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NORTHERN IRELAND ELECTRICITY LIMITED - Half-yearly Report
Schriftzug "News" (Symbolbild).
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PR Newswire
London, August 20
Northern Ireland Electricity Limited's Unaudited Interim Report and Accounts
for the six months ended 31 June 2014 (non statutory) 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 Limited's website at:
http://www.nie.co.uk/About-NIE/financial-information
Contact for enquiries:
NIE Corporate Communications - telephone 0845 300 3556
INTERIM MANAGEMENT REPORT
The directors of Northern Ireland Electricity Limited (NIE) present their
unaudited interim report and accounts for the six months ended 30 June 2014.
The interim accounts 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 interim accounts
consolidate the results of NIE and its subsidiary undertakings, NIE Networks
Services Limited and NIE Finance PLC (the Group). NIE Networks Services
Limited, which became a wholly owned subsidiary of NIE in October 2013,
provides electrical infrastructure construction and refurbishment and other
managed services to NIE and NIE Finance PLC is the issuer of listed bonds on
behalf of NIE. NIE is part of the ESB Group.
The results for the period ended 30 June 2014 show a profit of £24.8m (2013 -
£23.8m). No dividends were paid during the period (2013 - £Nil).
Operating Environment
The Group's principal activities are the construction and maintenance of the
transmission and distribution networks in Northern Ireland and the operation of
the distribution network. Responsibility for transmission network planning was
transferred to SONI Limited, the transmission system operator in Northern
Ireland, with effect from 1 May 2014 in accordance with the European Commission
decision in respect of the transmission arrangements in Northern Ireland under
the IME3 Directive.
NIE 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.
NIE is regulated by the Northern Ireland Authority for Utility Regulation (the
Utility Regulator) and the Department of Enterprise Trade and Investment
(DETI). Under its Transmission and Distribution licences NIE 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 its 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 system and its delivery to consumers across a network of overhead
lines and underground cables operating at 33kV, 11kV and lower voltages.
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 846,000 consumers via a number of substations.
During the period an estimated 3.9TWh of electricity was distributed to
consumers. There are 2,200km of transmission circuits, approximately 45,000km
of distribution circuits and approximately 290 major substations, including 30
at large wind farm sites. NIE's transmission system is connected to that of the
Republic of Ireland (RoI) through a 275kV interconnector and to that in
Scotland via the Moyle Interconnector. There are also two standby 110kV
connections to RoI.
Price Control
NIE 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 Regulatory Period 4 (RP4) price control was NIE's fourth price control
since privatisation and applied for the period from 1 April 2007 to 31 March
2012. NIE's price control in respect of the fifth regulatory period commencing
on 1 April 2012 (RP5) was determined in April 2014 following a referral to the
Competition and Markets Authority (CMA - previously known as the Competition
Commission). The Utility Regulator is now in the process of drafting the formal
licence modifications to implement the CMA's determination.
A key aspect of the CMA's determination is the closer alignment of the
regulatory framework and reporting arrangements with those applied by Ofgem
(the GB regulator). NIE fully supports this change which should facilitate
future price control reviews. The price control will apply for the period from
1 April 2012 to 30 September 2017 with an allowed real rate of return of 4.1%
(weighted average cost of capital based on pre tax cost of debt and post tax
cost of equity).
The price control includes up-front allowances of £612m and £335m in respect of
capital and operating expenditures respectively (June 2014 price base) with the
up-front allowances being adjusted to reflect 50% of the difference between
NIE's actual costs and the allowances. This is equivalent to the capital and
operating cost allowances being calculated as the average of the up-front
allowances and NIE's actual costs.
The CMA substantially allowed the components of the investment plan proposed by
NIE, the main exceptions being the proposals for improving network performance
and increasing the resilience of the 11kV rural network to ice accretion
events. NIE's emphasis during RP5 will be on the delivery of specified outputs
particularly regarding asset replacement expenditure.
The price control also provides for additional capital expenditure relating to
large transmission projects which may be approved by the Utility Regulator on a
case-by-case basis.
