This announcement is in respect of NIE Finance PLC’s bonds
- £350,000,000 2.5 per cent Guaranteed Notes due 2025
(ISIN XS1820002308); and
- £400,000,000 6.375 per cent Guaranteed Notes due 2026
(ISIN XS0633547087)
each unconditionally and irrevocably guaranteed by Northern
Ireland Electricity Networks Limited.
Northern Ireland Electricity Networks Limited’s Unaudited
Interim Report and Financial Statements for the six months ended
30 June 2020 (non statutory) have
been submitted to the National Storage Mechanism and will shortly
be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism and are
available on Northern Ireland Electricity Networks Limited’s
website at
http://www.nienetworks.co.uk/about-us/investor-relations
Contact for enquiries: NIE Networks Corporate Communications –
telephone 0845 300 3356
The report and financial statements follow below.
INTERIM MANAGEMENT REPORT
six months to June 2020
The directors present their interim management report for
Northern Ireland Electricity Networks Limited (NIE Networks or the
Company) and its subsidiary undertakings (the Group) for the six
months ended 30 June 2020.
NIE Networks is part of the Electricity Supply Board (ESB), the
vertically integrated energy group based in the Republic of
Ireland. NIE Networks is an independent business within ESB
with its own Board of Directors, management and staff. On
3 March 2020, Stephen Kingon retired as Chair of the Board
following nine years of service and on 4
March 2020 Dame Rotha
Johnston was appointed Chair. The other directors, who
continued to hold office during the period and to the date of
approving this report are: Alan
Bryce (non-executive Director), Keith Jess (non-executive Director),
Paul Stapleton (Managing Director)
and Gordon Parkes (Human Resources
Director).
NIE Networks is the owner of the electricity transmission and
distribution networks in Northern
Ireland and is the electricity distribution network
operator, serving around 880,000 customers connected to the
network.
The Group's principal activities are:
- constructing and maintaining the electricity
transmission and distribution networks in Northern Ireland and operating the
distribution network;
- connecting demand and renewable generation customers to
the transmission and distribution networks; and
- providing electricity meters in Northern Ireland and providing metering data
to suppliers and market operators to enable wholesale and retail
settlement.
Business Update
Price Control
NIE Networks is regulated by the Northern Ireland Authority for
Utility Regulation (the Utility Regulator) and is subject to
periodic reviews in respect of the prices it may charge for use of
the transmission and distribution networks in Northern
Ireland.
Regulatory Period 6 (RP6)
commenced on 1 October 2017 and will
apply for the period to 31 March
2024.
The RP6 price control sets ex-ante
allowances of £735 million for capital investment and £481
million in respect of operating costs (2019-20 prices). The
allowances in respect of major transmission load growth
projects will be considered on a case-by-case basis, for example,
the North-South Interconnector. The allowances will be adjusted to
reflect 50% of the difference between the allowances and
actual costs incurred. NIE Networks’ Connections business is
largely outside the scope of the RP6
price control following the introduction of contestability.
The RP6 baseline rate of return of
3.14% plus inflation (weighted average cost of capital based on
pre-tax cost of debt and post-tax cost of equity) will be adjusted
to reflect the cost of new debt raised in RP6. This mechanism is new for RP6, departing from the former approach of
setting an ex-ante allowance, and will align the cost of debt
component of the return more closely with prevailing market
conditions at the time of drawdown of new debt.
Covid-19
The ongoing Covid-19 pandemic has impacted on NIE Networks’
operations since mid-March 2020, with
the company’s Crisis Management Team and Executive Committee
co-ordinating the response and implementing the business continuity
and emergency response plans.
At the onset of the pandemic, the Company identified three main
priorities:
- protect the safety, health and wellbeing of our
employees and customers;
- maintain a reliable electricity supply to our customers
across Northern Ireland; and
- protect our business to safeguard employment and enable
a successful return to normal operations.
In response to Government restrictions, the Company ceased all
non-essential works on the network and made arrangements for the
majority of office based staff to work from home. The Company
maintained critical operations during the most significant Covid-19
restrictions and has now updated its standard operating procedures
and adapted its work sites to facilitate the safety of all staff
whether working at field sites, NIE Networks’ premises or at home.
Through this the Company continued to support its customers and
provide a reliable electricity service.
In addition to maintaining core services, a significant number
of staff participated in a range of volunteering activities to
support local communities during the pandemic including making
visors and scrubs for residential care home workers, delivering
prescriptions and proactively calling vulnerable customers on NIE
Networks’ critical care register.
This interim management report reflects the financial impact of
the pandemic for the period to 30 June
2020, primarily the reduction in electricity demand in the
period as well as the cessation of non-essential works which
resulted in lower activity on the Company’s capital work programmes
during the period. Management continues to monitor the ongoing
impact of the pandemic and has taken steps to mitigate the
operational and financial impacts on the Company.
Financial
results
Operating Profit
The Group’s operating profit for the six month period increased
from £56.4m to £67.9m. Group revenue of £155.8m has increased by
£16.1m reflecting an £8.0m increase in Distribution Use of System
revenue – primarily reflecting an increase in the Group’s
investment in its Regulated Asset Base – and an increase in
revenues associated with the Public Service Obligation (PSO) of
£8.1m. Group operating costs of £87.9m have increased by £4.6m,
predominantly due to additional operational costs and a lower
capital programme of works as a result of the Covid-19
pandemic.
