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 £94.9m and profit after tax of £44.7m
- Over £180m 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 £697 million for capital investment and £456
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
£94.9m for the year to 31 December
2017, an increase of £3.2m on the previous year. Group
revenue of £261.1m reflects an increase of £14.3m 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 £166.2m increased by £11.1m 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 £327.4m increased by £33.5m on the
previous year largely reflecting profit after tax of £44.7m
together with re-measurement gains (net of tax) of £6.8m on net
pension scheme liabilities partly offset by a dividend paid to the
shareholder during the year of £18.0m.
Cash Flow
Cash and cash equivalents increased by £1.9m during the year
reflecting net cash flows from operating activities of £132.8m
together with a drawdown on the Group’s Revolving Credit Facility
(RCF) of £94.9m, partly offset by investing activity out flows of
£207.8m and a dividend paid of £18.0m. Cash flows from operating
activities of £132.8m are £53.6m 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 £175.0m and £400.0m (£174.8m and £398.5m respectively net
of issue costs) which are due to mature in September 2018 and June
2026 respectively and £114.0m drawn down from a £150.0m 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 £175.0m bond and
£150.0m 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
£150.0m RCF from ESB to £400.0m 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 £175.0m and £400.0m 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 £550m 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
£m |
|
2016
£m |
| Cash and cash equivalents |
11.2 |
|
9.3 |
| Trade and other receivables
(excluding prepayments and accrued income) |
55.2 |
|
58.4 |
| Other financial assets – current and
non-current |
579.5
------ |
|
598.0
------ |
|
645.9
------ |
|
665.7
------ |
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)
Network Performance: |
1 |
|
1 |
Customer Minutes Lost
(CML)
- Planned CML (minutes)
- Fault CML (minutes) |
62
57 |
|
65
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 of) |
2 |
|
None * |
Connections: |
|
|
|
| Customer demand connections
completed (number of) |
5,557 |
|
5,984 |
Renewable generation
connected (MW):
- Small scale (< 5MW)
- Large scale
(>5MW) |
71
287 |
|
74
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 £108.9m (2016
- £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, contractors and the general public to risk
of injury and the associated potential liability and/or loss of
reputation for NIE Networks. |
A comprehensive annual Health, Safety and Wellbeing Business Plan
approved annually by the NIE Networks Board which sets out detailed
targets for the management of health and safety. These
targets are continually monitored as part of the Group’s OHSAS
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 licence obligations. |
NIE Networks has appointed a Compliance Manager for 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 funding at appropriate cost for
planned investments and maintaining NIE Networks’ credit metrics
within Credit Rating Agency investment grade targets.
Exposure to financial counterparty risk.
|
NIE Networks employs a continuous forecasting and monitoring
process to ensure adequate funding is secured.
Credit risk in respect of 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.
NIE Networks conducts business only with Board approved
counterparties which meet the criteria outlined in the Group’s
treasury policy.
The Group’s treasury policy and procedures are reviewed, revised
and approved by the Board as appropriate. |
Pensions:
Increase in the deficit costs or ongoing accrual costs in the
defined benefit section of the Northern Ireland Electricity Pension
Scheme (NIEPS) (“Focus”) not covered by regulatory allowances. |
“Focus” has been closed
to new entrants since 1998. Since then new members have
joined the money purchase section of the NIEPS (“Options”).
The NIEPS trustees seek the advice of professional investment
managers regarding the scheme’s investments.
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 customer service resulting in damage
to reputation. |
Stretching customer service standards are approved by the NIE
Networks Board. Performance against these standards is
monitored and reported on a monthly basis. |
Connections market
share:
Significant loss of market share arising from contestability in
connections. |
The Business Transformation Programme has delivered structure
changes, process improvements and IT system 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 of the transmission or
distribution network. |
The risk is minimised through ongoing assessment of the network
condition and development of asset 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 following damage to the electricity
network from adverse weather conditions. |
System risk assessments are completed regularly and weather
forecasts actively monitored daily.
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 infrastructure or IT systems arising from a
successful cyber attack or non-malicious failure. |
Regular review of IT systems and their resilience.
