grants 16 (16.0) (15.0)
Amortisation of intangible assets 10 5.2 5.2
Customers' cash contributions 16 86.3 94.9
Defined benefit pension charge less contributions paid 21 (14.4) (16.2)
Net movement in provisions 20 (0.2) (3.8)
----- -----
Operating cash flows before movement in working capital 221.8 217.3
Increase in inventories (2.3) (3.0)
Decrease / (increase) in trade and other receivables 3.8 (2.1)
(Decrease) / increase in trade and other payables (46.5) 17.9
----- -----
(Decrease) / increase in working capital (45.0) 12.8
----- -----
Cash generated from operations 176.8 230.1
Interest received - 0.1
Interest paid (38.2) (37.9)
Current taxes paid (5.8) (5.9)
----- -----
Net cash flows generated from operating activities 132.8 186.4
----- -----
Cash flows used in investing activities
Purchase of property, plant and equipment (206.9) (197.4)
Purchase of intangible assets (0.9) (0.4)
----- -----
Net cash flows used in investing activities (207.8) (197.8)
----- -----
Cash flows used in financing activities
Dividends paid to shareholder 22 (18.0) (16.0)
Amounts borrowed from group undertakings 18 94.9 19.0
----- -----
Net cash flows from financing activities 76.9 3.0
----- -----
Net increase / (decrease) in cash and cash equivalents 1.9 (8.4)
Cash and cash equivalents at beginning of year 9.3 17.7
----- -----
Cash and cash equivalents at end of year 14 11.2 9.3
===== =====
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 ACCOUNTS
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
described in the Group Strategic Report.
2. Accounting Policies
The principal accounting policies applied in the preparation of these accounts
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 2017, have had a
material impact on the financial statements of the Group or the 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 2017, and have not been
applied in preparing these financial statements. None of these is expected to
have a significant effect on the financial statements of the Group or Company.
The more significant future accounting standards and how they may apply to the
Group and Company is discussed below:
IFRS 9, 'Financial instruments'
IFRS 9 addresses the classification, measurement and recognition of financial
assets and financial liabilities. It replaces the guidance in IAS 39 that
relates to the classification and measurement of financial instruments.
IFRS 9 retains but simplifies the mixed measurement model and establishes three
primary measurement categories for financial assets: amortised cost; fair value
through other comprehensive income; and fair value through profit or loss. The
basis of classification depends on the entity's business model and the
contractual cash flow characteristics of the financial asset. An expected
credit losses model replaces the incurred loss impairment model used in IAS 39.
For financial liabilities, there are no changes to classification and
measurement, except for the recognition of changes in own credit risk in other
comprehensive income, for liabilities designated at fair value through profit
or loss.
IFRS 9 is effective for accounting periods beginning on or after 1 January
2018. Early adoption is permitted.
The Group is working towards the implementation of IFRS 9 on 1 January 2018. It
anticipates that the classification and measurement basis for its financial
assets and liabilities will be largely unchanged by the adoption of IFRS 9.
The main impact of adopting IFRS 9 is likely to arise from the implementation
of the expected credit losses model however, due to the Group's limited
exposure to credit risk in respect of its trade receivables (see note 13) the
Group does not expect that this will have a material impact on the financial
statements of the Group or Company.
IFRS 15, 'Revenue from contracts with customers'
IFRS 15 deals with revenue recognition and establishes principles for reporting
useful information to users of financial statements about the nature, amount,
timing and uncertainty of revenue and cash flows arising from an entity's
contracts with customers. Revenue is recognised when a customer obtains control
of a good or service and thus has the ability to direct the use and obtain the
benefits from the good or service.
The standard replaces IAS 18, 'Revenue', and IAS 11, 'Construction contracts',
and related interpretations. The standard is effective for annual periods
beginning on or after 1 January 2018, and earlier application is permitted.
The Group is working towards the implementation of IFRS 15 on 1 January 2018
and has carried out a review of existing contractual arrangements as part of
this process. The directors anticipate that there will be no material impact in
respect of revenue derived from distribution use of system tariffs, PSO charges
and transmission service charges.
In respect of revenue earned through charges for new connections to the
network, the directors anticipate a change in the timing of recognition in
respect of some elements of connections revenue, however it is anticipated that
this change will have no impact on the future operating profit of the Group or
Company.
IFRS 16, 'Leases'
IFRS 16 addresses the definition of a lease, recognition and measurement of
leases, and it establishes principles for reporting useful information to users
of financial statements about the leasing activities of both lessees and
lessors. A key change arising from IFRS 16 is that most operating leases will
be accounted for on balance sheet for lessees.
The standard replaces IAS 17, 'Leases', and related interpretations. The
standard is effective for annual periods beginning on or after 1 January 2019,
and earlier application is permitted, subject to EU endorsement and the entity
adopting IFRS 15, 'Revenue from contracts with customers', at the same time.
The Group continues to assess the impact of IFRS 16 on the financial statements
of the Group and Company. At this stage, the directors anticipate that the
adoption of IFRS 16 may result in changes in the presentation of the Group's
and Company's accounts from 2019.
Basis of Preparation
The Group accounts have been prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC)
interpretations as adopted by the EU and applied in accordance with the
provisions of the Companies Act 2006 as applicable to companies reporting under
IFRS.
The Company accounts 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 accounts are presented in Sterling (GBP) with all values rounded to the
nearest GBP100,000 except where otherwise indicated.
The Company has taken advantage of the following disclosure exemptions under
FRS 101:
a) the requirements of paragraphs 10(d), 38A, 38B, 38C, 38D, 40A, 40B, 40C,
40D, 111 and 134-136 of IAS 1 Presentation of Financial Statements, which are
requirements relating to cash flows, comparative information, statement of
compliance and the management of capital;
b) the requirements of IAS 7 Statement of Cash Flows in preparing a cash flow
statement for the Company;
c) the requirements of paragraphs 17 and 18A of IAS 24 Related Party
Disclosures relating to the disclosure of key management personnel
compensation; and
d) the requirements in IAS 24 Related Party Disclosures to disclose related
party transactions entered into between two or more members of a group,
provided that any subsidiary which is a party to the transaction is wholly
owned by such a member.
Basis of Preparation - Going Concern
The Group is financed through a combination of equity and debt finance.
Details in respect of the Group's equity are shown in the Statement of Changes
in Equity and in note 22 to the accounts. The Group's debt finance at the year
end comprised bonds of GBP175.0m and GBP400.0m (GBP174.8m and GBP398.5m respectively
net of issue costs) which are due to mature in September 2018 and June 2026
respectively and GBP114.0m drawn down from a GBP150.0m RCF from ESB which is due to
mature in September 2018.
The Group's liquidity risk is assessed through the preparation of cash flow
forecasts. The Group's policy is to have sufficient funds in place to meet
funding requirements for the next 12 - 18 months. In light of the maturity of
the GBP175.0m bond and GBP150.0m RCF in September 2018, the Group is currently
assessing longer term financing options in conjunction with its parent, ESB.
The Group is satisfied that it will have access to funds in advance of the
maturity of existing facilities as it has secured an option to extend the
existing GBP150.0m RCF from ESB to GBP400.0m with maturity deferred until March
2019.