PSO revenue allows NIE Networks to recover the net cost of
supporting industry programmes such as the Northern Ireland
Sustainable Energy Programme. PSO revenue is earned over time in
line with the use of system by suppliers under the schedule of
entitlement set by the Utility Regulator for each tariff period.
Over time PSO related income and costs net to nil, albeit there are
timing differences between the receipt of revenue and payment of
costs. The net PSO income included in operating profit in the
current period is £11.2m (2019: £2.0m).
Tax Charge
In March 2020 the Government
announced that future Corporation Tax rates would be retained at
19% rather than reducing to 17% on 1 April
2020 as previously planned. The effect of the increase in
the expected future Corporation Tax rate has resulted in a one-off
charge to the Income Statement and a corresponding increase in the
associated deferred tax liability of £11.7m.
FFO Interest Cover
The ratio of FFO (funds from operations) to interest paid
increased to 3.5 times for the period (six months to 30 June 2019 - 3.2 times [Note 1]), reflecting an
increase in funds from operations during the period.
[Note 1] FFO interest cover at
30 June 2019 has been restated in
line with changes in credit rating methodology.
Net Assets
The Group's net assets of £361.1m have decreased by £29.6m in
the six months to 30 June 2020
reflecting re-measurement losses (net of tax) on pension scheme
liabilities of £57.7m offset by profit after tax of £28.1m.
Cash Flow
Cash and cash equivalents increased by £21.4m in the period
reflecting net cash flows from operating activities of £74.4m
partly offset by investing activity out flows of £46.6m, reflecting
the Group’s continued investment in the network, and financing
activity outflows of £6.4m. The Group’s Revolving Credit Facility
(RCF) was fully repaid in the period.
Operations
Key Performance Indicators (KPIs) are used to measure progress
towards achieving operational objectives. Performance during
the period is summarised below:
| KPIs |
Six
months ended |
Year ended |
|
30 June |
31 December |
---------------------------------------------------------- |
2020
------------ |
2019
------------ |
2019
------------- |
Safety:
Lost time incidents |
None |
None |
3 |
Network Performance: |
|
|
|
Customer Minutes Lost
(CML)
- Planned CML (minutes)
- Fault CML (minutes) |
12
22 |
22
20 |
45
38 |
| Customer Service: |
|
|
|
| Overall standards – failures
(number of) |
None |
None |
None |
| Guaranteed standards – defaults
(number of) |
None |
None |
None |
| Stage 2 complaints to the Consumer
Council |
None |
1 |
2 |
|
|
|
|
| Connections: |
|
|
|
| Customer demand connections
completed including non-recoverable alterations (number
of) |
1,829 |
2,325 |
4,699 |
Sustainability: |
|
|
|
| Reduction in non-network carbon
emissions [Note 2] |
18.7% |
N/A |
N/A |
| Waste recycling rate (%) |
97 |
98 |
98 |
|
|
|
|
| Staffing: |
|
|
|
| Headcount (at 30 June/31
December) |
1,202 |
1,211 |
1,216 |
| Absenteeism (%) |
3.11% |
2.60% |
3.27% |
[Note 2] New KPI for 2020 and
therefore no comparative figures are included for the prior
period/year.
Safety
Ensuring the safety of employees, contractors and the general
public continued to be the number one value at the core of all NIE
Networks' business operations. The aim is to provide a zero
harm working environment where risks to health and safety are
assessed and controlled. There were no lost time incidents during
the period (2019 – None).
Regrettably, subsequent to the period end, we have had a
fatality on our network involving one of our colleagues,
Richard Scott. The circumstances of
the incident are being investigated both by the Health and Safety
Executive for Northern Ireland and
internally. The learnings from these investigations will be
incorporated into the Group’s operations as part of our ongoing
commitment to providing a zero harm working environment.
Network Performance
The average number of minutes lost per consumer through
pre-arranged shutdowns for maintenance and construction (Planned
CML) fell from 22 to 12 minutes in comparison with the same period
last year, primarily due to reduced work programmes as a result of
Covid-19 restrictions. CML through distribution fault interruptions
(Fault CML) increased from 20 to 22 in the period.
Customer Service
The Utility Regulator sets overall and guaranteed standards for
NIE Networks' performance. All the overall standards were
achieved and there were no defaults against the guaranteed
standards for customer services activities delivered during the
period (2019 – none). No Stage 2 complaints were taken up by
the Consumer Council during the period (2019 – one).
Connections
The number of customer demand connections completed during the
period reduced compared with the prior period, reflecting the
impact of Covid-19 on the ability to deliver work.
A significant milestone in Northern Ireland’s energy history was
reached during 2019 when the long term target of ‘40% of
electricity consumption being produced from renewable sources by
2020’ was achieved. The latest statistics show that nearly 48% of
annual electricity consumption in Northern Ireland for the twelve months to
30 June 2020 was generated from
renewable sources. This has been supported through the connection
of approximately 1.7GW of renewable capacity to the network by NIE
Networks and with a further 0.3GW capacity committed to be
connected, the total connected renewable capacity is expected to
reach nearly 2.0 GW by 2022.
