TIDM35LK TIDM46RT
NORTHERN IRELAND ELECTRICITY NETWORKS LIMITED
UNAUDITED INTERIM REPORT AND ACCOUNTS FOR THE SIX MONTHSED 30 JUNE 2018
ISIN Numbers: Northern Ireland Electricity Networks XS0085211315 and NIE
Finance PLC XS0633547087
Northern Ireland Electricity Networks Limited's Unaudited Interim Report and
Accounts for the six months ended 30 June 2018 (non statutory) have been
submitted to the National Storage Mechanism and will shortly be available for
inspection at: http://www.morningstar.co.uk/NSM and are available on Northern
Ireland Electricity Networks Limited's website at:
www.nienetworks.co.uk/About-us/investor-relations
Contact for enquiries: NIE Networks Corporate Communications - telephone 0845
300 3356
INTERIM MANAGEMENT REPORT six months to 30 June 2018
The directors present their interim management report for Northern Ireland
Electricity Networks Limited (NIE Networks or the Company) and its subsidiary
undertakings (the Group) for the six months ended 30 June 2018.
NIE Networks is part of the Electricity Supply Board (ESB), the vertically
integrated energy group based in the Republic of Ireland. NIE Networks is an
independent business within ESB with its own Board of Directors, management and
staff. During the period there were a number of changes to the composition of
the Board as follows: Alan Bryce was appointed as an independent non-executive
director on 1 January 2018; Ronnie Mercer retired as an independent
non-executive director on 3 March 2018; and Paul Stapleton replaced Nicholas
Tarrant as Managing Director on 1 May 2018. The other directors, who continued
to hold office during the period and to the date of approving this report are:
Stephen Kingon (independent non-executive Chairman), Rotha Johnston
(independent non-executive director) and Peter Ewing (Deputy Managing Director
and Director of Regulation and Market Operations).
NIE Networks is the owner of the electricity transmission and distribution
networks in Northern Ireland and is the electricity distribution network
operator, serving around 877,000 customers connected to the network.
The Group's principal activities are:
- constructing and maintaining the electricity transmission and distribution
networks in Northern Ireland and operating the distribution network;
- connecting demand and renewable generation customers to the transmission and
distribution networks; and
- providing electricity meters in Northern Ireland and providing metering data
to suppliers and market operators to enable wholesale and retail settlement.
Business Update
Price Control
NIE Networks is regulated by the Northern Ireland Authority for Utility
Regulation (the Utility Regulator) and is subject to periodic reviews in
respect of the prices it may charge for use of the transmission and
distribution networks in Northern Ireland.
Regulatory Period 6 (RP6) commenced on 1 October 2017 and will apply for the
period to 31 March 2024.
The RP6 price control sets ex-ante allowances of 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.
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.
Financial results
Operating Profit
Group operating profit includes revenues and costs associated with the Public
Service Obligation (PSO) charges which are fully recoverable, albeit there are
timing differences between the receipt of revenue / payment of costs and the
recovery of those amounts through the PSO charges. Excluding amounts
attributable to PSO charges, which contributed a net surplus of GBP11.1m during
the six month period ( six months to June 2017 - GBP3.7m deficit), the Group's
operating profit for the six month period decreased from GBP51.7m to GBP46.7m
reflecting redundancy costs of GBP7.1m. The redundancy costs were incurred
against the backdrop of the RP6 price control and cost reduction challenges due
to market opening in connections.
FFO Interest Cover
The ratio of FFO (funds from operations) to interest paid increased to 4.0
times for the period (six months to 30 June 2017 - 3.4 times) reflecting the
increased operating profits.
Net Assets
The Group's net assets increased from GBP327.4m as at 31 December 2017 to GBP416.7m
as at 30 June 2018 reflecting profit after tax of GBP29.7m together with
re-measurement gains (net of tax) on pension scheme liabilities of GBP61.9m
reflecting an increase in the discount rate used to value scheme liabilities
and revised mortality assumptions following the latest scheme valuation.
Cash Flow
Cash and cash equivalents were largely unchanged during the period reflecting
net cash flows from operating activities of GBP88.6m, investing activity out
flows of GBP84.5m and a reduction in amounts borrowed from group undertakings of
GBP4.0m.