Ongoing monitoring of technical performance and 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 of Data Protection Act. |
Data Protection Forum implements and monitors 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.
Failure to develop and retain staff. |
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.
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 £10,000 during the year. In 2017 the
Charities Fund supported Autism projects, including Adam’s Camp and
Autism NI, by donating £9,500.
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 €200m 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 £44.7m (2016 -
£45.5m). During the year the Company paid a final dividend of
£18.0m (2016 - £16.0m). 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 - £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
INDEPENDENT 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: £2,650,000, based on 5% of profit
before tax.
Overall company materiality: £2,550,000, 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 in respect of
consumption derived using historical data and detailed
assumptions.
Estimation uncertainty and the complexity of calculations give rise
to heightened misstatement risk and are therefore a focus of our
audit work.
This key audit matter is applicable to the Group and Company. |
We understood and tested the processes and internal controls which
NIE Networks has in place for the estimation of unbilled
revenue.
We performed testing over the systems that support unbilled revenue
to include agreement of volume and pricing data between the billing
system and the unbilled 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 systems to support
financial reporting processes. Appropriate access controls
and system configurations contribute to mitigating the risk of
potential fraud or errors. The core financial system is
mature with no underlying changes in programmes during the
year. However, due to the complexity of the system, a change
in an outsourced third party IT support provider, and our
appointment as first year auditor, additional audit focus was given
to this area.
This key audit matter is applicable to the Group and Company. |
We deployed a diagnostic tool on the core financial system in order
to ensure configurations and access levels were appropriate.
Some accesses and configurations were not in line with good
practice, however we were further able to interrogate the system to
ensure the integrity of underlying data in key areas of audit
reliance.
This included confirmation of:
- the operation of automated controls;
- the design of reports having not been modified in the period
(including testing over completeness and accuracy);
- 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 |
£2,650,000 |
£2,550,000 |
| How we determined
it |
5% of profit before tax. |
5% of profit before tax. |
| Rationale for benchmark
applied |
Based on the benchmarks used in the
annual report, profit before tax is the primary measure used by the
shareholders in assessing the performance of the group, and is a
generally accepted auditing benchmark. |
We believe that profit before tax is
the primary measure used by the shareholders in assessing the
performance of the entity, and is a generally accepted auditing
benchmark. The 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
£93,980 and £2,550,000. 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
£132,500 (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
£m |
|
2016
£m |
| 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
£m |
|
2016
£m |
|
2017
£m |
|
2016
£m |
| Profit for the financial
year |
|
44.7 |
|
45.5 |
|
44.7 |
|
45.5 |
|
|
----- |
|
----- |
|
----- |
|
----- |
| 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 liabilities |
21 |
8.2 |
|
(54.3) |
|
8.2 |
|
(54.3) |
| Deferred tax (charge) / credit
relating to components of other comprehensive income /
(expense) |
7 |
(1.4) |
|
8.0 |
|
(1.4) |
|
8.0 |
|
|
----- |
|
----- |
|
----- |
|
----- |
| Net other comprehensive
income / (expense) for the year |
|
6.8 |
|
(46.3) |
|
6.8 |
|
(46.3) |
| Total comprehensive income /
(expense) for the year attributable to the equity holders of the
parent company |
|
-----
51.5
===== |
|
-----
(0.8)
===== |
|
-----
51.5
===== |
|
-----
(0.8)
===== |
|
|
Group |
|
Company |
|
Note |
2017
£m |
|
2016
£m |
|
2017
£m |
|
2016
£m |
| Non-current assets |
|
|
|
|
|
|
|
|
| Property, plant and equipment |
9 |
1,715.5 |
|
1,577.3 |
|
1,716.3 |
|
1,578.1 |
| Intangible assets |
10 |
20.0 |
|
24.3 |
|
20.0 |
|
24.3 |
| Derivative financial assets |
17 |
500.0 |
|
583.9 |
|
500.0 |
|
583.9 |
| 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 receivables |
13 |
57.1 |
|
60.9 |
|
57.1 |
|
60.9 |
| Current tax receivable |
|
1.4 |
|
- |
|
1.4 |
|
- |
| Derivative financial assets |
17 |
79.5 |
|
14.1 |
|
79.5 |
|
14.1 |
| 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
liabilities |
17 |
79.5 |
|
14.1 |
|
79.5 |
|
14.1 |
| Other financial
liabilities |
18 |
307.2 |
|
18.3 |
|
307.2 |
|
18.3 |
| 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
liabilities |
17 |
500.0 |
|
583.9 |
|
500.0 |
|
583.9 |
| Other financial
liabilities |
18 |
398.5 |
|
592.1 |
|
398.5 |
|
592.1 |
| 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 reserve |
22 |
6.1 |
|
6.1 |
|
6.1 |
|
6.1 |
| 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 £44.7m (2016
- £45.5m).