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 accounts and consideration of the
option to extend and increase the existing RCF from ESB, the directors have a
reasonable expectation that the Group will have adequate financial resources
for the 12 month period. Accordingly the directors continue to adopt the going
concern basis in preparing the annual report and accounts.
Basis of consolidation
The Group accounts consolidate the accounts 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 are included in the balance sheet at cost, less
accumulated depreciation and any recognised impairment loss. The cost of
self-constructed assets includes the cost of materials, direct labour and an
appropriate portion of overheads. Interest on funding attributable to
significant capital projects is capitalised during the period of construction
provided it meets the recognition criteria in IAS 23 and is written off as part
of the total cost of the asset.
Freehold land is not depreciated. Other property, plant and equipment are
depreciated on a straight-line basis so as to write off the cost, less
estimated residual values, over their estimated useful economic lives as
follows:
Infrastructure assets - up to 40 years
Non-operational buildings - freehold and long leasehold - up to 60 years
Fixtures and equipment - up to 10 years
Vehicles and mobile plant - up to 5 years
The carrying values of property, plant and equipment are reviewed for
impairment when events or changes in circumstances indicate the carrying value
may not be recoverable. Where the carrying value exceeds the estimated
recoverable amount, the asset is written down to its recoverable amount.
The recoverable amount of property, plant and equipment is the greater of net
selling price and value in use. In assessing value in use, estimated future
cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the
risks specific to the asset. For an asset that does not generate largely
independent cash flows, the recoverable amount is determined for the cash
generating unit to which the asset belongs. Impairment losses are recognised
in the income statement.
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from its continued use. The
gain or loss arising on the disposal or retirement of an asset is determined as
the difference between the net selling price and the carrying amount of the
asset.
Intangible assets - Computer software
The cost of acquiring computer software is capitalised and amortised on a
straight-line basis over its estimated useful economic life which is between
three and ten years. Costs include direct labour relating to software
development and an appropriate portion of directly attributable overheads.
Interest on funding attributable to significant capital projects is capitalised
during the period of construction provided it meets the recognition criteria in
IAS 23 and is written off as part of the total cost of the asset.
The carrying value of computer software is reviewed for impairment annually
when the asset is not yet in use and subsequently when events or changes in
circumstances indicate that the carrying value may not be recoverable.
Gains or losses arising from de-recognition of computer software are measured
as the difference between the net selling price and the carrying amount of the
asset.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
calculated as the weighted average purchase price. Net realisable value is the
estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.
Financial instruments
The accounting policies for the financial instruments of the Group are set out
below. The related objectives and policies for financial risk management
(including capital management and liquidity risk, credit risk and interest rate
risk) are included in the Group Strategic report.
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.
Loans and receivables
Loans and receivables are initially recorded at fair value. After initial
recognition, loans and receivables are measured at amortised cost using the
effective interest method.
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 receivables
Trade receivables do not carry any interest and are recognised and carried at
the lower of their amortised cost value and recoverable amount. Provision is
made when there is objective evidence that the asset is impaired. Balances are
written off when the probability of recovery is assessed as being remote.
Trade payables
Trade payables are not interest bearing and are stated at their amortised cost.
Derivative financial instruments
Derivatives that are not designated as hedging instruments are accounted for at
'fair value through profit or loss'. These derivatives are carried in the
balance sheet at fair value, with changes in fair value recognised in net
finance costs in the income statement.
Borrowing costs
Borrowing costs attributable to significant capital projects are capitalised as
part of the cost of the respective qualifying assets. All other borrowing
costs are expensed in the period they occur. Borrowing costs consist of
interest and other costs that an entity incurs in connection with the borrowing
of funds.
Operating lease contracts
Leases are classified as operating lease contracts whenever the terms of the
lease do not transfer substantially all the risks and benefits of ownership to
the lessee.
Rentals payable under operating leases are charged to the income statement on a
straight-line basis over the lease term.
Revenue
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided in the
normal course of business, exclusive of value added tax and other sales related
taxes.
The following specific recognition criteria must also be met before revenue is
recognised:
Interest receivable
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Use of System and PSO revenue
Revenue is recognised on the basis of units distributed during the period.
Revenue includes an assessment of the volume of electricity distributed,
estimated using historical consumption patterns.
Transmission service revenue
Revenue is recognised in accordance with the schedule of entitlement set by the
Utility Regulator for each tariff period.
Customer contributions
Customer contributions received in respect of property, plant and equipment are
deferred and released to revenue in the income statement by instalments over
the estimated useful economic lives of the related assets.
Government grants
Government grants received in respect of property, plant and equipment are
deferred and released to operating costs in the income statement by instalments
over the estimated useful economic lives of the related assets. Grants
received in respect of expenditure charged to the income statement during the
period are included in the income statement.
Tax
The tax charge represents the sum of tax currently payable and deferred tax.
Tax is charged or credited in the income statement, except when it relates to
items charged or credited directly to equity, in which case the tax is also
dealt with in equity.
Tax currently payable is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the income statement because it
excludes both items of income or expense that are taxable or deductible in
other years as well as items that are never taxable or deductible. The Company
and Group's liability for current tax is calculated using tax rates (and tax
laws) that have been enacted or substantially enacted by the balance sheet
date.
Deferred tax is the tax payable or recoverable on differences between the
carrying amount of assets and liabilities in the accounts and the corresponding
tax bases used in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, except where the Group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred tax is not recognised on temporary differences where they arise from
the initial recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time of the
transaction affects neither accounting nor taxable profit nor loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the deferred tax
asset to be recovered.
Deferred tax assets and liabilities are calculated at the tax rates that are
expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantially enacted by the balance sheet date.
Provisions
Provisions are recognised when (i) the Group has a present obligation (legal or
constructive) as a result of a past event (ii) it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation and (iii) a reliable estimate can be made of the amount of the
obligation. Where the Group expects a provision to be reimbursed, the
reimbursement is recognised as a separate asset but only when the reimbursement
is virtually certain. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time
is included within finance costs.
Pensions and other post-retirement benefits
Employees of the Group are entitled to membership of the Northern Ireland
Electricity Pension Scheme (NIEPS) which has both defined benefit and defined
contribution pension arrangements. The amount recognised in the balance sheet
in respect of liabilities represents the present value of the obligations
offset by the fair value of assets.
Pension scheme assets are measured at fair value and liabilities are measured
using the projected unit credit method and discounted at a rate equivalent to
the current rate of return on a high quality corporate bond of equivalent
currency and term to the liabilities. Full actuarial valuations are obtained
at least triennially and updated at each balance sheet date. Re-measurements
comprising of actuarial gains and losses and return on plan assets are
recognised immediately in the period in which they occur and are presented in
the statement of comprehensive income. Re-measurements are not reclassified to
profit or loss in subsequent periods.
The cost of providing benefits under the defined benefit scheme is charged to
the income statement over the periods benefiting from employees' service.
These costs comprise current service costs, past service costs, gains or losses
on curtailments and non-routine settlements, all of which are recognised in
operating costs. Past service costs are recognised immediately to the extent
that the benefits are already vested. Curtailment losses are recognised in the
income statement in the period they occur.
Net pension interest on net pension scheme liabilities is included within net
finance costs. Net interest is calculated by applying the discount rate to the
net pension asset or liability.