Operations
Key Performance Indicators (KPIs) are used to measure progress towards
achieving operational objectives. Performance during the year is summarised
below:
KPIs Six months Year ended
ended
30 June 31 December
2018 2017 2017
Safety:
Lost time incidents 2 1 1
Network Performance:
Customer Minutes Lost (CML)
- Planned CML (minutes) 21 34 62
- Fault CML (minutes) 29 31 57
Customer Service:
Overall standards - failures (number of) None None None
Guaranteed standards - defaults (number None None 1
of)
Stage 2 complaints to the Consumer None 1 2
Council
(number of)
Connections:
Customer demand connections completed 2,452 2,653 5,557
(number of)
Renewable generation connected (MW)
- Large scale (> 5MW) 120 191 287
- Small scale (< 5MW) 25 52 71
Sustainability:
Waste recycling rate (%) 97 99 98
Safety
Ensuring the safety of employees, contractors and the general public continued
to be the number one value at the core of all NIE Networks' business
operations. The aim is to provide a zero harm working environment where risks
to health and safety are assessed and controlled. There were two lost time
incidents during the period (2017 - one). The target for lost time incidents
continues to be set at zero.
Network Performance
The average number of minutes lost per consumer through pre-arranged shutdowns
for maintenance and construction (Planned CML) fell from 34 to 21 reflecting
increased live line working and a reduction in the number of programmed outages
compared to the same period in the previous year. CML through distribution
fault interruptions (Fault CML) were similar to the previous period.
Customer Service
The Utility Regulator sets overall and guaranteed standards for NIE Networks'
performance. All the overall standards were achieved and there were no
defaults against the guaranteed standards for customer services activities
delivered during the period (2017 - none). No Stage 2 complaints were taken up
by the Consumer Council on behalf of customers during the period (2017 - one).
Connections
The number of customer demand connections completed fell from 2,653 to 2,452
mainly reflecting a reduction in the number of applications for connections.
Significant progress was made during the period in completing generation
connections in line with developers' requirements to meet accreditation
deadlines for the Northern Ireland Renewables Obligation (NIRO) scheme. A total
145MW of renewable generation capacity was connected during the six month
period. The total level of renewable generation capacity connected to the
network is now c1.6GW.
During the period NIE Networks has continued to make progress with industry
stakeholders to establish arrangements to enable further generation to connect
to the distribution network, including consultation and publication of a
decision paper in relation to the Distribution Generation Application and Offer
Process.
The market for greater than 5MW distribution connections has been open to
competition since May 2016 and the market for distribution connections lower
than 5MW opened to competition on 28 March 2018. 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.
Sustainability
The recycling rate for all hazardous and non-hazardous waste (excluding
excavation from roads and footpaths, civil projects excavation and asbestos
removal) continued at a high level with 97% of waste recycled during the
period.
Principal Risks and Uncertainties
The principal risks and uncertainties facing NIE Networks for the remainder of
the financial year, which are managed under NIE Networks' risk management
framework, are as set out in the Group's latest annual report for the year to
31 December 2017 which is available at www.nienetworks.co.uk.
GROUP INCOME STATEMENT
Six months ended Year ended
30 June 31 December
2018 2017 2017
Note Unaudited Unaudited Audited
GBPm GBPm GBPm
Revenue 2 143.5 127.2 261.1
Operating costs (85.7) (79.2) (166.2)
----------------- --------------- -----------------
OPERATING PROFIT 57.8 48.0 94.9
Finance costs (19.6) (19.0) (38.5)
Net pension scheme interest (1.5) (1.8) (3.6)
Net finance costs (21.1) (20.8) (42.1)
----------------- --------------- -----------------
PROFIT BEFORE TAX 36.7 27.2 52.8
Tax charge 3 (7.0) (5.3) (8.1)
----------------- --------------- -----------------
PROFIT FOR THE PERIOD / YEAR
ATTRIBUTABLE TO THE EQUITY HOLDERS OF
THE PARENT COMPANY 29.7 21.9 44.7
========= ======== =========
GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended 30 June Year ended
31 December
2018 2017 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
Profit for the financial period / year 29.7 21.9 44.7
--------------- --------------- ---------------