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
|
Note |
Share
capital |
|
Share
premium |
|
Capital
redemption
reserve |
|
Accumulated
profits |
|
Total
equity |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
| 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 shareholder |
22 |
- |
|
- |
|
- |
|
(16.0) |
|
(16.0) |
|
|
------- |
|
------- |
|
------- |
|
------- |
|
------- |
| 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 shareholder |
22 |
- |
|
- |
|
- |
|
(18.0) |
|
(18.0) |
|
|
------- |
|
------- |
|
------- |
|
------- |
|
------- |
| At 31 December 2017 |
|
36.4
===== |
|
24.4
====== |
|
6.1
====== |
|
260.5
====== |
|
327.4
====== |
Company
|
Note |
Share
capital |
|
Share
premium |
|
Capital
redemption
reserve |
|
Accumulated
profits |
|
Total
equity |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
| 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
for the year ended 31 December 2017 |
|
Group |
|
|
|
Note |
2017
£m |
|
2016
£m |
|
|
| 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 (£) with all values rounded to the nearest
£100,000 except where otherwise indicated.
The Company has taken advantage of the following disclosure
exemptions under FRS 101:
a) the requirements of paragraphs 10(d), 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134-136 of IAS 1
Presentation of Financial Statements, which are requirements
relating to cash flows, comparative information, statement of
compliance and the management of capital;
b) the requirements of IAS 7 Statement of Cash Flows in
preparing a cash flow statement for the Company;
c) the requirements of paragraphs 17 and 18A of IAS 24 Related
Party Disclosures relating to the disclosure of key management
personnel compensation; and
d) the requirements in IAS 24 Related Party Disclosures to
disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a
party to the transaction is wholly owned by such a member.
Basis of
Preparation – Going Concern
The Group is financed through a combination of equity and debt
finance. Details in respect of the Group’s equity are shown
in the Statement of Changes in Equity and in note 22 to the
accounts. The Group’s debt finance at the year end comprised
bonds of £175.0m and £400.0m (£174.8m and £398.5m respectively net
of issue costs) which are due to mature in September 2018 and June
2026 respectively and £114.0m drawn down from a £150.0m 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 £175.0m bond and
£150.0m 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
£150.0m RCF from ESB to £400.0m 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
£m |
|
2016
£m |
| Revenue: |
|
|
|
|
| Sales revenue |
|
245.6 |
|
232.3 |
| Release of customer contributions
from deferred income |
|
15.5 |
|
14.5 |
|
|
------
261.1
====== |
|
------
246.8
====== |
During the year, four customers accounted for sales revenue
totalling £198.8m (2016 – three customers accounted for
£178.9m).