NIE Networks has continued to participate in the Connections
Innovation Working Group with industry stakeholders. In parallel,
the Company is working with the System Operator for Northern Ireland (SONI) and other industry
stakeholders to develop an enduring connections process that will
maximise the ability of Northern
Ireland to achieve its ambitious renewable energy
target.
Sustainability
In 2019, NIE Networks adopted the European Distribution System
Operators’ (E.DSO) Sustainable Grid Charter as a statement of
intention in relation to NIE Networks’ commitment to sustainability
in respect of climate change and wider environmental and societal
impacts.
The Company has reduced its non-network carbon emissions by
18.7% during the current period through a range of measures
including improving the energy efficiency of work locations and
increasing the use of technology to reduce the need for business
travel. The reduction in activity due to Covid-19 restrictions
together with an increase in the number of staff working from home
during the pandemic has been a significant factor in achieving this
level of reduction in non-network emissions.
The recycling rate for all hazardous and non-hazardous waste
(excluding excavation from roads and footpaths, civil projects
excavation and asbestos removal) continued at a high level with 97%
of waste recycled during the period.
Staffing
The total number of staff employed by the Company remained
broadly consistent with the prior period. Absenteeism levels have
increased from 2.60% to 3.11% owing primarily to long-term sickness
absences.
Principal Risks and Uncertainties
The principal risks and uncertainties facing NIE Networks for
the remainder of the financial year, which are managed under NIE
Networks' risk management framework, are as set out in the Group's
latest annual report for the year to 31
December 2019 which is available at
www.nienetworks.co.uk.
A review of the principal risks has identified a number of areas
where the impact of the Covid-19 pandemic results in an elevated
risk profile. Mitigation plans have been reviewed and updated and
will continue to be closely monitored.
GROUP INCOME STATEMENT
|
|
Six months ended
30
June |
|
Year ended
31 December |
|
Note |
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
2 |
155.8 |
|
139.7 |
|
276.3 |
|
|
|
|
|
|
|
| Operating costs |
|
(87.9) |
|
(83.3) |
|
(166.0) |
|
|
----------- |
|
----------- |
|
----------- |
| OPERATING PROFIT |
|
67.9 |
|
56.4 |
|
110.3 |
|
|
----------- |
|
----------- |
|
----------- |
| Finance costs |
|
(17.5) |
|
(17.3) |
|
(35.0) |
| Net pension scheme interest |
|
(1.0) |
|
(1.3) |
|
(2.4) |
|
|
----------- |
|
----------- |
|
----------- |
| Net finance costs |
|
(18.5) |
|
(18.6) |
|
(37.4) |
|
|
----------- |
|
----------- |
|
----------- |
| PROFIT BEFORE TAX |
|
49.4 |
|
37.8 |
|
72.9 |
|
|
|
|
|
|
|
| Tax charge |
3 |
(21.3) |
|
(7.2) |
|
(13.8) |
|
|
----------- |
|
----------- |
|
----------- |
| PROFIT FOR THE PERIOD / YEAR
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY |
|
28.1
====== |
|
30.6
====== |
|
59.1
====== |
GROUP STATEMENT OF COMPREHENSIVE INCOME |
|
|
Six months ended
30
June |
|
Year ended
31 December |
|
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
|
| Profit for the financial period /
year |
|
28.1 |
|
30.6 |
|
59.1 |
|
|
----------- |
|
----------- |
|
----------- |
| Other comprehensive (expense) /
income: |
|
|
|
|
|
|
| Re-measurement (losses) on pension
scheme assets and liabilities |
|
(75.3) |
|
(10.8) |
|
(22.1) |
| Deferred tax credit relating to
components of other comprehensive income |
|
14.3 |
|
1.8 |
|
3.8 |
| Change in deferred tax rate |
|
3.3 |
|
- |
|
- |
|
|
----------- |
|
----------- |
|
----------- |
| Net other comprehensive (expense)
for the period / year |
|
(57.7) |
|
(9.0) |
|
(18.3) |
Total net comprehensive (expense) / income for the period /
year |
|
-----------
(29.6) |
|
-----------
21.6 |
|
-----------
40.8 |
|
|
======= |
|
====== |
|
====== |
GROUP BALANCE SHEET
|
|
|
As at |
|
As at |
|
|
|
30 June |
|
31 December |
|
Note |
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
| Non-current assets |
|
|
|
|
|
|
|
| Property, plant and equipment |
4 |
|
1,862.2 |
|
1,819.3 |
|
1,849.3 |
| Intangible assets |
4 |
|