Other comprehensive income / (expense):
- Re-measurement gains / (losses) on
pension scheme assets and liabilities 74.6 (4.3) 8.2
- Deferred tax (charge) / credit relating
to components of other comprehensive (12.7) 0.7 (1.4)
income
--------------- --------------- ---------------
Net other comprehensive income /
(expense) for the period / year 61.9 (3.6) 6.8
--------------- --------------- ---------------
Total net comprehensive income for the
period / year 91.6 18.3 51.5
========= ======== ========
GROUP BALANCE SHEET
As at As at
30 June 31 December
2018 2017 2017
Note Unaudited Unaudited Audited
GBPm GBPm GBPm
Non-current assets
Property, plant and equipment 4 1,757.3 1,647.8 1,715.5
Intangible assets 4 19.7 21.8 20.0
Derivative financial assets 6 465.1 554.3 500.0
--------------- --------------- ---------------
2,242.1 2,223.9 2,235.5
--------------- --------------- ---------------
Current assets
Inventories 12.8 14.3 15.2
Trade and other receivables 41.1 45.3 57.1
Current tax asset 0.6 - 1.4
Derivative financial assets 6 75.5 14.8 79.5
Cash and cash equivalents 11.3 11.4 11.2
--------------- --------------- ---------------
141.3 85.8 164.4
--------------- --------------- ---------------
TOTAL ASSETS 2,383.4 2,309.7 2,399.9
--------------- --------------- ---------------
Current liabilities
Trade and other payables 6 63.5 122.6 89.2
Current tax payable 5.5 2.8 -
Deferred income 19.2 17.5 18.0
Financial liabilities:
Derivative financial 6 75.5 14.8 79.5
liabilities
Other financial liabilities 6, 7 296.4 11.5 307.2
Provisions 5.8 1.1 1.1
--------------- --------------- ---------------
465.9 170.3 495.0
--------------- --------------- ---------------
Non-current liabilities
Deferred tax liabilities 78.9 60.3 64.7
Deferred income 508.2 455.9 483.4
Financial liabilities:
Derivative financial 6 465.1 554.3 500.0
liabilities
Other financial liabilities 6, 7 398.6 607.7 398.5
Provisions 3.4 4.0 3.9
Pension liability 8 46.6 145.0 127.0
--------------- --------------- ---------------
1,500.8 1,827.2 1,577.5
--------------- --------------- ---------------
TOTAL LIABILITIES 1,966.7 1,997.5 2,072.5
--------------- --------------- ---------------
NET ASSETS 416.7 312.2 327.4
========= ========= =========
Equity
Share capital 36.4 36.4 36.4
Share premium 24.4 24.4 24.4
Capital redemption reserve 6.1 6.1 6.1
Accumulated profits 349.8 245.3 260.5
--------------- --------------- ---------------
TOTAL EQUITY 416.7 312.2 327.4
========= ========= =========
The accounts were approved by the Board of directors and signed on its behalf
by:
Paul Stapleton
Director
Date: 6 September 2018
GROUP STATEMENT OF CHANGES IN EQUITY
Capital
Share Share redemption Accumulated
capital premium reserve profits Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 36.4 24.4 6.1 227.0 293.9
--------- --------- --------- --------- ---------
Profit for the year - - - 44.7 44.7
Net other comprehensive expense - - - 6.8 6.8
for the year
--------- --------- --------- --------- ---------
Total net comprehensive expense - - - 51.5 51.5
for the year
Dividends to the shareholder - - - (18.0) (18.0)
--------- --------- --------- --------- ---------
At 1 January 2018 36.4 24.4 6.1 260.5 327.4
--------- --------- --------- --------- ---------
Profit for the period - - - 29.7 29.7
Net other comprehensive expense - - - 61.9 61.9
for the period
--------- --------- --------- --------- ---------
Total net comprehensive income - - - 91.6 91.6
for the period
--------- --------- --------- --------- ---------
IFRS 15 opening reserves (2.3) (2.3)
adjustment
--------- --------- --------- --------- ---------
At 30 June 2018 36.4 24.4 6.1 349.8 416.7
====== ======= ======= ======= =======
Capital
Share Share redemption Accumulated
Capital premium reserve profits Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 36.4 24.4 6.1 227.0 293.9
--------- --------- --------- ---------
Profit for the period - - - 21.9 21.9
Net other comprehensive expense - - - (3.6) (3.6)
for the period
--------- --------- --------- --------- ---------
Total net comprehensive expense - - - 18.3 18.3
for the period
--------- --------- --------- --------- ---------
At 30 June 2017 36.4 24.4 6.1 245.3 312.2
====== ====== ====== ====== ======
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 June 31 December
2018 2017 2017
Unaudited Unaudited Audited
GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period/year 29.7 21.9 44.7
Adjustments for:
- Tax charge 7.0 5.3 8.1
- Net finance costs 21.1 20.8 42.1
- Depreciation of property, plant and 35.0 32.2 66.0
equipment
- Release of customers' contributions and (8.6) (7.8) (16.0)
grants
- Amortisation of intangible assets 2.2 2.6 5.2