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 |
|
£m |
|
£m |
| 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 |
£’000 |
|
£’000 |
|
| Ernst & Young LLP: |
|
|
|
|
| Fees payable to the Group and
Company auditors for the audit of the accounts |
- |
|
23 |
|
| Fees payable to the Group and
Company auditors for other services: |
|
|
|
|
| The audit of the company’s
subsidiaries pursuant to legislation |
- |
|
13 |
|
| Audit related assurance
services |
27 |
|
30 |
|
| Permitted tax compliance
services |
3 |
|
2 |
|
| PricewaterhouseCoopers
LLP: |
|
|
|
|
| Fees payable to the Group and
Company auditors for the audit of the accounts |
29 |
|
- |
|
| Fees payable to the Group and
Company auditors for other services: |
|
|
|
|
| The audit of the company’s
subsidiaries pursuant to legislation |
4 |
|
- |
|
| 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 |
|
|
£m |
|
£m |
| 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 intangible assets |
|
(44.5) |
|
(42.6) |
|
|
------ |
|
------ |
| Charged to the income statement |
|
29.3
====== |
|
25.2
====== |
Average and actual headcount for the Group and Company are
disclosed in the table below:
|
Average |
|
Actual headcount
as at 31 December |
|
2017
Number |
|
2016
Number |
|
2017
Number |
|
2016
Number |
| Management, administration and
support |
318 |
|
316 |
|
312 |
|
320 |
| 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 |
|
£’000 |
|
£’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
£4,212 (2016 - £17,375).
The remuneration in respect of the highest paid director was as
follows:
| As at 31
December |
2017 |
|
2016 |
|
£’000 |
|
£’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
£m |
|
2016
£m |
| Interest receivable: |
|
|
|
| Bank interest receivable |
- |
|
0.1 |
|
------ |
|
------ |
| Interest payable: |
|
|
|
| £175m bond |
(12.0) |
|
(12.0) |
| £400m 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 |
|
|
|
|
£m |
|
£m |
| Operating profit |
|
|
|
94.9 |
|
91.7 |
| Add back depreciation and
amortisation |
|
|
|
70.7 |
|
65.2 |
| Deduct pension deficit repair
contributions |
|
|
|
(17.2) |
|
(16.9) |
| Deduct amortisation of customer
contributions |
|
|
|
(15.5) |
|
(14.5) |
| 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 £17.2m (2016 - £16.9m)
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 |
£m |
|
£m |
| 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 current year |
3.7 |
|
4.3 |
| 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 |
|
£m |
|
£m |
| 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
£m |
|
2016
£m |
| 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
£m |
|
2016
£m |
| 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 £44.7m (2016 - £45.5m). 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 |
Infrastructure
assets
£m |
|
Non-operational
land and
buildings
£m |
|
Fixtures
and
equipment
£m |
|
Vehicles and mobile
plant
£m |
|
Total
£m |
| 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
depreciation |
- |
|
- |
|
(5.5) |
|
(7.0) |
|
(12.5) |
|
------- |
|
------- |
|
------- |
|
------- |
|
------- |
| 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 £77.9m (2016 - £68.1m).
| Company |
Infrastructure
assets
£m |
|
Non-operational
land and
buildings
£m |
|
Fixtures
and
equipment
£m |
|
Vehicles and
mobile plant
£m |
|
Total
£m |
| 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 £77.9m (2016 - £68.1m).
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 |
|
£m |
|
£m |
|
£m |
|
£m |
| 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 £nil (2016 - nil).
Software assets include £15.7m (2016 - £19.3m) 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 |
|
£m |
|
£m |
| Cost: |
|
|
|
| At the beginning and end of the
year |
7.9 |
|
7.9 |
|
==== |
|
==== |
The Company holds the entire share capital of NIE Networks
Services Limited and NIE Finance PLC which have been fully
consolidated into the 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 £nil. On 1 January 2016, all assets, operations and
employees of NIE Networks Services Limited transferred to NIE
Networks and NIE Networks Services Limited ceased operational
activity. A summary of the assets and liabilities transferred and
the consideration payable is shown below:
|
|
Fair Value of
Assets transferred
£m |
| 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 £400m 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 £nil (2016 -
£nil).
12. Inventories
| Group and Company |
2017
£m |
|
2016
£m |
| 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
£m |
|
2016
£m |
|
2017
£m |
|
2016
£m |
| Current |
|
|
|
|
|
|
|
| Trade receivables (including
unbilled consumption) |
49.8 |
|
55.0 |
|
49.8 |
|
55.0 |
| 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
undertakings (note 27) |
4.8 |
|
2.6 |
|
4.8 |
|
2.6 |
|
----- |
|
----- |
|
----- |
|
----- |
|
57.1
===== |
|
60.9
===== |
|
57.1
===== |
|
60.9
===== |
Trade receivables include amounts relating to unbilled
consumption of £17.6m (2016 - £16.6m).