Pension costs in respect of defined contribution arrangements are charged to
the income statement as they become payable.
The Group has adopted the exemption allowed in IFRS 1 to recognise all
cumulative actuarial gains and losses at the transition date in reserves.
Critical accounting judgements and key sources of estimation uncertainty
Pensions and other post-employment benefits
The employees in NIE Networks are entitled to membership of the NIEPS which has
both defined benefit and defined contribution arrangements. The estimation of
and accounting for retirement benefit obligations involves judgements made in
conjunction with independent actuaries. This involves estimates about uncertain
future events including the life expectancy of scheme members, future salary
and pension increases and inflation as well as discount rates. The assumptions
used by the Group and a sensitivity analysis of a change in these assumptions
are described in note 21.
Unbilled debt
Revenue includes an assessment of the volume of electricity distributed,
estimated using historical consumption patterns. A corresponding receivable in
respect of unbilled consumption is recognised within trade receivables.
Fair value measurement
The measurement of the Group's derivative financial instruments is based on a
number of judgmental factors and assumptions which by necessity are not based
on observable inputs. These have been classified as Level 2 financial
instruments in accordance with IFRS 13. Further detail is provided in note 17.
3. Revenue
The Group's operating activities, which comprise one operating segment, are
described in the Group Strategic Report. Financial information is reported to
the Executive Committee and the Board on a consolidated basis and is not
segmented.
2017 2016
GBPm GBPm
Revenue:
Sales revenue 245.6 232.3
Release of customer contributions from deferred 15.5 14.5
income
------ ------
261.1 246.8
====== ======
During the year, four customers accounted for sales revenue totalling GBP198.8m
(2016 - three customers accounted for GBP178.9m).
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:
2017 2016
GBPm GBPm
Employee costs (note 5) 29.3 25.2
Depreciation and amortisation 70.7 65.2
Other operating charges 66.2 64.7
------ ------
166.2 155.1
===== =====
Operating costs include:
Depreciation charge on property, plant and equipment 66.0 60.5
Amortisation of intangible assets 5.2 5.2
Amortisation of grants (0.5) (0.5)
Minimum payments due under operating leases
3.3 3.2
Cost of inventories recognised as an expense 1.3 1.8
Operating costs include:
2017 2016
Auditor's remuneration GBP'000 GBP'000
Ernst & Young LLP:
Fees payable to the Group and Company auditors for the - 23
audit of the accounts
Fees payable to the Group and Company auditors for
other services:
The audit of the company's subsidiaries pursuant to - 13
legislation
Audit related assurance services 27 30
Permitted tax compliance services 3 2
PricewaterhouseCoopers LLP:
Fees payable to the Group and Company auditors for the 29 -
audit of the accounts
Fees payable to the Group and Company auditors for
other services:
The audit of the company's subsidiaries pursuant to 4 -
legislation
Audit related assurance services 10 -
As discussed in the Group Directors' Report, PricewaterhouseCoopers LLP were
appointed as external auditors following the audit of the March 2017 Regulatory
accounts by Ernst & Young LLP.
5. Employees
Employee costs - Group and Company
2017 2016
GBPm GBPm
Wages and salaries 52.8 51.1
Social security costs 5.6 5.3
Pension costs
- defined contribution plans 4.4 3.7
- defined benefit plans 11.0 7.7
------ ------
73.8 67.8
Less: amounts capitalised to
property, plant and equipment and (44.5) (42.6)
intangible assets
------ ------
Charged to the income statement 29.3 25.2
====== ======
Average and actual headcount for the Group and Company are disclosed in the
table below:
Actual headcount
Average as at 31 December
2017 2016 2017 2016
Number Number Number Number
Management, administration and 318 316 312 320
support
Electrical services 966 942 961 957
------ ------ ------ ------
Employee numbers 1,284 1,258 1,273 1,277
====== ====== ====== ======
Directors' emoluments
The remuneration of the directors paid by the Company was as follows:
2017 2016
GBP'000 GBP'000
Emoluments in respect of qualifying services 654 625
Emoluments in respect of qualifying services include deferred remuneration
awarded in the current and prior year but payable in future years. 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:
2017 2016
Number Number
Defined benefit pension scheme - -
Defined contribution scheme 1 1
Aggregate contributions by the Company to defined contribution pension schemes
in respect of the directors during the year was GBP4,212 (2016 - GBP17,375).
The remuneration in respect of the highest paid director was as follows:
As at 31 December 2017 2016
GBP'000 GBP'000
Emoluments 312 299
Total accrued pension at 31 December (per annum) - -
The highest paid director is a member of the Company's defined contribution
scheme.
6. Net Finance Costs
2017 2016
GBPm GBPm
Interest receivable:
Bank interest receivable - 0.1
------ ------
Interest payable:
GBP175m bond (12.0) (12.0)
GBP400m bond (25.5) (25.5)
Amounts payable to parent undertakings (note 27) (0.8) (0.5)
------ ------
(38.3) (38.0)
Less: capitalised interest 0.1 0.2
------ ------
Total interest charged to the income statement (38.2) (37.8)
------ ------
Other finance costs:
Amortisation of financing charges (0.3) (0.3)
------ ------
Total finance costs (38.5) (38.1)
------ ------
Net pension interest cost
(3.6) (3.5)
------ ------
Net finance costs (42.1) (41.5)
====== ======
Interest recognised in the balance sheet during the year was capitalised to
qualifying assets (infrastructure assets under construction) using a weighted
average interest rate of 6.14% (2016 - 6.48%).
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 by operations. The
calculation of the ratio, as reported in the Financial Review, is shown below:
2017 2016
GBPm GBPm
Operating profit 94.9 91.7
Add back depreciation and 70.7 65.2
amortisation
Deduct pension deficit repair (17.2) (16.9)
contributions
Deduct amortisation of customer (15.5) (14.5)
contributions
Deduct tax paid (5.8) (5.9)
------ ------
Funds from operations 127.1 119.6
Interest paid (38.2) (37.9)
FFO to interest paid (times) 3.3 3.2
====== ======
Pension deficit repair contributions of GBP17.2m (2016 - GBP16.9m) reflect
contributions in respect of past service costs as explained in note 21.