The CMA adopted Ofgem's classification of costs into "direct" costs and
"indirect" costs for the purpose of setting the capital and operating
expenditure allowances. New arrangements for annual reporting of costs will
follow this classification based on Ofgem's RIGs (Regulatory Instructions and
Guidance). NIE expects this will be of benefit by facilitating future
benchmarking of its costs versus the GB network operators.
In respect of pensions, the price control adopts the Ofgem Pension RIGs
methodology whereby the deficit is split into historical and incremental
elements with the cut-off date for the historic deficit being 31 March 2012.
The price control allowance for the historic deficit matches the deficit
repayment profile agreed with the pension scheme trustees, subject to an annual
disallowance of £4.6m (June 2014 price base) in respect of costs associated
with early retirement schemes incurred by NIE between 1997 and 2003. The price
control makes no allowance for any deficit costs which might arise in respect
of pensionable service post 31 March 2012. It is expected that these costs, in
conjunction with ongoing service costs, will be subject to benchmarking with
the GB network operators in future price controls.
Financial Review
Financial KPIs
The directors have determined that the Group's financial key performance
indicators (KPIs) are Group pro-forma operating profit and pro-forma Funds From
Operations (FFO) interest cover based on regulated entitlement determined by
NIE's price control.
As explained in the Price control section above, NIE is subject to a price
control which sets out the prices it may charge and the revenue it may earn. If
the amount of revenue recovered in any one year exceeds or falls short of the
amount allowed by the price control formula a regulatory correction factor
operates in the following year to give back any surplus with interest, or to
recover any deficit with interest, as appropriate. A surplus is referred to as
an over-recovery and a deficit as an under-recovery.
The directors consider that pro-forma revenue and operating profits (based on
regulated entitlement as allowed by NIE's price control) give a more meaningful
measure of performance than revenue and operating profits reported in the Group
Income Statement.
The calculation of Group pro-forma operating profit is shown below:
Six months ended Year ended
30 June 31 December
2014 2013 2013
Unaudited Unaudited Unaudited
£m £m £m
Group operating profit 51.8 55.9 112.4
Add / (deduct) regulatory correction 4.1 (4.4) (6.3)
factor
---- ---- ----
Group pro-forma operating profit 55.9 51.5 106.1
----- ----- -----
Pending implementation of the formal RP5 licence modifications, the regulated
entitlement for the six month periods to 30 June 2014 and 30 June 2013 and for
the year to 31 December 2013 is based on management's reasonable estimate of NIE's
entitlement under the CMA's determination. On this basis the Group's pro-forma
operating profit increased from £51.5m in the six months to 30 June 2013 to £
55.9m, mainly reflecting growth in the Regulatory Asset Base (RAB) due to
capital expenditure and inflation, lower storm repair and price review
consultancy costs, partly offset by a higher depreciation charge.
Pro-forma FFO interest cover is calculated as pro-forma funds from operations
divided by net interest charged to the income statement. Pro-forma FFO is
defined as pro-forma operating profit adjusted for depreciation, amortisation
and release of customer contributions, less defined benefit pension charge less
contributions paid (as reported in the Group Cash Flow Statement) and tax paid.
The pro-forma FFO interest cover increased from 3.3 times at 30 June 2013 to
3.5 times due to higher pro-forma operating profit and depreciation and
amortisation, offset by higher tax paid.
Financial Results
A summary of the financial results for the period reported in the interim
accounts is shown below.
Six months ended Year ended
30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
£m £m £m
Revenue 123.7 127.5 258.0
Operating profit 51.8 55.9 112.4
Net debt 546.3 527.9 558.5
Net assets 299.7 231.6 274.0
Income Statement
- Revenue of £123.7m (2013 - £127.5m) largely comprises revenue in respect of
use of the transmission and distribution systems and PSO levies. The decrease
in revenue largely reflects lower use of distribution sales due to milder
weather in the first six months of 2014.
- Operating costs remain largely in line with the previous year at £71.9m (2013
- £71.6m).
- Operating profit was £51.8m (2013 - £55.9m) primarily reflecting the
reduction in revenue in 2014 as described above.
- Net finance costs have decreased from £21.3m to £20.4m mainly as a result of
lower net pension scheme interest owing to lower inflation assumptions applied
to pension scheme liabilities.