18.0 |
|
20.2 |
|
19.4 |
| Right of use leased assets |
4 |
|
12.0 |
|
11.3 |
|
11.9 |
| Derivative financial assets |
6 |
|
530.6 |
|
522.7 |
|
492.2 |
|
|
|
----------- |
|
----------- |
|
----------- |
|
|
|
2,422.8 |
|
2,373.5 |
|
2,372.8 |
|
|
|
----------- |
|
----------- |
|
----------- |
| Current assets |
|
|
|
|
|
|
|
| Inventories |
|
|
17.3 |
|
13.1 |
|
14.8 |
| Trade and other receivables |
|
|
47.9 |
|
42.8 |
|
53.3 |
| Current tax asset |
|
|
1.9 |
|
0.6 |
|
1.9 |
| Derivative financial assets |
6 |
|
17.0 |
|
14.0 |
|
14.4 |
| Cash and cash equivalents |
|
|
30.4 |
|
35.5 |
|
9.0 |
|
|
|
----------- |
|
----------- |
|
----------- |
|
|
|
114.5 |
|
106.0 |
|
93.4 |
|
|
|
----------- |
|
----------- |
|
----------- |
| TOTAL ASSETS |
|
|
2,537.3 |
|
2,479.5 |
|
2,466.2 |
|
|
|
----------- |
|
----------- |
|
----------- |
| Current liabilities |
|
|
|
|
|
|
|
| Trade and other payables |
|
|
79.0 |
|
64.9 |
|
71.0 |
| Current tax payable |
|
|
2.8 |
|
1.7 |
|
- |
| Deferred income |
|
|
19.2 |
|
18.6 |
|
19.1 |
| Financial liabilities: |
|
|
|
|
|
|
|
| Derivative financial
liabilities |
6 |
|
17.0 |
|
14.0 |
|
14.4 |
| Lease financial
liabilities |
6, 7 |
|
2.7 |
|
2.5 |
|
2.8 |
| Other financial
liabilities |
6, 7 |
|
7.9 |
|
8.6 |
|
21.4 |
| Provisions |
|
|
3.3 |
|
3.3 |
|
3.4 |
|
|
|
----------- |
|
----------- |
|
----------- |
|
|
|
131.9 |
|
113.6 |
|
132.1 |
|
|
|
----------- |
|
----------- |
|
----------- |
| Non-current liabilities |
|
|
|
|
|
|
|
| Deferred tax liabilities |
|
|
66.2 |
|
71.4 |
|
71.2 |
| Deferred income |
|
|
516.5 |
|
515.8 |
|
516.0 |
| Financial liabilities: |
|
|
|
|
|
|
|
| Derivative financial
liabilities |
6 |
|
530.6 |
|
522.7 |
|
492.2 |
| Lease financial
liabilities |
6, 7 |
|
9.4 |
|
9.1 |
|
9.1 |
| Other financial
liabilities |
6, 7 |
|
747.4 |
|
747.0 |
|
747.2 |
| Provisions |
|
|
3.7 |
|
4.1 |
|
3.8 |
| Pension liability |
8 |
|
170.5 |
|
100.6 |
|
103.9 |
|
|
|
----------- |
|
----------- |
|
----------- |
|
|
|
2,044.3 |
|
1,970.7 |
|
1,943.4 |
|
|
|
----------- |
|
----------- |
|
----------- |
| TOTAL LIABILITIES |
|
|
2,176.2 |
|
2,084.3 |
|
2,075.5 |
|
|
|
----------- |
|
----------- |
|
----------- |
| NET ASSETS |
|
|
361.1 |
|
395.2 |
|
390.7 |
|
|
|
======= |
|
======= |
|
======= |
| Equity |
|
|
|
|
|
|
|
| Share capital |
|
|
36.4 |
|
36.4 |
|
36.4 |
| Share premium |
|
|
24.4 |
|
24.4 |
|
24.4 |
| Capital redemption reserve |
|
|
6.1 |
|
6.1 |
|
6.1 |
| Accumulated profits |
|
|
294.2 |
|
328.3 |
|
323.8 |
|
|
|
----------- |
|
----------- |
|
----------- |
| TOTAL EQUITY |
|
|
361.1 |
|
395.2 |
|
390.7 |
|
|
|
======= |
|
======= |
|
======= |
|
|
|
|
|
|
|
|
|
The financial statements were approved by the Board of directors
and signed on its behalf by:
Paul Stapleton
Director
22 September 2020
GROUP STATEMENT OF CHANGES IN
EQUITY
|
Share
capital |
|
Share
premium |
|
Capital redemption
reserve |
|
Accumulated
profits |
|
Total |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
| At 1 January 2019 |
36.4 |
|
24.4 |
|
6.1 |
|
306.7 |
|
373.6 |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| Profit for the year |
- |
|
- |
|
- |
|
59.1 |
|
59.1 |
| Net other comprehensive expense for
the year |
- |
|
- |
|
- |
|
(18.3) |
|
(18.3) |
Total net comprehensive income for the year |
----------- |
|
-----------
- |
|
------------ |
|
-----------
40.8 |
|
-----------
40.8 |
| Dividends to the shareholder |
- |
|
- |
|
- |
|
(23.7) |
|
(23.7) |
|
|
|
|
|
|
|
|
|
|
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| At 1 January 2020 |
36.4 |
|
24.4 |
|
6.1 |
|
323.8 |
|
390.7 |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| Profit for the period |
- |
|
- |
|
- |
|
28.1 |
|
28.1 |
| Net other comprehensive expense for
the period |
- |
|
- |
|
- |
|
(57.7) |
|
(57.7) |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| Total net comprehensive income for
the period |
- |
|
- |
|
- |
|
(29.6) |
|
(29.6) |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| At 30 June 2020 |
36.4 |
|
24.4 |
|
6.1 |
|
294.2 |
|
361.1 |
|
===== |
|
======= |
|
======= |
|
======= |
|
====== |
|
Share
Capital |
|
Share
premium |
|
Capital redemption
reserve |
|
Accumulated
profits |
|
Total |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 1 January 2019 |