7. Tax Charge
(i) Analysis of charge during the year
2017 2016
Group Income Statement GBPm GBPm
Current tax charge
UK corporation tax at 19.25% (2016 - 20.00%) 6.4 5.4
Over-provided in prior years (2.0) -
------ ------
Total current income tax 4.4 5.4
------ ------
Deferred tax charge/ (credit)
Origination and reversal of temporary differences in 3.7 4.3
current year
Effect of decreased tax rate on opening liability - (5.0)
------ ------
Total deferred tax charge / (credit) 3.7 (0.7)
------ ------
Total tax charge 8.1 4.7
====== ======
Tax relating to items charged / (credited) in other
comprehensive income
Deferred tax
Deferred tax charge / (credit) relating to components
of other comprehensive income 1.4 (9.2)
Effect of decreased tax rate on opening asset - 1.2
------ ------
1.4 (8.0)
====== ======
Tax relating to items charged to changes in equity
Deferred tax
Effect of decreased rate on opening asset - (0.1)
------ ------
- (0.1)
====== ======
(ii) Reconciliation of total tax charge
The tax charge in the Group Income Statement for the year is lower (2016 -
lower) than the standard rate of corporation tax in the UK of 19.25% (2016 -
20.00%). The differences are reconciled below:
2017 2016
GBPm GBPm
Accounting profit before tax charge 52.8 50.2
------ ------
Accounting profit multiplied by the UK standard rate
of corporation tax of 19.25% (2016 - 20.00%) 10.2 10.0
Tax effect of:
Impact of deferred tax at reduced rate (0.5) (5.7)
Other permanent differences 0.4 0.4
Tax over-provided in prior years (2.0) -
------ ------
Tax charge for the year 8.1 4.7
====== ======
(iii) Deferred tax
The deferred tax included in the Group and Company Balance Sheet is as follows:
2017 2016
GBPm GBPm
Deferred tax assets
Pension liability 21.6 24.8
Other temporary differences 0.3 0.3
------ ------
21.9 25.1
------ ------
Deferred tax liabilities
Accelerated capital allowances (85.8) (83.9)
Held-over losses on property disposals (0.8) (0.8)
------ ------
(86.6) (84.7)
------ ------
Net deferred tax liability (64.7) (59.6)
====== ======
Deferred tax has been calculated at 17.0% as at 31 December 2017 (2016 - 17.0%)
reflecting future reductions in the corporation tax rate enacted at the balance
sheet date.
The deferred tax charge/(credit) included in the Group Income Statement is as
follows:
2017 2016
GBPm GBPm
Accelerated capital allowances 1.9 (3.3)
Temporary differences in respect of pensions 1.8 2.0
Other temporary differences - 0.6
----- -----
Deferred tax charge / (credit) 3.7 (0.7)
===== =====
8. Profit for the Financial Year
The profit of the Company is GBP44.7m (2016 - GBP45.5m). 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
Infrastructure buildings and mobile
assets GBPm equipment plant Total
GBPm GBPm GBPm GBPm
Cost:
At 1 January 2016 2,249.1 5.1 74.3 9.1 2,337.6
Additions 193.8 - 5.5 0.3 199.6
Write offs - - (5.5) (7.0) (12.5)
------- ------- ------- ------- -------
At 31 December 2016 2,442.9 5.1 74.3 2.4 2,524.7
Additions 196.6 - 7.6 - 204.2
------- ------- ------- ------- -------
At 31 December 2017 2,639.5 5.1 81.9 2.4 2,728.9
------- ------- ------- ------- -------
Depreciation:
At 1 January 2016 833.5 1.7 57.2 7.0 899.4
Charge for the year 55.7 0.1 3.8 0.9 60.5
Write off of accumulated - - (5.5) (7.0) (12.5)
depreciation
------- ------- ------- ------- -------
At 31 December 2016 889.2 1.8 55.5 0.9 947.4
Charge for the year 60.4 0.1 4.6 0.9 66.0
------- ------- ------- ------- -------
At 31 December 2017 949.6 1.9 60.1 1.8 1,013.4
------- ------- ------- ------- -------
Net book value:
At 31 December 2016 1,553.7 3.3 18.8 1.5 1,577.3
======= ======= ======= ======= =======
At 31 December 2017 1,689.9 3.2 21.8 0.6 1,715.5
======= ======= ======= ======= =======
Infrastructure assets include amounts in respect of assets under construction
of GBP77.9m (2016 - GBP68.1m).
Company Non-operational
land and Fixtures Vehicles
Infrastructure buildings and and
assets GBPm equipment mobile Total
GBPm GBPm plant GBPm
GBPm
Cost:
At 1 January 2016 2,250.7 5.1 67.7 - 2,323.5
Additions 193.8 - 5.5 0.3 199.6
Transfer from subsidiary
undertaking - - 1.1 2.1 3.2
------- ------- ------- ------- -------
At 31 December 2016 2,444.5 5.1 74.3 2.4 2,526.3
Additions 196.6 - 7.6 - 204.2
------- ------- ------- ------- -------
At 31 December 2017 2,641.1 5.1 81.9 2.4 2,730.5
------- ------- ------- ------- -------
Depreciation:
At 1 January 2016 834.3 1.7 51.7 - 887.7
Charge for the year 55.7 0.1 3.8 0.9 60.5
------- ------- ------- ------- -------
At 31 December 2016 890.0 1.8 55.5 0.9 948.2
Charge for the year 60.4 0.1 4.6 0.9 66.0
------- ------- ------- ------- -------
At 31 December 2017 950.4 1.9 60.1 1.8 1,014.2
------- ------- ------- ------- -------
Net book value:
At 31 December 2016 1,554.5 3.3 18.8 1.5 1,578.1
======= ======= ======= ======= =======
At 31 December 2017 1,690.7 3.2 21.8 0.6 1,716.3
======= ======= ======= ======= =======
Infrastructure assets include amounts in respect of assets under construction
of GBP77.9m (2016 - GBP68.1m).
Transfers from subsidiary undertaking in the prior year reflect the transfer of
assets from NIE Networks Services Limited to NIE Networks at net book value.
Further details of the transfer are disclosed in note 11.
10. Intangible Assets
Computer software Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Cost:
At the beginning of the year 102.9 102.6 102.9 102.5
Additions acquired externally 0.9 0.4 0.9 0.4
Write offs - (0.1) - -
------- ------- ------- -------
At the end of the year 103.8 102.9 103.8 102.9
------- ------- ------- -------
Amortisation / impairment:
At the beginning of the year 78.6 73.5 78.6 73.4
Amortisation charge for the year 5.2 5.2 5.2 5.2
Write offs - (0.1) - -
------- ------- ------- -------
At the end of the year 83.8 78.6 83.8 78.6
------- ------- ------- -------
Net book value:
At the beginning of the year 24.3 29.1 24.3 29.1
======= ======= ======= =======
At the end of the year 20.0 24.3 20.0 24.3
======= ======= ======= =======
Software assets include amounts in respect of assets under construction
amounting to GBPnil (2016 - nil).
Software assets include GBP15.7m (2016 - GBP19.3m) in respect of market and
customer software invested in following separation from the Viridian Group. The
relevant software has a remaining useful life of 4.5 years.
11. Investments
Company - Investment in subsidiaries
2017 2016
GBPm GBPm
Cost:
At the beginning and end of the year 7.9 7.9
==== ====
The Company holds the entire share capital of NIE Networks Services Limited and
NIE Finance PLC which have been fully consolidated into the accounts. All of
the Company's subsidiaries are incorporated in the United Kingdom and hold
registered office addresses at 120 Malone Road, Belfast, BT9 5HT.
The principal activity of NIE Networks Services Limited until 31 December 2015
was to provide construction, maintenance, metering and other services to the
Company. As NIE Networks Services Limited provided services to the Company,
revenue on consolidation was GBPnil. On 1 January 2016, all assets, operations
and employees of NIE Networks Services Limited transferred to NIE Networks and
NIE Networks Services Limited ceased operational activity. A summary of the
assets and liabilities transferred and the consideration payable is shown
below:
Fair Value
of Assets
transferred
GBPm
Assets
Property, plant and equipment 3.2
Pension asset 29.4
Trade and other receivables 7.1
Cash and cash equivalents 0.6
-----
40.3
Liabilities
Trade and other payables 4.2
Provisions 0.5
Deferred tax liabilities 4.9
-----
9.6
Net assets transferred 30.7
=====
Purchase consideration transferred 30.7
=====
Purchase consideration made up of:
Repayment of existing intercompany loan 21.5
Intercompany debtor 9.2
-----
30.7
=====
The principal activity of NIE Finance PLC is the provision of financing
services, being the issuer of the GBP400m bond which was on-lent to the Company.