- Tax charge for the period was £6.6m (2013 - £10.8m). The lower tax charge in
2014 primarily reflects a lower statutory tax rate combined with a prior year
charge of £2.4m included in the 2013 tax charge.
- Profit for the period was £24.8m (2013 - £23.8m) largely reflecting a
decrease in the tax charge offset by reduced revenue and reduced pension scheme
interest charges.
Balance Sheet
- Non-current assets at 30 June 2014 were £1,758.9m (31 December 2013 -
£1,703.3m). The increase mainly reflects capital expenditure offset by
depreciation during the period.
- Current assets at 30 June 2014 were £95.9m (31 December 2013 - £104.3m)
primarily reflecting a reduction in trade and other receivables offset by an
increase in cash balances.
- Current liabilities of £123.8m (31 December 2013 - £133.5m) mainly reflect
lower interest payable on borrowings due to the timing of interest payments,
lower trade and other payables and lower current tax payable.
- Non-current liabilities at 30 June 2014 were £1,431.4m (31 December 2013 -
£1,400.1m). The increase largely reflects an increase in deferred income
reflecting customer contributions in the period, an increase in the derivative
financial liabilities due to restructuring the RPI linked interest rate swaps,
offset by a reduction in the pension liability. The pension liability has
reduced by £6.7m to £84.9m at 30 June 2014 mainly due to continued deficit
repair contributions made in the period: increased asset values and lower
inflation assumptions applied to liabilities were largely offset the by lower
discount rate used to discount liabilities. The pension liability at 30 June
2014 and at 31 December 2013 includes the consolidation of NIE Networks
Services Limited's pension asset, whereas the liability at 30 June 2013
precedes the acquisition of NIE Networks Services Limited and therefore
excludes this pension asset.
Cash flow
- Net cash flows from operating activities of £63.1m (2013 - £67.9m) offset by
cash outflows in respect of investing activities of £57.6m (2013 - £51.0m)
resulted in a net increase in cash and cash equivalents of £5.5m during the
period. Cash flows from operating activities decreased mainly as a result of
higher current taxes paid due to timing of payments and a less favourable
movement in working capital offset by higher contributions in respect of
property, plant and equipment.
- Interest accretion totalling £77.7m was paid during the period on the RPI
linked interest rate swaps. An equal and offsetting amount of £77.7m was
received from ESBNI Limited, in line with the back-to- back swap arrangement
entered into with ESBNI Limited in order to match the restructuring of the
swaps detailed in note 6 to the accounts. There was therefore no net effect on
the cash position of the Group.
Operational Review
Operational KPIs
The directors have determined that the following KPIs are the most effective
measures of progress towards achieving the Group's operational objectives.
Performance during the six months ended 30 June 2014 is provided below:
Six months ended Year ended
30 June 31 December
KPIs 2014 2013 2013
Lost time incidents (safety) None 2 2
Customer Minutes Lost (CML)
- Planned CML (minutes) 23 27 50
- Fault CML (minutes) 25 29 56 Overall standards - defaults None None None
Guaranteed standards - defaults None None 1
Stage 2 complaints to the Consumer 2 3 3
Council
Applications for customer demand 4,800 4,300 8,700
connections
Renewable generation connected
- Small scale (Less than MW) 34MW 13MW 31MW
- Large scale (Greater than 2MW) 41MW 60MW 60MW
Waste recycling rate (%) 98% 96% 97%
Safety
Ensuring the safety of employees, contractors and the general public is a key
value for NIE. The aim is to provide a zero harm working environment where
risks to health and safety are assessed and controlled and the target for lost
time incidents continues to be set at zero. There were no lost time incidents
during the period.
Customer service
CML is the average number of minutes lost per customer. Over the period both
planned CMLs (for pre-arranged shutdowns for maintenance and construction) and
fault CMLs (through distribution fault interruptions excluding the effect of
major storms) remained low.
During the period all the overall standards were achieved and there were no
defaults against the guaranteed standards set by the Utility Regulator. The
number of Stage 2 Complaints to the Consumer Council for Northern Ireland
remained low during the period, with only two complaints being taken up by the
Consumer Council on behalf of customers.
Connections
The number of applications for customer demand connections increased to 4,800
during the period representing a recovery in the construction sector.