36.4 |
|
24.4 |
|
6.1 |
|
306.7 |
|
373.6 |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| Profit for the period |
- |
|
- |
|
- |
|
30.6 |
|
30.6 |
| Net other comprehensive income for
the period |
- |
|
- |
|
- |
|
(9.0) |
|
(9.0) |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| Total net comprehensive income for
the period |
- |
|
- |
|
- |
|
21.6 |
|
21.6 |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
|
---------- |
|
----------- |
|
----------- |
|
----------- |
|
----------- |
| At 30 June 2019 |
36.4
===== |
|
24.4
======= |
|
6.1
======= |
|
328.3
======= |
|
395.2
====== |
GROUP CASH FLOW STATEMENT
|
|
Six months ended
30 June |
|
Year ended
31 December |
|
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
|
| Cash flows from operating
activities |
|
|
|
|
|
|
| Profit for the period/year |
|
28.1 |
|
30.6 |
|
59.1 |
| Adjustments for: |
|
|
|
|
|
|
| - Tax charge |
|
21.3 |
|
7.2 |
|
13.8 |
| - Net finance costs |
|
18.5 |
|
18.6 |
|
37.4 |
| - Depreciation of property, plant
and equipment |
|
38.7 |
|
36.6 |
|
74.3 |
| Depreciation of right
of use leased assets |
|
1.5 |
|
1.4 |
|
2.9 |
| - Release of customers'
contributions and grants |
|
(9.3) |
|
(9.0) |
|
(18.5) |
| - Amortisation of intangible
assets |
|
2.6 |
|
2.4 |
|
4.9 |
| - Defined benefit pension charge
less contributions paid |
|
(9.7) |
|
(9.0) |
|
(18.2) |
| Net movement in provisions |
|
(0.2) |
|
(0.4) |
|
(0.6) |
Operating cash flows before movement in working capital |
|
-----------
91.5 |
|
-----------
78.4 |
|
-----------
155.1 |
|
|
|
|
|
|
|
| Decrease/(Increase) in working
capital |
|
10.5 |
|
4.1 |
|
(6.8) |
|
|
----------- |
|
----------- |
|
----------- |
| Cash generated from
operations |
|
102.0 |
|
82.5 |
|
148.3 |
|
|
|
|
|
|
|
| Interest paid |
|
(25.6) |
|
(25.5) |
|
(35.1) |
| Lease interest paid |
|
(0.2) |
|
(0.2) |
|
(0.3) |
| Current taxes
received/(paid) |
|
(1.8) |
|
4.1 |
|
1.4 |
|
|
----------- |
|
----------- |
|
----------- |
| Net cash flows from operating
activities |
|
74.4 |
|
60.9 |
|
114.3 |
|
|
----------- |
|
----------- |
|
----------- |
| Cash flows used in investing
activities |
|
|
|
|
|
|
| Purchase of property, plant and
equipment |
|
(55.4) |
|
(66.0) |
|
(133.8) |
| Customers’ cash contributions |
|
10.1 |
|
12.7 |
|
22.8 |
| Purchase of intangible assets |
|
(1.3) |
|
(1.4) |
|
(3.1) |
|
|
----------- |
|
----------- |
|
----------- |
| Net cash flows used in investing
activities |
|
(46.6) |
|
(54.7) |
|
(114.1) |
|
|
----------- |
|
----------- |
|
----------- |
| Cash flows (used in) / from
financing activities |
|
|
|
|
|
|
| Dividends paid to shareholder |
|
- |
|
- |
|
(23.7) |
| Payments in respect of lease
liabilities |
|
(1.4) |
|
(1.1) |
|
(2.9) |
| Amounts received from group
undertakings |
|
8.0 |
|
- |
|
5.0 |
| Amounts repaid to group
undertakings |
|
(13.0) |
|
- |
|
- |
|
|
----------- |
|
----------- |
|
----------- |
| Net cash flows (used in)
financing activities |
|
(6.4) |
|
(1.1) |
|
(21.6) |
|
|
----------- |
|
----------- |
|
----------- |
| Net increase in cash and cash
equivalents |
|
21.4 |
|
5.1 |
|
(21.4) |
| Cash and cash equivalents at
beginning of period / year |
|
9.0 |
|
30.4 |
|
30.4 |
|
|
----------- |
|
----------- |
|
----------- |
| Cash and cash equivalents at end
of period / year |
|
30.4
======= |
|
35.5
======= |
|
9.0
======= |
For the purposes of the cash flow statement, cash and cash
equivalents comprise cash at bank and in hand, short-term bank
deposits and bank overdrafts.
NOTES TO THE CONDENSED INTERIM
FINANCIAL STATEMENTS
1. Basis of Preparation
The condensed interim financial statements for the period ended
30 June 2020 have been prepared in
accordance with International Accounting Standard (IAS) 34 “Interim
Financial Reporting” and the Disclosure and Transparency Rules of
the Financial Conduct Authority.
The condensed interim financial statements consolidate the
results of Northern Ireland Electricity Networks Limited (NIE
Networks or the Company) and its subsidiary undertakings, NIE
Networks Services Limited and NIE Finance PLC (the
Group).
The condensed interim financial statements have been prepared on
the basis of the accounting policies set out in the financial
statements for the year ended 31 December
2019.