The largest trade receivable at the year end, due from one
customer, is £8.8m (2016 - £9.0m).
Trade receivables are stated net of an allowance of £0.5m (2015
- £0.3m) 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’.
Group and Company |
2017
£m |
|
2016
£m |
| 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 £0.5m includes £0.4m (2016 - £0.2m) 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
£m |
|
2016
£m |
|
2017
£m |
|
2016
£m |
| 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
£m |
|
2016
£m |
| 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 |
|
£m |
|
£m |
|
£m |
|
£m |
| 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 27) |
5.3 |
|
4.5 |
|
5.3 |
|
4.5 |
| Amounts owed to subsidiary
undertakings |
- |
|
- |
|
9.2 |
|
9.2 |
| 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 |
|
Grants |
|
Customers’
contributions |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
|
----- |
|
----- |
|
----- |
| 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 |
|
£m |
|
£m |
| 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 £550m portfolio of inflation linked
interest rate swaps (the RPI swaps) since December 2010. The
fair value of inflation linked interest rate swaps is affected by
relative movements in interest rates and market expectations of
future retail price index (RPI) movements.
The RPI swaps were 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 £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 £3.8m
occurred in 2017 (2016 – negative fair value movements of £145.4m).
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 £58.1m / (£63.3m) (2016 - £63.8m / (£65.2m)).
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
£58.1m / (£63.3m) (2016 - £63.8m / (£65.2m)) 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
£m |
|
2016
£m |
|
2017
£m |
|
2016
£m |
| Current |
|
|
|
|
|
|
|
| Interest payable on £175m bond |
3.4 |
|
3.4 |
|
3.4 |
|
3.4 |
| Interest payable on £400m bond |
14.8 |
|
14.8 |
|
- |
|
- |
| Interest payable to parent
undertaking (note 27) |
0.2 |
|
0.1 |
|
0.2 |
|
0.1 |
| Interest payable to subsidiary
undertaking |
- |
|
- |
|
14.8 |
|
14.8 |
| £175m bond |
174.8 |
|
- |
|
174.8 |
|
- |
| Amounts owed to parent undertaking
(note 27) |
114.0
----- |
|
-
----- |
|
114.0
----- |
|
-
----- |
|
307.2 |
|
18.3 |
|
307.2 |
|
18.3 |
|
===== |
|
===== |
|
===== |
|
===== |
| Non-current |
|
|
|
|
|
|
|
| £175m bond |
- |
|
174.6 |
|
- |
|
174.6 |
| £400m bond |
398.5 |
|
398.4 |
|
- |
|
- |
| Amounts owed to parent undertaking
(note 27) |
- |
|
19.1 |
|
- |
|
19.1 |
| Amounts owed to subsidiary
undertaking |
-
----- |
|
-
----- |
|
398.5
----- |
|
398.4
----- |
|
398.5
===== |
|
592.1
===== |
|
398.5
===== |
|
592.1
===== |
Loans and other borrowings outstanding are repayable as
follows:
| Group and Company |
2017 |
|
2016 |
|
£m |
|
£m |
| 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 £175m 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 £2.6m of costs associated with
raising finance;
- the 15 year £400m bond is repayable in 2026 and carries a
fixed rate of interest of 6.375% which is payable annually in
arrears on 2 June. The bond issue incurred £2.1m of costs
associated with raising finance. In back to back
arrangements, NIE Finance PLC has a loan of £400m with the Company,
which was issued net of £2.1m of costs associated with raising
finance. Interest is paid on the loan at a fixed rate of
6.375% annually in arrears on 2 June; and
- amounts owed to parent undertaking represents a drawdown of
£114.0 (2016 - £19.1m) from the Company’s £150.0m 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 £175m and £400m bonds, which are listed on the London Stock
Exchange’s regulated market, had fair values at 31 December 2017 of £182.3m (2016 - £194.0m) and