- Contributions in respect of property, 32.2 50.1 86.3
plant and equipment
- Defined benefit pension charge less (7.3) (7.2) (14.4)
contributions paid
- Net movement in provisions 4.1 - (0.2)
------------ ------------ ------------
Operating cash flows before movement in 115.4 117.9 221.8
working capital
(Increase) / Decrease in working capital (0.5) 1.8 (45.0)
------------ ------------ ------------
Cash generated from operations 114.9 119.7 176.8
Interest paid (26.3) (25.7) (38.2)
Current taxes paid - (3.1) (5.8)
------------ ------------ ------------
Net cash flows from operating activities 88.6 90.9 132.8
------------ ------------ ------------
Cash flows used in investing activities
Purchase of property, plant and equipment (82.6) (104.3) (206.9)
Purchase of intangible assets (1.9) - (0.9)
------------ ------------ ------------
Net cash flows used in investing (84.5) (104.3) (207.8)
activities
------------ ------------ ------------
Cash flows (used in) / from financing
activities
Dividends paid to shareholder - - (18.0)
Amounts (repaid to) / borrowed from group (4.0) 15.5 94.9
undertakings
------------ ------------ ------------
Net cash flows (used in) / from financing (4.0) 15.5 76.9
activities
------------ ------------ ------------
Net increase in cash and cash equivalents 0.1 2.1 1.9
Cash and cash equivalents at beginning of 11.2 9.3 9.3
period / year
------------ ------------ ------------
Cash and cash equivalents at end of period 11.3 11.4 11.2
/ year
======== ======== ========
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash at bank and in hand, short-term bank deposits and bank overdrafts.
NOTES TO THE CONDENSED INTERIM ACCOUNTS
1. Basis of Preparation
The condensed interim accounts for the period ended 30 June 2018 have been
prepared in accordance with International Accounting Standard (IAS) 34 "Interim
Financial Reporting" and the Disclosure and Transparency Rules of the Financial
Conduct Authority.
The condensed interim accounts consolidate the results of Northern Ireland
Electricity Networks Limited (NIE Networks or the Company) and its subsidiary
undertakings, NIE Networks Services Limited and NIE Finance PLC (the Group).
The condensed interim accounts have been prepared on the basis of the
accounting policies set out in the accounts for the year ended 31 December
2017.
The condensed interim accounts have been prepared on the going concern basis as
the directors, having considered available relevant information, have a
reasonable expectation that the Group has adequate financial resources to
continue in operational existence for a period of 12 months from the date of
approval of the interim report and accounts.
The condensed interim accounts have not been audited or reviewed by auditors
pursuant to the Auditing Practices Board guidance on "Review of Interim
Financial Information performed by the Independent Auditor of the Entity".
The information shown for the year ended 31 December 2017 does not constitute
statutory accounts within the meaning of Section 434 of the Companies Act 2006
and has been extracted from the Group's report for the year ended 31 December
2017, which has been filed with the Registrar of Companies. The report of the
auditors on the accounts contained within the Group's report for the year ended
31 December 2017 was unmodified and did not contain a statement under either
Section 498(2) or Section 498(3) of the Companies Act 2006 regarding inadequate
accounting records or a failure to obtain necessary information and
explanations.
New and revised accounting standards, amendments and interpretations
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 was effective for annual periods
beginning on or after 1 January 2018. IFRS 15 has been applied retrospectively
with the cumulative effect of initially applying this standard recognised at
the date of initial application.
There has been no material impact in respect of revenue derived from
distribution use of system tariffs, PSO charges and transmission service
charges as a result of adopting this standard.
In respect of revenue earned through charges for new connections to the
network, there is a change in the timing of recognition in respect of some
elements of connections revenue, however, this change will have no impact on
the future operating profit of the Group.
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.
The classification and measurement basis for the Group's financial assets and
liabilities is largely unchanged by the adoption of IFRS 9. The main impact of
adopting IFRS 9 arises 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 this has not had a material impact on the financial
statements of the Group.