The condensed interim financial statements have been prepared on
the going concern basis as the directors are of the opinion that
the Group has adequate financial resources to continue in
operational existence for a period of 12 months from the date of
approval of the interim report and financial statements. While the
impact of the Covid-19 pandemic continues to evolve, the directors
are of the opinion that the Group has adequate financial resources
to continue for the 12 month period.
The condensed interim financial statements have not been audited
or reviewed by auditors pursuant to the Auditing Practices Board
guidance on “Review of Interim Financial Information performed by
the Independent Auditor of the Entity”.
The condensed interim financial statements for the period ended
30 June 2020 do not constitute
statutory financial statements within the meaning of Section 434 of
the Companies Act 2006. The report of the auditors on the
financial statements contained within the Group's report for the
year ended 31 December 2019 was
unmodified and did not contain a statement under either Section
498(2) or Section 498(3) of the Companies Act 2006 regarding
inadequate accounting records or a failure to obtain necessary
information and explanations.
New and revised accounting standards,
amendments and interpretations not yet adopted
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning after
1 January 2020, and have not been
applied in preparing these financial statements. None of these are
expected to have a significant effect on the financial statements
of the Group.
2. Revenue
|
Six months ended
30
June |
|
Year ended
31 December |
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
| Revenue: |
|
|
|
|
|
| Sales revenue |
146.7 |
|
130.9 |
|
258.2 |
| Amortisation of customer
contributions from deferred income |
9.1 |
|
8.8 |
|
18.1 |
|
-----------
155.8 |
|
-----------
139.7 |
|
-----------
276.3 |
|
======= |
|
======= |
|
======= |
The Group's operating activities, which are described in the
interim management report, comprise one operating segment. Sales
revenue consists largely of income from regulated tariffs.
3. Tax Charge
|
Six months
ended
30
June |
|
Year ended
31 December |
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
| Current tax charge |
|
|
|
|
|
| UK corporation tax at 19.0% (2019 –
19.0%) |
8.6 |
|
6.0 |
|
10.8 |
Total current tax |
-----------
8.6 |
|
-----------
6.0 |
|
-----------
10.8 |
|
----------- |
|
----------- |
|
----------- |
| Deferred tax charge |
|
|
|
|
|
| Origination and reversal of
temporary differences in current period |
1.0 |
|
1.2 |
|
3.0 |
| Origination and
reversal of temporary differences in prior period |
- |
|
- |
|
- |
| Effect of increase in
tax rate on opening liability |
11.7 |
|
- |
|
- |
Total deferred tax charge |
-----------
12.7 |
|
-----------
1.2 |
|
-----------
3.0 |
|
----------- |
|
----------- |
|
----------- |
| Total tax charge |
21.3
======= |
|
7.2
======= |
|
13.8
======= |
4. Capital Additions
|
Six
months ended
30
June |
|
Year ended
31 December |
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
| Property, plant and equipment |
51.6 |
|
64.8 |
|
132.5 |
| Intangibles assets - computer
software |
1.2 |
|
1.4 |
|
3.1 |
| Right of use leased assets |
1.6 |
|
12.7 |
|
14.8 |
|
----------- |
|
----------- |
|
----------- |
|
54.4
======= |
|
78.9
======= |
|
150.4
======= |
Depreciation of £42.8m (30 June
2019 - £40.4m) was charged in the period. No assets were
disposed of in the period (30 June
2019 - £nil).
Capital additions to Right of use leased assets in 2019 include
amounts recognised upon adoption of IFRS 16.
5. Capital Commitments
At 30 June 2020 the Group had
contracted future capital expenditure in respect of property, plant
and equipment of £11.2m (June 2019 -
£14.7m) and computer software assets of £3.5m (June 2019 - £5.2m).
6. Financial Instruments
An overview of financial instruments, other than cash,
short-term deposits, prepayments and tax and social security costs
held by the Group as at 30 June 2020
is as follows:
As at 30 June
2020
Financial assets: |
Held at amortised
cost
Unaudited
£m |
|
Fair value
profit or loss
Unaudited
£m |
|
|
|
|
| Trade and other receivables |
45.0 |
|
- |
| Interest rate swaps |
- |
|
17.0 |
Total current |
-----------
45.0 |
|
-----------
17.0 |
|
----------- |
|
----------- |
| Interest rate swaps |
- |
|
530.6 |
Total non-current |
-----------
- |
|
-----------
530.6 |
|
----------- |
|
----------- |
| Total financial assets |
45.0 |
|
547.6 |
|
======= |
|
======= |
| Financial liabilities: |
|
|
|
|
|
|
|
| Trade and other payables |
53.7 |
|
- |
| Interest rate swaps |
- |
|
17.0 |
| Lease liabilities |
2.7 |
|
- |
| Interest bearing loans and
borrowings |
7.9 |
|
- |
|
----------- |
|
----------- |
| Total current |
64.3 |
|
17.0 |
|
----------- |
|
----------- |
| Interest rate swaps |
- |
|
530.6 |
| Lease liabilities |
9.4 |
|
- |
| Interest bearing loans and
borrowings |
747.4 |
|
- |
|
----------- |
|
----------- |
| Total non-current |
756.8 |
|
530.6 |
|
----------- |
|
----------- |
| Total financial
liabilities |
821.1 |
|
547.6 |
|
======= |
|
======= |
The directors consider that the carrying amount of financial
instruments equals fair value.