Further details of the bond issue are included in note 18.
Dormant subsidiaries
The Company holds 100% of the share capital of Northern Ireland Electricity
Limited and NIE Limited. These companies are dormant and the carrying value of
these investments as at 31 December 2017 is GBPnil (2016 - GBPnil).
12. Inventories
Group and Company 2017 2016
GBPm GBPm
Materials and consumables 14.9 12.4
Work-in-progress 0.3 0.5
----- -----
15.2 12.9
===== =====
13.Trade and Other Receivables
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Current
Trade receivables (including unbilled 49.8 55.0 49.8 55.0
consumption)
Other receivables 0.6 0.8 0.6 0.8
Prepayments and accrued income 1.9 2.5 1.9 2.5
Amounts owed by fellow subsidiary 4.8 2.6 4.8 2.6
undertakings (note 27)
----- ----- ----- -----
57.1 60.9 57.1 60.9
===== ===== ===== =====
Trade receivables include amounts relating to unbilled consumption of GBP17.6m
(2016 - GBP16.6m).
The largest trade receivable at the year end, due from one customer, is GBP8.8m
(2016 - GBP9.0m).
Trade receivables are stated net of an allowance of GBP0.5m (2015 - GBP0.3m) for
estimated irrecoverable amounts based on past default experience. There are no
allowances for estimated irrecoverable amounts included in 'amounts owed by
fellow subsidiary undertakings'.
2017 2016
Group and Company GBPm GBPm
At the beginning of the year 0.3 0.3
Increase in allowance 0.3 -
Bad debts written off (0.1) -
----- -----
At the end of the year 0.5 0.3
===== =====
The allowance of GBP0.5m includes GBP0.4m (2016 - GBP0.2m) in respect of individual
balances impaired based on the age of debt and past default experience.
The following shows an aged analysis of current trade receivables:
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Within credit terms:
Current 46.6 48.5 46.6 48.5
Past due but not impaired:
Less than 30 days 0.5 4.5 0.5 4.5
30 - 60 days 0.9 0.7 0.9 0.7
60 - 90 days 0.2 1.0 0.2 1.0
+ 90 days 1.6 0.3 1.6 0.3
----- ----- ----- -----
49.8 55.0 49.8 55.0
===== ===== ===== =====
The credit quality of trade receivables that are neither past due nor impaired
is assessed by reference to external credit ratings where available, otherwise
historical information relating to counterparty default rates is used. The
directors consider that the carrying amount of trade and other receivables
approximates to fair value.
The Group's credit risk in respect of trade receivables from licensed
electricity suppliers is mitigated by appropriate policies with security
received in the form of cash deposits, letters of credit or parent company
guarantees. With the exception of certain public bodies, payments in relation
to new connections or alterations are received in advance of the work being
carried out. Payments received on account are disclosed in note 15 to the
accounts.
14. Cash and Cash Equivalents
Group and Company
2017 2016
GBPm GBPm
Cash at bank and in hand 11.2 9.3
---- ----
11.2 9.3
==== ====
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates. The directors consider that the carrying amount of cash and cash
equivalents equates to fair value.
15. Trade and Other Payables
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Trade payables 19.0 18.2 19.0 18.2
Payments received on account 29.9 67.9 29.9 67.9
Amounts owed to fellow
subsidiary undertakings (note 5.3 4.5 5.3 4.5
27)
Amounts owed to subsidiary - - 9.2 9.2
undertakings
Tax and social security 7.9 9.4 7.9 9.4
Accruals 24.0 27.8 24.0 27.8
Other payables 3.1 8.8 3.1 8.8
------ ------ ------ ------
89.2 136.6 98.4 145.8
====== ===== ===== =====
The directors consider that the carrying amount of trade and other payables
equates to fair value.
16. Deferred Income
Group and Company Customers'
Grants contributions Total
GBPm GBPm GBPm
----- ----- -----
Current 0.5 11.3 11.8
Non-current 5.9 333.5 339.4
----- ----- -----
Total at 1 January 2016 6.4 344.8 351.2
----- ----- -----
Receivable - 94.9 94.9
Released to income statement (0.5) (14.5) (15.0)
---- ----- -----
Current 0.5 15.7 16.2
Non-current 5.4 409.5 414.9
----- ----- -----
Total at 31 December 2016 5.9 425.2 431.1
----- ----- -----
Receivable - 86.3 86.3
Released to income statement (0.5) (15.5) (16.0)
----- ----- -----
Current 0.5 17.5 18.0
Non-current 4.9 478.5 483.4
----- ----- -----
Total at 31 December 2017 5.4 496.0 501.4
===== ===== =====
17. Derivative Financial Instruments
Group and Company - Interest rate swaps 2017 2016
GBPm GBPm
Current assets 79.5 14.1
Non-current assets 500.0 583.9
------- -------
579.5 598.0
======= =======
Current liabilities (79.5) (14.1)
Non-current liabilities (500.0) (583.9)
------- -------
(579.5) (598.0)
======= =======
The Company has held a GBP550m portfolio of inflation linked interest rate swaps
(the RPI swaps) since December 2010. The fair value of inflation linked
interest rate swaps is affected by relative movements in interest rates and
market expectations of future retail price index (RPI) movements.
The RPI swaps were put in place by the Viridian Group (the Group's previous
parent undertaking) in 2006 to better match NIE Networks' debt and related
interest payments with its inflation-linked regulated assets and associated
revenue. The swaps are considered to be economic hedges for NIE Networks'
regulated revenue and asset base. As part of the acquisition of NIE Networks by
ESB in 2010, the swaps were novated to NIE Networks.
During 2014 the Company, and its counterparty banks, together agreed a
restructuring of the swaps, including amendments to certain critical terms.
These changes included an extension of the mandatory break period in the swaps
from 2015 to 2022, including immediate settlement of accretion payments of GBP
77.7m (previously due for payment in 2015), amendments to the fixed interest
rate element of the swaps and an increase in the number of swap counterparties.
Future accretion payments are now scheduled to occur every 5 years, starting
in 2018, with remaining accretion paid on maturity.
Arising from lower forward interest rates and higher RPI forward prices during
the year, positive fair value movements of GBP3.8m occurred in 2017 (2016 -
negative fair value movements of GBP145.4m). These have been recognised in
finance costs in the income statement.
The increase in the current portion of the interest rate swaps in 2017 is
largely owing to accretion payments falling due in 2018.
At the same time that the restructuring took effect, and in order to maintain
the back to back matching put in place with ESBNI Limited (ESBNI), 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 accounts of the Company and that any
risk to financial exposure is borne by ESBNI. The fair value movements have
been recognised in finance costs in the income statement effectively offsetting
the fair value movements of interest rate swap liabilities.
The fair value of interest rate swaps has been valued by calculating the
present value of future cash flows, estimated using forward rates from third
party market price quotations.