£545.3m (2016 - £553.6m) respectively, based on current market
prices. The Company’s £400m back-to-back loan had a fair
value at 31 December 2017 of £545.3m
(2016 - £553.6m) based on the fair value of the £400m
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 demand |
Within 3
months |
3 to 12
months |
1 to 5
years |
More than 5
years |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
| £175m bond (including interest
payable) |
- |
- |
187.0 |
- |
- |
187.0 |
| £400m bond (including interest
payable) |
- |
- |
25.5 |
102.0 |
502.0 |
629.5 |
| 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 demand |
Within 3 months |
3 to 12 months |
1 to 5 years |
More than 5 years |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
| £175m bond (including interest
payable) |
- |
- |
12.0 |
187.0 |
- |
199.0 |
| £400m bond (including interest
payable) |
- |
- |
25.5 |
102.0 |
527.5 |
655.0 |
| 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 |
On demand |
Within 3 months |
3 to 12 months |
1 to 5 years |
More than 5
years |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
| £175m bond (including interest
payable) |
- |
- |
187.0 |
- |
- |
187.0 |
| Amounts owed to subsidiary
undertaking |
- |
- |
25.5 |
102.0 |
502.0 |
629.5 |
| 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 demand |
Within 3 months |
3 to 12 months |
1 to 5 years |
More than 5 years |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
| £175m bond (including interest
payable) |
- |
- |
12.0 |
187.0 |
- |
199.0 |
| Amounts owed to subsidiary
undertaking |
- |
- |
25.5 |
102.0 |
527.5 |
655.0 |
| 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
1 January
2017 |
|
Cash
flow |
|
Non-
cash
movement |
|
At
31 December
2017 |
|
£m |
|
£m |
|
£m |
|
£m |
| Cash and cash equivalents |
9.3 |
|
1.9 |
|
- |
|
11.2 |
| Interest payable on £175m bond |
(3.4) |
|
12.0 |
|
(12.0) |
|
(3.4) |
| Interest payable on £400m bond |
(14.8) |
|
25.5 |
|
(25.5) |
|
(14.8) |
| Interest payable to parent
undertaking |
(0.1) |
|
0.7 |
|
(0.8) |
|
(0.2) |
| £175m bond |
(174.6) |
|
- |
|
(0.2) |
|
(174.8) |
| £400m 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
1 January
2017 |
|
Cash
Flow |
|
Non-
cash movement |
|
At
31 December
2017 |
|
£m |
|
£m |
|
£m |
|
£m |
| Cash and cash equivalents |
9.3 |
|
1.9 |
|
- |
|
11.2 |
| Interest payable on £175m bond |
(3.4) |
|
12.0 |
|
(12.0) |
|
(3.4) |
| Interest payable to parent
undertaking |
(0.1) |
|
0.7 |
|
(0.8) |
|
(0.2) |
| Interest payable to subsidiary
undertaking |
(14.8) |
|
25.5 |
|
(25.5) |
|
(14.8) |
| £175m bond |
(174.6) |
|
- |
|
(0.2) |
|
(174.8) |
| Amounts owed to parent
undertaking |
(19.1) |
|
(94.9) |
|
- |
|
(114.0) |
| Amounts owed to subsidiary
undertaking |
(398.4) |
|
- |
|
(0.1) |
|
(398.5) |
|
------- |
|
------- |
|
------- |
|
------- |
|
(601.1)
======= |
|
(54.8)
======= |
|
(38.6)
======= |
|
(694.5)
======= |
20. Provisions
| Group and Company |
Environment
£m |
|
Liability and
damage claims
£m |
|
Total
£m |
|
--- |
|
--- |
|
---- |
| 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 £110.7m. The formal
valuation as at 31 March 2017 is
currently ongoing. The Company is paying deficit contributions of
£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
years |
|
*29.2
years |
| Future
pensioners (at age 60) – females |
*31.9
years |
|
*31.8
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
£127.0m (2016 - £146.0m). 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 |
|
£m |
|
£m |
|
£m |
|
£m |
| 0.5% change in rate of increase in
pensionable salaries |
(9.5) |
|
(7.9) |
|
9.3 |
|
8.4 |
| 0.5% change in rate of pensions in
payments |
(58.9) |
|
(58.3) |
|
54.2 |
|
53.4 |
| 0.5% change in annual discount
rate |
81.6 |