The rate of applications for the connection of small scale generation continued
at the high levels experienced during 2013. This high level of activity has led
to congestion on the distribution network which has resulted in increased costs
for developers where there is significant 11kV reinforcement required. Parts of
the 33kV network also require reinforcement, the approach for which is subject
to agreement with the Utility Regulator.
During the period 34MW of small scale renewable generation (comprising single
wind turbines, anaerobic digestors, hydro turbines and domestic solar PV
microgeneration projects) were connected to the network, exceeding the total
for the previous full year. During the period Dunmore Wind Farm in County
Londonderry and Thornog Wind Farm in County Tyrone were connected to the
network providing an additional 41MW of large scale renewable generation.
Waste recycling
The recycling rate for all hazardous and non-hazardous waste (excluding
excavation from roads and footpaths) continued to improve with 98% of waste
recycled during the period.
Principal Risks and Uncertainties
NIE operates a structured and disciplined approach to the management of risk
overseen by the NIE Audit and Risk Committee and the NIE Board.
NIE's risk management framework comprises:
- appropriate structures in place to support risk management;
- formal assignment of risk responsibilities to facilitate managing and
reporting on individual risks and to ensure specific risks are understood;
- procedures and systems for risk identification, assessment and reporting; and
- ongoing monitoring of the effectiveness of risk mitigation actions and
controls.
The internal audit function provides independent assurance on the adequacy of
NIE's risk management arrangements.
NIE's Risk Management Committee, comprising a number of senior managers and
chaired by the Finance Director, is responsible for co-ordinating the
development of the overall risk management framework for NIE including the
policies, standards and procedures, organisational arrangements and reporting
requirements to NIE's Executive Committee, Audit and Risk Committee and the
Board.
The principal risks and uncertainties facing NIE for the remainder of the
financial year, which are managed under NIE's risk management framework, are:
- the failure of the NIE Health and Safety Management System with exposure of
employees, contractors and the general public to risk of injury and the
associated potential liability and/or loss of reputation for NIE;
- widespread and prolonged failure of the transmission or distribution network
and failing to respond adequately following damage to the network from adverse
weather conditions; and
- other operational, financial and reputational risks arising from failing to
meet customer service standards or business continuity, IT Security and Data
Protection issues.
Further information on the principal long-term risks and uncertainties and the
risk management framework are included in the Group's latest annual report for
the year to 31 December 2013 which is available at www.nie.co.uk.
GROUP INCOME STATEMENT
Six months ended Year ended
30 June 31 December
Note 2014 2013 2013
Unaudited Unaudited Audited
£m £m £m
Continuing operations
Revenue 2 123.7 127.5 258.0
Operating costs (71.9) (71.6) (145.6)
---- ---- ----
OPERATING PROFIT 51.8 55.9 112.4
---- ---- ----
Finance revenue 77.8 0.1 0.3
Finance costs (96.3) (18.6) (37.4)
Net pension scheme interest (1.9) (2.8) (5.3)
---- ---- ----
Net finance costs (20.4) (21.3) (42.4)
---- ---- ----
PROFIT BEFORE TAX 31.4 34.6 70.0
Tax charge 3 (6.6) (10.8) (4.8)
---- ---- ----
PROFIT FOR THE PERIOD / YEAR 24.8 23.8 65.2
ATTRIBUTABLE TO THE EQUITY HOLDERS
OF THE PARENT COMPANY ==== ==== ==== GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
£m £m £m
Profit for the financial period / year 24.8 23.8 65.2
---- ---- ----
Other comprehensive income/(expense):
Remeasurement gains on pension scheme 0.9 6.5 1.2