The Company uses the hierarchy as set out in IFRS 13: Fair Value Measurement.
All assets and liabilities for which fair value is disclosed are categorised
within the fair value hierarchy described as follows:
Level 1: quoted (unadjusted) market prices in active markets for identical
assets or liabilities;
Level 2: valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable;
and
Level 3: valuation techniques for which the lowest level input that is
significant to the fair value measurement is not observable.
The fair value of interest rate swaps as at 31 December 2017 is considered by
the Company to fall within the level 2 fair value hierarchy. The Company
determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each
reporting period. There have been no transfers between level 1 or 3 of the
hierarchy during the year.
Independent valuations are used in measuring the interest rate swaps and
validated using the present valuation of expected cash flows using a
constructed zero-coupon discount curve. The zero-coupon curve uses the
interest rate yield curve of the relevant currency. Future cash flows are
estimated using expected RPI benchmark levels as well as expected LIBOR rate
sets.
An increase / (decrease) of 0.5% in interest rates would decrease / (increase)
the fair value of interest rate swap liabilities by GBP58.1m / (GBP63.3m) (2016 - GBP
63.8m / (GBP65.2m)). 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 GBP58.1m / (GBP63.3m) (2016 - GBP
63.8m / (GBP65.2m)) 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.
18. Other Financial Liabilities
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Current
Interest payable on GBP175m bond 3.4 3.4 3.4 3.4
Interest payable on GBP400m bond 14.8 14.8 - -
Interest payable to parent 0.2 0.1 0.2 0.1
undertaking (note 27)
Interest payable to subsidiary - - 14.8 14.8
undertaking
GBP175m bond 174.8 - 174.8 -
Amounts owed to parent 114.0 - 114.0 -
undertaking (note 27) ----- ----- ----- -----
307.2 18.3 307.2 18.3
===== ===== ===== =====
Non-current
GBP175m bond - 174.6 - 174.6
GBP400m bond 398.5 398.4 - -
Amounts owed to parent - 19.1 - 19.1
undertaking (note 27)
Amounts owed to subsidiary - - 398.5 398.4
undertaking ----- ----- ----- -----
398.5 592.1 398.5 592.1
===== ===== ===== =====
Loans and other borrowings outstanding are repayable as follows:
Group and Company 2017 2016
GBPm GBPm
In one year or less or on demand 307.2 18.3
Between two and five years - 193.7
In more than five years 398.5 398.4
----- -----
705.7 610.4
===== =====
Other financial liabilities are held at amortised cost.
The principal features of the Group's borrowings are as follows:
- the GBP175m bond is repayable in September 2018 and carries a fixed rate of
interest of 6.875% which is payable annually in arrears on 18 September. The
bond issue incurred GBP2.6m of costs associated with raising finance;
- the 15 year GBP400m bond is repayable in 2026 and carries a fixed rate of
interest of 6.375% which is payable annually in arrears on 2 June. The bond
issue incurred GBP2.1m of costs associated with raising finance. In back to back
arrangements, NIE Finance PLC has a loan of GBP400m with the Company, which was
issued net of GBP2.1m of costs associated with raising finance. Interest is paid
on the loan at a fixed rate of 6.375% annually in arrears on 2 June; and
- amounts owed to parent undertaking represents a drawdown of GBP114.0 (2016 - GBP
19.1m) from the Company's GBP150.0m Revolving Credit Facility (RCF) provided by
ESB which has a maturity date of September 2018. Interest is charged at 1-month
LIBOR plus 0.75% and paid in arrears on the following draw-down date.
Commitment fees are charged on the undrawn element of the facility.
The GBP175m and GBP400m bonds, which are listed on the London Stock Exchange's
regulated market, had fair values at 31 December 2017 of GBP182.3m (2016 - GBP
194.0m) and GBP545.3m (2016 - GBP553.6m) respectively, based on current market
prices. The Company's GBP400m back-to-back loan had a fair value at 31 December
2017 of GBP545.3m (2016 - GBP553.6m) based on the fair value of the GBP400m bond.
The fair value of bonds as at 31 December 2017 is considered by the Company to
fall within the level 1 fair value hierarchy (defined within note 17). There
have been no transfers between levels in the hierarchy during the year.
Given that 83% (2016 - 97%) of the Group and Company borrowings carry fixed
interest rates, the Group and Company were 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 2017 On Within 3 3 to 12 1 to 5 More
demand months months years than 5 Total
years
GBPm GBPm GBPm GBPm GBPm GBPm
GBP175m bond (including interest - - 187.0 - - 187.0
payable)
GBP400m bond (including interest - - 25.5 102.0 502.0 629.5
payable)
RCF (including interest payable) - - 114.9 - - 114.9
Trade and other payables 33.0 51.3 - - - 84.3
Interest rate swap liabilities - - 79.9 52.8 504.3 637.0
------- ------- ------- ------- ------- -------
33.0 51.3 407.3 154.8 1,006.3 1,652.7
======= ======= ======= ======= ======= =======
At 31 December 2016 On Within 3 3 to 12 1 to 5 More
demand months months years than 5 Total
years
GBPm GBPm GBPm GBPm GBPm GBPm
GBP175m bond (including interest - - 12.0 187.0 - 199.0
payable)
GBP400m bond (including interest - - 25.5 102.0 527.5 655.0
payable)
RCF (including interest payable) - 0.1 0.2 19.5 - 19.8
Trade and other payables 67.9 59.3 - - - 127.2
Interest rate swap liabilities - - 14.1 117.2 525.9 657.2
------- ------- ------- ------- ------- -------
67.9 59.4 51.8 425.7 1,053.4 1,658.2
======= ======= ======= ======= ======= =======
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 2017 More
On Within 3 3 to 12 1 to 5 than 5
demand months months years years Total
GBPm GBPm GBPm GBPm GBPm GBPm
GBP175m bond (including interest - - 187.0 - - 187.0
payable)
Amounts owed to subsidiary - - 25.5 102.0 502.0 629.5
undertaking
RCF (including interest payable) - - 114.9 - - 114.9
Trade and other payables 33.0 60.5 - - - 93.5
Interest rate swap liabilities - - 79.9 52.8 504.3 637.0
------- ------- ------- ------- ------- -------
33.0 60.5 407.3 154.8 1,006.3 1,661.9
======= ======= ======= ======= ======= =======
At 31 December 2016 On Within 3 3 to 12 1 to 5 More
demand months months years than 5 Total
years
GBPm GBPm GBPm GBPm GBPm GBPm
GBP175m bond (including interest - - 12.0 187.0 - 199.0
payable)
Amounts owed to subsidiary - - 25.5 102.0 527.5 655.0
undertaking
RCF (including interest payable) - 0.1 0.2 19.5 - 19.8
Trade and other payables 67.9 68.5 - - - 136.4
Interest rate swap liabilities - - 14.1 117.2 525.9 657.2
------- ------- ------- ------- ------- -------
67.9 68.6 51.8 425.7 1,053.4 1,667.4
======= ======= ======= ======= ======= =======
19. Analysis of Net Debt
Group At Non- At
1 January Cash cash 31
2017 flow movement December
2017
GBPm GBPm GBPm GBPm
Cash and cash equivalents 9.3 1.9 - 11.2
Interest payable on GBP175m bond (3.4) 12.0 (12.0) (3.4)
Interest payable on GBP400m bond (14.8) 25.5 (25.5) (14.8)
Interest payable to parent undertaking (0.1) 0.7 (0.8) (0.2)
GBP175m bond (174.6) - (0.2) (174.8)
GBP400m bond (398.4) - (0.1) (398.5)
Amounts owed to parent undertaking (19.1) (94.9) - (114.0)
------- ------- ------- -------
(601.1) (54.8) (38.6) (694.5)
======= ======= ======= =======