NIE Networks has held a £550m portfolio of inflation linked
interest rate swaps since December 2010. The fair value of
inflation linked interest rate swaps is affected by relative
movements in interest rates and market expectations of future
retail price index (RPI) movements.
The RPI swaps were originally put in place by the Viridian Group
(the Group’s previous parent undertaking) in 2006 to better match
NIE Networks’ debt and related interest payments with its
inflation-linked regulated assets and associated revenue – in the
nature of economic hedge. As part of the acquisition of NIE
Networks by ESB in 2010, the swaps were novated to NIE
Networks.
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 five years with remaining accretion paid
at maturity.
At the same time that the restructuring took effect in 2014 the
Company entered into RPI linked interest rate swap arrangements
with ESBNI Limited, the immediate parent undertaking of the
Company, which have identical matching terms to the restructured
swaps. The back to back matching swaps with ESBNI Limited
ensure that there is no net effect on the financial statements of
the Company and that any risk to financial exposure is borne by
ESBNI Limited. The fair value movements have been recognised
in finance costs in the income statement, effectively offsetting
the fair value movements of interest rate swap liabilities.
Positive fair value movements of £37.0m arose on the swaps in the
six months ended 30 June 2020
(June 2019: positive fair value
movements of £34.8m) and were recognised within finance costs in
the income statement, as hedge accounting was not available.
During 2020 the Company made swap interest payments of £6.9m
(2019: £6.3m). Due to the back to back arrangements, the Company
had matching swap interest receipts of £6.9m (2019: £6.3m). Due to
the back to back arrangements with ESBNI Limited, no net swap
interest cost arises on these transactions and therefore they have
been netted in finance costs.
The fair value of interest rate swaps has been valued by
calculating the present value of future cash flows, estimated using
forward rates from third party market price quotations. The
Company uses the hierarchy as set out in IFRS 13 Fair Value
Measurement. All assets and liabilities for which fair value is
disclosed are categorised within the fair value hierarchy described
as follows:
Level 1: quoted (unadjusted) market prices in active markets for
identical assets or liabilities;
Level 2: valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable; and
Level 3: valuation techniques for which the lowest level input
that is significant to the fair value measurement is not
observable.
The fair value of interest rate swaps as at 30 June 2020 is considered by the Company to fall
within the level 2 fair value hierarchy. The Company
determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the lowest level
input that is significant to the fair value measurement as a whole)
at the end of each reporting period. There have been no transfers
between level 1 or 3 of the hierarchy during the period.
7. Net Debt
|
30 June |
|
30 June |
|
31 December |
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
| Cash at bank and in hand |
30.4 |
|
35.5 |
|
9.0 |
|
----------- |
|
----------- |
|
----------- |
| Debt due before 1 year: |
|
|
|
|
|
| Interest payable on £350m bond |
(5.9) |
|
(6.5) |
|
(1.6) |
| Interest payable on £400m bond |
(2.0) |
|
(2.0) |
|
(14.8) |
| Interest payable to parent
undertaking |
(0.1) |
|
(0.1) |
|
(0.1) |
| Lease liability |
(2.7) |
|
(2.5) |
|
(2.8) |
| Amounts owed to parent
undertaking |
- |
|
- |
|
(5.0) |
|
----------- |
|
----------- |
|
----------- |
|
(10.7) |
|
(11.1) |
|
(24.3) |
| Debt due after 1 year: |
----------- |
|
----------- |
|
----------- |
| £350m bond |
(348.5) |
|
(348.3) |
|
(348.4) |
| £400m bond |
(398.9) |
|
(398.7) |
|
(398.8) |
| Lease liability |
(9.4) |
|
(9.1) |
|
(9.1) |
|
-----------
(756.8) |
|
-----------
(756.1) |
|
-----------
(756.3) |
Total net debt |
-----------
(737.1)
======= |
|
-----------
(731.7)
======= |
|
-----------
(771.6)
======= |
8. Pension Commitments
Most employees of the Group are members of the Northern Ireland
Electricity Pension Scheme (NIEPS or the scheme). The scheme
has two sections: ‘Options’ which is a money purchase arrangement
whereby the Group generally matches the members’ contributions up
to a maximum of 8% of salary and ‘Focus’ which provides benefits
based on pensionable salary at retirement or earlier exit from
service. The assets of the scheme are held under trust and
invested by the trustees on the advice of professional investment
managers. The trustees are required by law to act in the
interest of all relevant beneficiaries and are responsible for the
investment policy with regard to the assets and the day-to-day
administration of the benefits of the scheme.