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 2018, 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. The more
significant future accounting standards and how they may apply to the Group are
discussed below:
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. At this stage, the directors anticipate that the adoption of IFRS
16 may result in changes in the presentation of the Group's accounts from 2019.
2. Revenue
Six months ended Year ended
30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Revenue:
Sales revenue 135.1 119.6 245.6
Amortisation of customer contributions from 8.4 7.6 15.5
deferred income
------------ ------------ ------------
143.5 127.2 261.1
======= ======= =======
The Group's operating activities, which are described in the interim management
report, comprise one operating segment. Sales revenue consists largely of
tariffs income.
3. Tax Charge
Six months ended Year ended
30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Current tax charge
UK corporation tax at 19.0% (2017 - 19.5%) 5.5 4.0 6.4
Over-provided in prior years - - (2.0)
------------ ------------ ------------
Total current tax 5.5 4.0 4.4
------------ ------------ ------------
Deferred tax charge
Origination and reversal of temporary
differences in current period 1.5 1.3 3.7
------------ ------------ ------------
Total deferred tax charge 1.5 1.3 3.7
------------ ------------ ------------
Total tax charge 7.0 5.3 8.1
======= ======= =======
4. Capital Expenditure
Six months ended Year ended
30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Property, plant and equipment 76.8 102.9 204.2
Intangible assets - computer software 1.9 - 0.9
------------ ------------ ------------
78.7 102.9 205.2
======= ======= =======
No assets were disposed of by the Group during the period (2017 - GBPnil).
5. Capital commitments
At 30 June 2018 the Group had contracted future capital expenditure in respect
of property, plant and equipment of GBP13.6m (June 2017 - GBP17.0m) and computer
software assets of GBP4.7m (June 2017 - GBP1.1m).
6. Financial Instruments
An overview of financial instruments, other than cash, short-term deposits and
prepayments, held by the Group as at 30 June 2018 is as follows:
As at 30 June 2018 Loans and Fair value
receivables profit or
Financial assets: GBPm loss
GBPm
Trade and other receivables 39.5 -
Interest rate swaps - 75.5
Total current 39.5 75.5
------------ ------------
Interest rate swaps - 465.1
Total non-current - 465.1
Total financial assets 39.5 540.6
======= =======
Financial liabilities:
Trade and other payables 63.5 -
Interest rate swaps - 75.5
Interest bearing loans and borrowings 296.4 -
Total current 359.9 75.5
------------ ------------
Interest rate swaps - 465.1
Interest bearing loans and borrowings 398.6 -
Total non-current 398.6 465.1
------------ ------------
Total financial liabilities 758.5 540.6
======== ========
The directors consider that the carrying amount of financial instruments equals
fair value.
NIE Networks has held a GBP550m portfolio of inflation linked interest rate swaps
since December 2010. The fair value of inflation linked interest rate swaps is
affected by relative movements in interest rates and market expectations of
future retail price index (RPI) movements.
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
(previously due for payment in 2015), amendments to the fixed interest rate
element of the swaps and an increase in the number of swap counterparties.
Future accretion payments are now scheduled to occur every five years, starting
in December 2018, with remaining accretion paid at maturity.
At the same time that the restructuring took effect the Company entered into
RPI linked interest rate swap arrangements with ESBNI Limited, the immediate
parent undertaking of the Company, which have identical matching terms to the
restructured swaps. The back to back matching swaps with ESBNI Limited ensure
that there is no net effect on the accounts of the Company and that any risk to
financial exposure is borne by ESBNI Limited. The fair value movements have
been recognised in finance costs in the income statement. Positive fair value
movements of GBP31.7m arose on the swaps in the six months ended 30 June 2018
(June 2017: positive fair value movements of GBP21.8m) and were recognised within
finance costs in the income statement, as hedge accounting was not available.
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 for determining and disclosing the fair value of
financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: other techniques for which all inputs which have a significant effect
on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data.
The fair value of interest rate swaps as at 30 June 2018 is considered by the
Company to fall within the level 2 fair value hierarchy. The Company
determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each
reporting period. There have been no transfers between level 1 or 3 of the
hierarchy during the period.