Company At Non- At
1 January Cash cash 31 December
2017 Flow movement 2017
GBPm GBPm GBPm GBPm
Cash and cash equivalents 9.3 1.9 - 11.2
Interest payable on GBP175m bond (3.4) 12.0 (12.0) (3.4)
Interest payable to parent (0.1) 0.7 (0.8) (0.2)
undertaking
Interest payable to subsidiary (14.8) 25.5 (25.5) (14.8)
undertaking
GBP175m bond (174.6) - (0.2) (174.8)
Amounts owed to parent undertaking (19.1) (94.9) - (114.0)
Amounts owed to subsidiary (398.4) - (0.1) (398.5)
undertaking
------- ------- ------- -------
(601.1) (54.8) (38.6) (694.5)
======= ======= ======= =======
20. Provisions
Group and Company Liability and
Environment damage claims Total
GBPm GBPm GBPm
--- --- ----
Current - 0.6 0.6
Non-current 4.6 3.8 8.4
---- ---- ----
Total at 1 January 2016 4.6 4.4 9.0
---- ---- ----
Applied in the year - (0.5) (0.5)
Released to income statement (3.0) (0.3) (3.3)
---- ---- ----
Current 1.1 0.6 1.7
Non-current 0.5 3.0 3.5
---- ---- ----
Total at 1 January 2017 1.6 3.6 5.2
---- ---- ----
Applied in the year - 0.3 0.3
Released to income statement - (0.5) (0.5)
---- ---- ----
Current 0.6 0.5 1.1
Non-current 1.0 2.9 3.9
---- ---- ----
Total at 31 December 2017 1.6 3.4 5.0
==== ==== ====
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 matters and employee claims. The non current element of
these provisions is expected to be utilised within a period not exceeding five
years.
21. Pension Commitments
Most employees of the Group are members of Northern Ireland Electricity Pension
Scheme (NIEPS or the scheme). The scheme has two sections: 'Options' which is
a money purchase arrangement whereby the Group generally matches the members'
contributions up to a maximum of 7% of salary and 'Focus' which provides
benefits based on pensionable salary at retirement or earlier exit from
service. The assets of the scheme are held under trust and invested by the
trustees on the advice of professional investment managers. The trustees are
required by law to act in the interest of all relevant beneficiaries and are
responsible for the investment policy with regard to the assets and the
day-to-day administration of the benefits.
Under 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 2014 and showed a deficit of GBP110.7m. The formal valuation as at 31 March
2017 is currently ongoing. The Company is paying deficit contributions of GBP
16.7m per annum (increasing in line with inflation) from 1 April 2015. The
Company also pays contributions of 36.6% of pensionable salaries in respect of
current accrual, 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 21% of the liabilities are attributable to
current employees, 5% to former employees and 74% 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 13 years (2016 - 13
years) based on the last funding valuation.
Risks associated with the scheme
Asset volatility - liabilities are calculated using a discount rate set with
reference to corporate bond yields. If assets underperform this yield, this
will create a deficit. The scheme holds a significant proportion of growth
assets (equities and diversified growth funds) which, though expected to
outperform corporate bonds in the long-term, create volatility and risk in the
short-term. The allocation of growth assets is monitored to ensure it remains
appropriate given the scheme's long-term objectives.
Changes in bond yields - a decrease in corporate bond yields will increase the
value placed on the scheme's liabilities for accounting purposes although this
will 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, NIE Networks' actuaries, have provided a valuation of Focus under IAS
19 as at 31 December 2017 based on the following assumptions (in nominal terms)
and using the projected unit credit method:
2017 2016
Rate of increase in pensionable salaries (per annum) 3.20% 3.20%
Rate of increase in pensions in payment (per annum) 2.10% 2.10%
Discount rate (per annum) 2.50% 2.70%
Inflation assumption (CPI) (per annum) 2.10% 2.10%
Life expectancy:
Current pensioners (at age 60) - males 27.4 years 27.3 years
Current pensioners (at age 60) - females 29.9 years 29.8 years
Future pensioners (at age 60) - males * 29.3 *29.2 years
years
Future pensioners (at age 60) - females *31.9 *31.8 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 2017 shows a net pension liability
(before deferred tax) of GBP127.0m (2016 - GBP146.0m). The table below shows the
possible (increase) / decrease in the net pension liability that could result
from changes in key assumptions:
Increase in assumption Decrease in assumption
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
0.5% change in rate of increase in (9.5) (7.9) 9.3 8.4
pensionable salaries
0.5% change in rate of pensions in (58.9) (58.3) 54.2 53.4
payments
0.5% change in annual discount rate 81.6 77.4 (86.2) (80.9)
0.5% change in annual inflation rate (65.3) (70.1) 61.7 67.8
(CPI)
1 year change in life expectancy (43.4) (42.4) 43.4 42.4
Assets and Liabilities
The Group and Company's share of the assets and liabilities of Focus are:
Group Company
Value at Value at Value at Value at
31 31 31 31
December December December December
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Equities - quoted 276.8 236.7 276.8 236.7
Bonds - quoted 225.8 252.5 225.8 252.5
Diversified growth funds - quoted 410.1 397.2 410.1 397.2
Multi-asset credit investments 217.0 213.5 217.0 213.5
Cash 9.5 5.5 9.5 5.5
------- ------- ------- -------
1,139.2 1,105.4 1,139.2 1,105.4
Total market value of assets
Actuarial value of liabilities (1,266.2) (1,251.4) (1,266.2) (1,251.4)
------- ------- ------- -------
Net pension liability (127.0) (146.0) (127.0) (146.0)
======= ======= ======= =======
Changes in the market value of assets
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Market value of assets at the beginning of 1,105.4 990.6 1,105.4 772.5
the year
Transfer from subsidiary undertaking (note - - - 218.1
11)
Interest income on scheme assets 29.3 37.0 29.3 37.0
Contributions from employer 25.4 23.9 25.4 23.9
Contributions from scheme members 0.4 0.4 0.4 0.4
Benefits paid (66.7) (57.7) (66.7) (57.7)
Administration expenses paid (1.3) (1.1) (1.3) (1.1)
Re-measurement gains on scheme assets 46.7 112.3 46.7 112.3
------- ------- ------- -------
Market value of assets at the end of the 1,139.2 1,105.4 1,139.2 1,105.4
year ======= ======= ======= =======
Changes in the actuarial value of liabilities
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Actuarial value of liabilities at the 1,251.4 1,095.0 1,251.4 906.3
beginning of the year
Transfer from subsidiary undertaking (note - - - 188.7
11)
Interest expense on pension liability 32.9 40.5 32.9 40.5
Current service cost 8.0 6.5 8.0 6.5
Curtailment costs 1.7 0.1 1.7 0.1
Contributions from scheme members 0.4 0.4 0.4 0.4
Benefits paid (66.7) (57.7) (66.7) (57.7)
Effect of changes in financial assumptions 32.9 173.8 32.9 173.8
Effect of experience adjustments 5.6 (7.2) 5.6 (7.2)
------- ------- ------- -------
Actuarial value of liabilities at the end 1,266.2 1,251.4 1,266.2 1,251.4
of the year ======= ======= ======= =======
The curtailment loss arising in 2017 reflects past service costs associated
with employees leaving the company under a restructuring voluntary exit
arrangement under which 61 employees left the business during 2017.