As the benefits paid to members of the Options section of the
scheme are directly related to the value of assets for Options,
there are no funding issues with this section of the scheme. The
remainder of this note is therefore in respect of the Focus section
of the scheme.
|
30 June |
|
30 June |
|
31 December |
|
2020
Unaudited
£m |
|
2019
Unaudited
£m |
|
2019
Audited
£m |
|
|
|
|
|
|
| Market value of assets |
1,143.3 |
|
1,128.4 |
|
1,127.0 |
| Actuarial value of liabilities |
(1,313.8) |
|
(1,229.0) |
|
(1,230.9) |
|
----------- |
|
----------- |
|
----------- |
| Net pension liability |
(170.5) |
|
(100.6) |
|
(103.9) |
Changes in the market value of
assets
|
30 June |
|
30 June |
|
31 December |
|
2020
Unaudited |
|
2019
Unaudited |
|
2019
Audited |
|
£m |
|
£m |
|
£m |
Market value of assets at beginning of the period / year |
1,127.0 |
|
1,054.7 |
|
1,054.7 |
| Interest income on scheme
assets |
11.1 |
|
14.6 |
|
28.9 |
| Contributions from employer |
12.4 |
|
12.3 |
|
25.0 |
| Contributions from scheme
members |
0.1 |
|
0.2 |
|
0.4 |
| Benefits paid |
(36.4) |
|
(31.8) |
|
(67.9) |
| Administration expenses paid |
(1.4) |
|
(0.5) |
|
(1.5) |
| Re-measurement gains on scheme
assets |
30.5 |
|
78.9 |
|
87.4 |
|
----------- |
|
----------- |
|
----------- |
| Market value of assets at end of the
period / year |
1,143.3
======= |
|
1,128.4
======= |
|
1,127.0
======= |
|
|
|
|
Changes in the actuarial value of
liabilities
|
30 June |
|
30 June |
|
31 December |
|
2020
Unaudited |
|
2019
Unaudited |
|
2019
Audited |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
| Actuarial value of liabilities at
beginning of the period / year |
1,230.9 |
|
1,152.2 |
|
1,152.2 |
| Interest expense on pension
liability |
12.1 |
|
15.9 |
|
31.3 |
| Current service cost |
2.8 |
|
2.7 |
|
5.3 |
| Curtailment costs |
0.1 |
|
0.1 |
|
0.1 |
| Past service credit |
(1.6) |
|
- |
|
- |
| Contributions from scheme
members |
0.1 |
|
0.2 |
|
0.4 |
| Benefits paid |
(36.4) |
|
(31.8) |
|
(67.9) |
| Effects of changes in
demographic assumptions |
- |
|
- |
|
- |
| Effect of changes in financial
assumptions |
105.8 |
|
89.7 |
|
112.1 |
| Effect of experience
adjustments |
- |
|
- |
|
(2.6) |
|
----------- |
|
----------- |
|
----------- |
| Actuarial value of liabilities at
end of the period / year |
1,313.8
======= |
|
1,229.0
======= |
|
1,230.9
======= |
9. Related Party
Transactions
During the period ended 30 June
2020, the Group contributed £16.0m (2019 - £15.4m) to the
Northern Ireland Electricity Pension Scheme in respect of Focus and
Options employer contributions, including an element of deficit
repair contributions in respect of Focus.
The immediate parent undertaking of the Group and the ultimate
parent company in the UK is ESBNI Limited (ESBNI). The
ultimate parent undertaking and controlling party of the Group and
the parent of the smallest and largest group of which NIE Networks
is a member and for which group financial statements are prepared
is Electricity Supply Board (ESB), a statutory corporation
established under the Electricity (Supply) Act 1927 domiciled in
the Republic of Ireland. A copy of ESB's financial statements
is available from ESB's registered office at Two Gateway, East Wall
Road, Dublin 3, DOA A995.
Principal subsidiaries of ESB are related parties of the
Group. Transactions between the Group and related parties are
disclosed below:
|
Interest charges
Unaudited |
Revenue
from
related
party
Unaudited |
Charges
from
related
party
Unaudited |
Amounts
owed by
related
party at
period end
Unaudited |
Amounts
owed to
related
party at
period end
Unaudited |
|
£m |
£m |
£m |
£m |
£m |
Six months
ended
30 June 2020 |
|
|
|
|
|
| ESB |
(0.2) |
- |
- |
- |
(0.1) |
| ESB subsidiaries |
- |
17.4 |
(1.3) |
2.8 |
(2.9) |
|
----------- |
----------- |
----------- |
----------- |
----------- |
|
(0.2) |
17.4 |
(1.3) |
2.8 |
(3.0) |
|
======= |
======= |
======= |
======= |
======= |
Six months
ended
30 June 2019 |
|
|
|
|
|
| ESB |
(0.1) |
- |
- |
- |
(0.1) |
| ESB subsidiaries |
- |
15.6 |
(1.4) |
2.7 |
(5.2) |
|
----------- |
----------- |
----------- |
----------- |
----------- |
|
(0.1)
======= |
15.6
======= |
(1.4)
======= |
2.7
======= |
(5.3)
======= |
10. Contingent Liabilities
In the normal course of business the Group has contingent
liabilities arising from claims made by third parties and
employees. Provision for a liability is made when the
directors believe that it is probable that an outflow of funds will
be required to settle the obligation where it arises from an event
prior to the period end.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
Each of the directors, named on page 1, confirm that to the best
of their knowledge:
(i) the interim financial statements have been prepared in
accordance with IAS 34 “Interim Financial Reporting” and give a
true and fair view of the assets, liabilities, financial position
and profit of the Group for the six months to 30 June 2020; and
(ii) the interim management report includes a fair review
of the information required by DTR 4.2.7R of the Disclosure and
Transparency Rules.
By order of the Board
Paul Stapleton
Director
22 September 2020