assets and liabilities
Deferred tax charge relating to (0.2) (1.5) (2.8)
components of other comprehensive
income ---- ---- ----
Net other comprehensive income/ 0.7 5.0 (1.6)
(expense) for the period / year ---- ---- ----
Total net comprehensive income for
the period / year 25.5 28.8 63.6
==== ==== ====
GROUP BALANCE SHEET
As at As at
30 June 31 December
Note 2014 2013 2013
Unaudited Unaudited Audited
£m £m £m
Non-current assets
Property, plant and equipment 4 1,319.6 1,248.2 1,287.7
Intangible assets 4 36.4 39.3 38.7
Derivative financial assets 6 402.9 398.9 376.9
------- ------- -------
1,758.9 1,686.4 1,703.3
------- ------- -------
Current assets
Inventories 6.4 7.1 6.3
Trade and other receivables 6 40.3 43.1 54.9
Derivative financial assets 6 11.9 11.4 11.3
Cash and cash equivalents 37.3 55.5 31.8
------- ------- -------
95.9 117.1 104.3
------- ------- -------
TOTAL ASSETS 1,854.8 1,803.5 1,807.6
------- ------- -------
Current liabilities
Trade and other payables 82.7 78.4 84.5
Current tax payable 6.1 10.0 7.9
Deferred income 10.4 9.7 9.8
Financial liabilities:
Derivative financial 6 11.9 11.4 11.3
liabilities
Other financial liabilities 6, 7 11.4 11.4 18.2
Provisions 1.3 2.3 1.8
------- ------- -------
123.8 123.2 133.5
------- ------- -------
Non-current liabilities
Deferred tax liabilities 77.7 77.9 75.4
Deferred income 285.0 263.7 275.9
Financial liabilities:
Derivative financial 6 402.9 398.9 376.9
liabilities
Other financial liabilities 6, 7 572.2 572.0 572.1
Provisions 8.7 7.0 8.2
Pension liability 8 84.9 129.2 91.6
------- ------- -------
1,431.4 1,448.7 1,400.1
------- ------- -------
TOTAL LIABILITIES 1,555.2 1,571.9 1,533.6
------- ------- -------
NET ASSETS 299.7 231.6 274.0
======= ======= =======
Equity
Share capital 36.4 36.4 36.4
Share premium 24.4 24.4 24.4
Capital redemption reserve 6.1 6.1 6.1
Accumulated profits 232.8 164.7 207.1
------- ------- -------
TOTAL EQUITY 299.7 231.6 274.0
======= ======= =======
The accounts were approved by the Board of directors and signed on its behalf
by:
Joe O'Mahony
Managing Director
Date: 27 August 2014 GROUP STATEMENT OF CHANGES IN EQUITY
Capital
Share Share redemption Accumulated Total
capital premium reserve profits
£m £m £m £m £m
At 1 January 2013 36.4 24.4 6.1 135.9 202.8
----- ----- ----- ----- -----
Profit for the year - - - 65.2 65.2
Net other comprehensive - - - (1.6) (1.6)
expense for the year ----- ----- ----- ----- -----
Total net comprehensive - - - 63.6 63.6
income for the year
Gain on reapportionment of - - - 7.4 7.4
exiting pension scheme
participant's assets
Deferred tax relating to - - - (1.5) (1.5)
gain on reapportionment of
pension assets
Current tax relating to RPI - - - 16.2 16.2
index-linked swaps
Deferred tax relating to - - - (14.5) (14.5)
RPI index-linked swaps ----- ----- ----- ----- -----
At 1 January 2014 36.4 24.4 6.1 207.1 274.0
----- ----- ----- ----- -----
Profit for the period - - - 24.8 24.8
Net other comprehensive - - - 0.7 0.7
income for the period ----- ----- ----- ----- -----
Total net comprehensive - - - 25.5 25.5
income for the period
Gain on reapportionment of - - - 0.2 0.2
exiting pension scheme
participant's assets
Deferred tax relating to gain - - - - -
on reapportionment of
pension assets ----- ----- ----- ----- -----
At 30 June 2014 36.4 24.4 6.1 232.8 299.7
===== ===== ===== ===== =====
Capital
Share Share redemption Accumulated Total
Capital premium reserve profits
£m £m £m £m £m
restated restated
At 1 January 2013 36.4 24.4 6.1 135.9 202.8
----- ----- ----- ----- -----
Profit for the period - - - 23.8 23.8
Net other comprehensive - - - 5.0 5.0
income for the period ----- ----- ----- ----- -----
Total net comprehensive - - - 28.8 28.8
income for the period ----- ----- ----- ----- -----
At 30 June 2013 36.4 24.4 6.1 164.7 231.6
===== ===== ===== ===== ===== GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 June 31 December
2014 2013 2013
Unaudited Unaudited Audited
£m £m £m
Cash flows from operating activities