The Group expects to make contributions of approximately GBP23.3m to Focus in
2018.
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)
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Current service cost (8.0) (6.5) (8.0) (6.5)
Administration expenses paid (1.3) (1.1) (1.3) (1.1)
Curtailment costs (1.7) (0.1) (1.7) (0.1)
------- ------- ------- -------
Total operating charge (11.0) (7.7) (11.0) (7.7)
======= ======= ======= =======
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
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Interest income on scheme assets 29.3 37.0 29.3 37.0
Interest expense on liabilities (32.9) (40.5) (32.9) (40.5)
------- ------- ------- -------
Net pension scheme interest expense (3.6) (3.5) (3.6) (3.5)
======= ======= ======= =======
The actual return on Focus assets was a gain of GBP76.0m for the Group and
Company (2016 - gain of GBP149.3m for the Group and Company).
Analysis of amounts recognised in the Statement of Comprehensive Income
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Re-measurement gains on scheme 46.7 112.3 46.7 112.3
assets
Actuarial losses on scheme (38.5) (166.6) (38.5) (166.6)
liabilities
------- ------- ------- -------
Net gains / (losses) 8.2 (54.3) 8.2 (54.3)
======= ======= ======= =======
The cumulative actuarial losses recognised in the Group and Company Statements
of Comprehensive Income since 1 April 2004 are GBP151.1m and GBP153.2m respectively
(2016 - GBP159.3m and GBP161.4m respectively). The directors are unable to
determine how much of the net pension liability recognised on transition to
IFRS and taken directly to equity is attributable to actuarial gains and losses
since the inception of Focus. Consequently, the directors are unable to
determine the amount of actuarial gains and losses that would have been
recognised in the Statement of Comprehensive Income shown before 1 April 2004.
22. Share Capital and Equity
Group Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Share capital 36.4 36.4 36.4 36.4
Share premium 24.4 24.4 24.4 24.4
Capital redemption reserve 6.1 6.1 6.1 6.1
Accumulated profits 260.5 227.0 260.0 226.5
------- ------- ------- -------
327.4 293.9 326.9 293.4
======= ======= ======= =======
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: 2017 2016
GBPm GBPm
145,566,431 ordinary shares of 25p each 36.4 36.4
====== ======
Dividend
The following dividends were paid by the Group
2017 2016
GBPm GBPm
12.4 pence per allotted share (2016 - 11.0 pence) 18.0 16.0
====== ======
23. Lease Obligations
Property, plant and equipment
The Group and Company have entered into leases on certain items of property,
plant and equipment. These leases contain options for renewal before the
expiry of the lease term at rentals based on market prices at the time of
renewal.
The future minimum lease payments under non-cancellable operating leases are as
follows:
2017 2016
GBPm GBPm
Within one year 2.9 2.8
After one year but not more than five years 6.2 7.0
More than five years 9.3 9.5
------ ------
18.4 19.3
====== ======
24. Commitments and Contingent Liabilities
(i) Capital commitments
At 31 December 2017 the Group and Company had contracted future capital
expenditure in respect of property, plant and equipment of GBP8.7m (2016 - GBP
15.3m) and computer assets of GBP3.4m (2016 - GBP1.1m).
(ii) Contingent liabilities
In the normal course of business the Group has contingent liabilities arising
from claims made by third parties and employees. Provision for a liability is
made (as disclosed in note 20) when the directors believe that it is probable
that an outflow of funds will be required to settle the obligation where it
arises from an event prior to the year end.
In 2014 the Lands Tribunal of Northern Ireland (the Tribunal) ruled that
compensation was payable in respect of two out of four test cases heard by the
Tribunal where claims were made by third parties in relation to potential
diminution in the value of land due to the existence of electricity apparatus.
Total compensation awarded for two of the cases was GBP45,500. No award of
compensation was made in the other two cases.
Although the Tribunal stated that evidence of a loss of value was insufficient,
compensation was awarded in both cases using an 'intuitive approach'. As the
Company knew of no precedent for the use of such an approach, the Company
lodged an appeal to the Court of Appeal. The appeal decision is expected in
early 2018 and until then, it remains uncertain as to whether a liability will
arise. Therefore the Company has not provided for any compensation awarded by
the Tribunal in these accounts.
25. Financial Commitments
In June 2011 NIE Finance PLC, a subsidiary undertaking of the Company, issued a
GBP400m bond on behalf of the Company. The Bond has 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 GBP
400m bond are unconditionally and irrevocably guaranteed by the Company.
26. Post balance sheet events
On 5 February 2018, management tabled cost reduction proposals as part of a
consultation with employee representatives which aims to reduce the number of
job roles by 90 across the group (7% of the workforce) and align future pay
increases with RP6 allowances.
27. 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.
2017 2016
GBPm GBPm
Salaries and short-term 1.6 1.5
employee benefits
Post-employment benefits 0.2 0.2
Other long-term benefits 0.1 0.1
---- ----
1.9 1.8
==== ====
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 accounts 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 accounts 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 accounts.
Related parties of the Company also include the subsidiaries listed in note 11.
Transactions between the Group and related parties together with the balances
outstanding are disclosed below:
Revenue Charges Other Amounts Amounts
from from transactions owed by owed to
Interest related related with related related related
charges party party party party at party at
31 December 31 December
GBPm GBPm GBPm GBPm GBPm GBPm
Year ended
31 December 2017
ESB (0.8) - - - - (114.2)
ESB subsidiaries - 19.2 (4.1) (18.0) 4.8 (5.3)
---- ---- ---- ---- ---- ----
(0.8) 19.2 (4.1) (18.0) 4.8 (119.5)
==== ==== ==== ==== ==== ====
Year ended
31 December 2016
ESB (0.5) - - - - (19.2)
ESB subsidiaries - 13.7 (3.4) (16.0) 2.6 (4.5)
---- ---- ---- ---- ---- ----
(0.5) 13.7 (3.4) (16.0) 2.6 (23.7)
==== ==== ==== ==== ==== ====
Transactions with ESB group undertakings are determined on an arm's length
basis and outstanding balances with group undertakings are unsecured. Interest
charges and amounts owed to ESB relate to the RCF provided by ESB. Revenue
from and amounts owed by ESB subsidiaries primarily arise from regulated sales
to ESB subsidiaries. Charges from and amounts owed to ESB subsidiaries
primarily arise from services purchased. Other transactions with related
parties shown above relate to dividends paid to the shareholder. Amounts in
relation to the back to back swaps with ESBNI Limited are detailed in note 17.
Other related parties
During the year the Group and Company contributed GBP29.8m (2016 - GBP27.6m 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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