7. Net Debt
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Cash at bank and in hand 11.3 11.4 11.2
------------ ------------ ------------
Debt due before 1 year:
Interest payable on GBP175m bond (9.4) (9.4) (3.4)
Interest payable on GBP400m bond (2.0) (2.0) (14.8)
Interest payable to parent undertaking (0.1) (0.1) (0.2)
GBP175m bond (174.9) - (174.8)
Amounts owed to parent undertaking (110.0) - (114.0)
------------ ------------ ------------
(296.4) (11.5) (307.2)
------------ ------------ ------------
Debt due after 1 year:
GBP175m bond - (174.7) -
GBP400m bond (398.6) (398.5) (398.5)
Amounts owed to parent undertaking - (34.5) -
------------ ------------ ------------
(398.6) (607.7) (395.5)
------------ ------------ ------------
Total net debt (683.7) (607.8) (694.5)
======= ======= =======
8. Pension Commitments
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Market value of assets 1,100.1 1,113.0 1,139.2
Actuarial value of liabilities (1,146.7) (1,258.0) (1,266.2)
------------ ------------ ------------
Net pension liability (46.6) (145.0) (127.0)
======= ======= =======
Changes in the market value of assets
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Market value of assets at beginning of 1,139.2 1,105.4 1,105.4
the period / year
Interest income on scheme assets 14.0 14.7 29.3
Contributions from employer 15.1 12.1 25.4
Contributions from scheme members 0.2 0.2 0.4
Benefits paid (45.6) (29.4) (66.7)
Administration expenses paid (0.8) (0.8) (1.3)
Re-measurement gains on scheme assets (22.0) 10.8 46.7
------------ ------------ ------------
Market value of assets at end of the 1,100.1 1,113.0 1,139.2
period / year
======= ======= =======
Changes in the actuarial value of liabilities
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Actuarial value of liabilities at 1,266.2 1,251.4 1,251.4
beginning of the period / year
Interest expense on pension liability 15.5 16.5 32.9
Current service cost 3.5 4.1 8.0
Curtailment loss 3.5 0.1 1.7
Contributions from scheme members 0.2 0.2 0.4
Benefits paid (45.6) (29.4) (66.7)
Effects of changes in demographic (46.3) - -
assumptions
Effect of changes in financial (56.7) 15.1 32.9
assumptions
Effect of experience adjustments 6.4 - 5.6
------------ ------------ ------------
Actuarial value of liabilities at end of 1,146.7 1,258.0 1,266.2
the period / year
======= ======= =======
9. Related Party Transactions
During the period ended 30 June 2018, the Group contributed GBP17.8m (2017 - GBP
14.2m) to the Northern Ireland Electricity Pension Scheme.
The immediate parent undertaking of the Group and the ultimate parent company
in the UK is ESBNI Limited (ESBNI). The ultimate parent undertaking and
controlling party of the Group and the parent of the smallest and largest group
of which NIE Networks is a member and for which group 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, DOA A995.
Principal subsidiaries of ESB are related parties of the Group. Transactions
between the Group and related parties are disclosed below:
Amounts Amounts
Revenue Charges owed by owed to
from from related related
Interest related related party at party at
charges party party period end period end
GBPm GBPm GBPm GBPm GBPm
Six months ended
30 June 2018
ESB (0.7) - - - (110.1)
ESB subsidiaries - 12.4 (1.9) 2.7 (0.9)
------------ ------------ ------------ ------------ ------------
(0.7) 12.4 (1.9) 2.7 (111.0)
======= ======= ======= ======= =======
Six months ended
30 June 2017
ESB (0.2) - - - (34.6)
ESB subsidiaries - 8.1 (2.2) 1.9 (0.5)
------------ ------------ ------------ ------------ ------------
(0.2) 8.1 (2.2) 1.9 (35.1)
======= ======= ======= ======= =======
10. Contingent Liabilities
In the normal course of business the Group has contingent liabilities arising
from claims made by third parties and employees. Provision for a liability is
made when the directors believe that it is probable that an outflow of funds
will be required to settle the obligation where it arises from an event prior
to the 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 knows of no precedent for the use of such an approach, the Company
lodged an appeal to the Court of Appeal. The appeal decision is awaited and
until it is known, 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.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the directors, named on page 1, confirm that to the best of their
knowledge:
(i) the interim accounts have been prepared in accordance with IAS 34 "Interim
Financial Reporting" and give a true and fair view of the assets, liabilities,
financial position and profit of the Group for the six months to 30 June 2018;
and
(ii) the interim management report includes a fair review of the information
required by DTR 4.2.7R of the Disclosure and Transparency Rules.
By order of the Board
Paul Stapleton
Director
6 September 2018
END
(END) Dow Jones Newswires
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