Profit for the period/year 24.8 23.8 65.2
Adjustments for:
Tax charge 6.6 10.8 4.8
Net finance costs 20.4 21.3 42.4
Depreciation of property, plant and 26.1 24.6 50.0
equipment
Release of customers' contributions (4.9) (4.9) (9.8)
and grants
Amortisation of intangible assets 2.3 2.1 4.4
Contributions in respect of property,
plant and equipment 14.9 11.9 29.1
Defined benefit pension charge less (7.5) (7.3) (15.0)
contributions paid
Net movement in provisions - - (0.1)
----- ----- -----
Operating cash flows before movement 82.7 82.3 171.0
in working capital
Increase in working capital 12.4 15.2 8.0
----- ----- -----
Cash generated from operations 95.1 97.5 179.0
Interest received 0.1 0.1 0.3
Interest paid (25.7) (25.6) (37.5)
Current taxes paid (6.4) (4.1) (9.7)
----- ----- -----
Net cash flows from operating 63.1 67.9 132.1
activities ----- ----- -----
Cash flows from investing activities
Purchase of property, plant and (57.5) (49.7) (105.7)
equipment
Purchase of intangible assets (0.1) (1.3) (3.1)
Purchase of investment in subsidiary, - - (7.4)
net of cash acquired ----- ----- -----
Net cash flows used in investing (57.6) (51.0) (116.2)
activities ----- ----- -----
Cash flows used in financing activities
Receipt of interest accretion on back 77.7 - -
to back swaps
Payment of interest accretion on RPI swaps (77.7) - -
Repayment of borrowings - - (22.7)
----- ----- -----
Net cash flows used in financing activities - - (22.7)
----- ----- -----
Net increase/(decrease) in cash and 5.5 16.9 (6.8)
cash equivalents
Cash and cash equivalents at 31.8 38.6 38.6
beginning of period / year ----- ----- -----
Cash and cash equivalents at end of 37.3 55.5 31.8
period / year ===== ===== =====
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash at bank and in hand, short-term bank deposits and bank overdrafts. NOTES TO THE INTERIM ACCOUNTS
1. Basis of Preparation
The interim accounts for the period ended 30 June 2014 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 interim accounts consolidate the results of Northern Ireland Electricity
Limited (NIE or the Company) and its subsidiary undertakings (the Group).
The interim accounts have been prepared on the basis of the accounting policies
set out in the accounts for the year ended 31 December 2013.
The following amendments to existing standards and interpretations were
effective for the period, but had either no impact or no material impact on the
Group's accounts:
IFRS 10, IFRS 11,IFRS 12, IAS 27 (revised), IAS 28, IAS 32, IAS 36 and IAS 39.
The interim accounts have been prepared on the going concern basis as the
directors, having considered available relevant information, have a reasonable
expectation that the Group has adequate financial resources to continue in
operational existence for a period of 12 months from the date of approval of
the interim report and accounts.
The interim accounts have not been audited or reviewed by auditors pursuant to
the Auditing Practices Board guidance on "Review of Interim Financial
Information performed by the Independent Auditor of the Entity".
The information shown for the year ended 31 December 2013 does not constitute
statutory accounts within the meaning of Section 434 of the Companies Act 2006
and has been extracted from the Group's report for the year ended 31 December
2013, which has been filed with the Registrar of Companies. The report of the
auditors on the accounts contained within the Group's report for the year ended
31 December 2013 was unqualified 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.
2. Revenue
Six months ended Year ended
30 June 31 December
2014 2013 2013
£m £m £m
Revenue:
Sales revenue 118.8 122.9 248.7
Amortisation of customer contributions from 4.9 4.6 9.3
deferred income ----- ----- -----
123.7 127.5 258.0
Interest receivable 77.8 0.1 0.3
----- ----- -----
201.5 127.6 258.3
===== ===== =====
The Group's operating activities, which are described in the interim management
report, comprise one operating segment.