|
77.4 |
|
(86.2) |
|
(80.9) |
| 0.5% change in annual inflation rate
(CPI) |
(65.3) |
|
(70.1) |
|
61.7 |
|
67.8 |
| 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
31 December
2017 |
|
Value at
31 December
2016 |
|
Value at
31 December
2017 |
|
Value at
31 December
2016 |
|
£m |
|
£m |
|
£m |
|
£m |
| 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
------- |
Total market value of assets |
1,139.2 |
|
1,105.4 |
|
1,139.2 |
|
1,105.4 |
| 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 |
|
£m |
|
£m |
|
£m |
|
£m |
| Market value of assets at the
beginning of the year |
1,105.4 |
|
990.6 |
|
1,105.4 |
|
772.5 |
| Transfer from subsidiary undertaking
(note 11) |
- |
|
- |
|
- |
|
218.1 |
| 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 year |
1,139.2
======= |
|
1,105.4
======= |
|
1,139.2
======= |
|
1,105.4
======= |
Changes in the actuarial value of
liabilities
|
Group |
|
Company |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
£m |
|
£m |
|
£m |
|
£m |
| Actuarial value of liabilities at
the beginning of the year |
1,251.4 |
|
1,095.0 |
|
1,251.4 |
|
906.3 |
| Transfer from subsidiary undertaking
(note 11) |
- |
|
- |
|
- |
|
188.7 |
| 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 of the year |
1,266.2
======= |
|
1,251.4
======= |
|
1,266.2
======= |
|
1,251.4
======= |
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 £23.3m
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 |
|
£m |
|
£m |
|
£m |
|
£m |
| 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 |
|
£m |
|
£m |
|
£m |
|
£m |
| 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 £76.0m for the
Group and Company (2016 - gain of £149.3m for the Group and
Company).
Analysis of amounts recognised in the
Statement of Comprehensive Income
|
Group |
|
Company |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
£m |
|
£m |
|
£m |
|
£m |
| Re-measurement gains on scheme
assets |
46.7 |
|
112.3 |
|
46.7 |
|
112.3 |
| Actuarial losses on scheme
liabilities |
(38.5) |
|
(166.6) |
|
(38.5) |
|
(166.6) |
|
------- |
|
------- |
|
------- |
|
------- |
| 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 £151.1m and £153.2m respectively
(2016 – £159.3m and £161.4m 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 |
|
£m |
|
£m |
|
£m |
|
£m |
| Share capital |
36.4 |
|
36.4 |
|
36.4 |
|
36.4 |
| Share premium |
24.4 |
|
24.4 |
|
24.4 |
|
24.4 |
| Capital redemption reserve |
6.1 |
|
6.1 |
|
6.1 |
|
6.1 |
| Accumulated profits |
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 |
|
|
£m |
|
£m |
| 145,566,431 ordinary shares of 25p
each |
|
36.4
====== |
|
36.4
====== |
Dividend
The following dividends were paid by the Group
|
|
2017 |
|
2016 |
|
|
£m |
|
£m |
| 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
£m |
|
2016
£m |
| 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 £8.7m (2016 - £15.3m) and computer
assets of £3.4m (2016 - £1.1m).
(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 £45,500. 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 £400m 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 £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 |
|
|
|
|
£m |
|
£m |
| Salaries and short-term employee
benefits |
|
|
|
1.6 |
|
1.5 |
| 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:
|
Interest
charges |
Revenue
from
related
party |
Charges
from
related
party |
Other
transactions
with related
party |
Amounts
owed by related
party at
31 December |
Amounts
owed to related
party at
31 December |
|
£m |
£m |
£m |
£m |
£m |
£m |
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 £29.8m (2016 -
£27.6m Group and Company) to NIEPS in respect of Focus and Options
employer contributions, including an element of deficit repair
contributions in respect of Focus.