3. Tax Charge
Six months ended Year ended
30 June 31 December
2014 2013 2013
£m £m £m
Current tax charge
UK corporation tax at 22% (2013 - 23.5%) 4.5 5.7 11.9
Corporation tax over provided in previous - (14.2) (0.5)
periods ----- ----- -----
Total current tax 4.5 (8.5) 11.4
----- ----- -----
Deferred tax charge
Origination and reversal of temporary 2.1 2.7 4.3
differences in current period
Origination and reversal of temporary - 16.6 2.2
differences relating to prior periods
Effect of decrease in tax rate on opening - - (13.1)
liability ----- ----- -----
Total deferred tax charge / (credit) 2.1 19.3 (6.6)
----- ----- -----
Total tax charge 6.6 10.8 4.8
===== ===== =====
4. Capital Expenditure
Six months ended Year ended
30 June 31 December
2014 2013 2013
£m £m £m
Property, plant and equipment 58.1 46.3 121.3
Intangible assets - computer software 0.2 1.4 3.2
----- ----- -----
58.3 47.7 124.5
===== ===== =====
No assets were disposed of by the Group during the period (2013 - £nil).
5. Capital commitments
At 30 June 2014 the Group had contracted future capital expenditure in respect
of property, plant and equipment of £5.0m (2013 - £8.8m) and computer software
assets of £0.7m (2013 - £1.9m).
6. Financial instruments
An overview of financial instruments, other than cash and short-term deposits,
held by the Group as at 30 June 2014 is as follows:
As at 30 June 2014 Loans and Fair value
receivables profit or
loss
£m £m
Financial assets:
Trade and other receivables 40.3 -
Interest rate swaps - 11.9
----- ----
Total current 40.3 11.9
----- -----
Interest rate swaps - 402.9
----- -----
Total non-current - 402.9
----- -----
Total financial assets 40.3 414.8
===== =====
Financial liabilities:
Trade and other payables 82.7 -
Interest rate swaps - 11.9
Interest bearing loans and borrowings 11.4 -
----- -----
Total current 94.1 11.9
----- -----
Interest rate swaps - 402.9
Interest bearing loans and borrowings 572.2 -
----- -----
Total non-current 572.2 402.9
----- -----
Total financial liabilities 666.3 414.8
===== =====
The directors consider that the carrying amount of financial instruments equals
fair value.
Since December 2010, NIE has a £550m portfolio of RPI linked interest rate
swaps. In June 2014 NIE, along with the counterparty banks, agreed a
restructuring of the swaps, together with amendments to key terms. These
changes included an extension of their mandatory break date from 2015 to 2022,
immediate settlement in 2014 of accrued accretion payments (previously due for
payment in 2015), amendments to the fixed interest rate element of the swaps,
and an increase in the number of counterparties to the swaps. Following the
restructuring, future accretion payments will be made every five years,
starting in 2018, with remaining accretion paid at maturity.
At the same time that the restructuring took effect NIE entered into RPI linked
interest rate swap arrangements with ESBNI Limited, the immediate parent
undertaking of NIE, which have identical matching terms to the restructured
swaps. The effect of these back to back matching swaps is that there is no net
effect on the financial statements of NIE and that any risk to financial
exposure is borne by ESBNI Limited.
Arising from these changes, an amount of £77.7m in accretion payments under the
swaps was made during the period. This amount had been recognised in previous
periods as a negative fair value movement and this settlement of cumulative
liabilities previously recognised reduced the negative fair value of the swaps.
Negative fair value movements of £104.3m arose on the swaps in the six months
ended 30 June 2014 (June 2013: fair value movements of £22.1m). These have been
recognised within finance costs in the income statement, as hedge accounting
was not available.
The fair value of interest rate swaps has been valued by calculating the
present value of future cash flows, estimated using forward rates from third
party market price quotations.
The Company uses the hierarchy as set out in IFRS 7 Financial Instruments:
Disclosures for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: other techniques for which all inputs which have a significant effect
on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data.
The fair value of interest rate swaps as at 30 June 2014 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
2014 2013 2013
£m £m £m
Cash at bank and in hand 37.3 55.5 31.8
----- ----- -----
Debt due before 1 year:
Interest payable on £175m bond (9.5) (9.5) (3.4)
Interest payable on £400m bond (1.9) (1.9) (14.8)
----- ----- -----
(11.4) (11.4) (18.2)
----- ----- -----
Debt due after 1 year:
£175m bond (174.1) (174.0) (174.0)
£400m bond (398.1) (398.0) (398.1)
------ ------ ------
(572.2) (572.0) (572.1)
Total net debt ------ ------ ------
(546.3) (527.9) (558.5)
====== ====== ======
8. Pension Commitments
30 June 30 June 31 December
2014 2013 2013
£m £m £m
Market value of assets 1,001.0 750.5 990.1
Actuarial value of liabilities (1,085.9) (879.7) (1,081.7)
------- ------- -------
Net pension liability (84.9) (129.2) (91.6)
======= ======= =======
Changes in the market value of assets
30 June 30 June 31 December
2014 2013 2013
£m £m £m
Market value of assets at beginning of 990.1 722.9 722.9
the period / year
Interest income on scheme assets 21.4 15.1 32.6
Contributions from employer 12.0 9.0 19.9
Contributions from scheme members 0.3 0.1 0.2
Benefits paid (28.2) (21.9) (47.8)
Administration expenses paid (0.4) - (1.1)
Remeasurement gains on scheme assets 5.6 25.3 45.5
Acquisition of subsidiary under common - - 206.9
control
Re-apportionment of exiting 0.2 - 11.0
participant's assets ------- ------- -------
Market value of assets at end of the 1,001.0 750.5 990.1
period / year ======= ======= =======
Changes in the actuarial value of liabilities
30 June 30 June 31 December
2014 2013 2013
£m £m £m
Actuarial value of liabilities at 1,081.7 863.1 863.1
beginning of the period / year
Interest expense on pension liability 23.3 17.9 37.9
Current service cost 4.1 1.7 4.0
Contributions from scheme members 0.3 0.1 0.2
Benefits paid (28.2) (21.9) (47.8)
Acquisition of subsidiary under common - - 176.4
control
Re-apportionment of exiting - - 3.6
participant's liabilities
Actuarial losses on scheme liabilities 4.7 18.8 44.3
- financial assumptions ------- ------- -------
Actuarial value of liabilities at end 1,085.9 879.7 1,081.7
of the period / year ======= ======= =======
9. Related Party Transactions
During the period ended 30 June 2014, the Group contributed £12.6m (2013 -
£9.3m) to the Northern Ireland Electricity Pension Scheme.
The immediate parent undertaking of the Group and the ultimate parent company
in the UK is ESBNI Limited (ESBNI). The ultimate parent undertaking and
controlling party of the Group and the parent of the smallest and largest group
of which NIE 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 27 Lower Fitzwilliam Street, Dublin 2.
Principal subsidiaries of ESB are related parties of the Group. Transactions
between the Group and related parties are disclosed below:
Revenue Charges Other Amounts Amounts
from from transactions owed by owed to
related related related related related
party party with party at party at
party period period
end end
£m £m £m £m £m
Six months ended
30 June 2014
ESBNI - - 77.7 - -
Other ESB subsidiaries 10.5 (2.0) - 1.2 1.1
---- ---- ---- ---- ----
10.5 (2.0) 77.7 1.2 1.1
==== ==== ==== ==== ====
Six months ended
30 June 2013
ESBNI - - - - -
Other ESB subsidiaries 10.6 (32.1) - 1.4 13.5
---- ---- ---- ---- ----
10.6 (32.1) - 1.4 13.5
==== ==== ==== ==== ====
The amount of £77.7m in other transactions above relates to the interest
accretion received from ESBNI in relation to the restructuring of the interest
rate swaps (see note 6).
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.
The Company has received claims from third parties in relation to alleged
diminution in the value of land due to the existence of electricity network
apparatus, a number of which were heard before the Lands Tribunal of Northern
Ireland in February and June 2014. The Lands Tribunal has not yet issued a
final judgement on the claims and it is uncertain whether any liability will
arise as a result of these claims. In the event that any compensation is
awarded, NIE will seek to recover the payment through the regulatory framework.
The Group does not anticipate that any material liabilities will arise other
than those recognised in the accounts.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that to the best of their knowledge:
(i) the interim accounts have been prepared in accordance with IAS 34 "Interim
Financial Reporting" and give a true and fair view of the assets, liabilities,
financial position and profit of the Group for the six months to 30 June 2014;
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
Joe O'Mahony
Managing Director
27 August 2014
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