NIE Finance plc - Annual Financial Report

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.

In accordance with Listing Rules 17.4.7 and 17.3.4, the Report and Financial Statements for the year ended 31 December 2018 for each of Northern Ireland Electricity Networks Limited and NIE Finance PLC have been uploaded 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

Northern Ireland Electricity Networks Limited’s Report and Accounts follows below:

Contact for enquiries:

NIE Networks Corporate Communications – telephone 0845 300 3356

2018 AT A GLANCE

- Continued focus on the health and safety of staff, contractors and the general public

- Renewable generation connected to the electricity network reached over 1.6GW with 200MW connected during 2018

- Continued focus on customer service through the “Think Customer” initiative with a 7% reduction in customer complaints

- Successful response to network damage resulting from adverse weather conditions with 98% of affected customers restored within 24 hours on average

- Significant reduction in Customer Minutes Lost (CML) with CML arising from both planned and fault outages at a record low during the year

- Continued investment in the network in line with the RP6 price control

- Facilitation of full connections market opening on 28 March 2018

- Replacement of 43,000 meters under the meter recertification programme

- Operating profit of £109.1m and profit after tax of £55.0m

- Over £151m contributed to the Northern Ireland economy through employment of circa 1,200 people and payments to local businesses and authorities

- Secured £350m financing to fund current investment under the RP6 price control

- Commenced innovation projects and market engagement aimed at facilitating greater access to distribution networks, as key steps in enabling Northern Ireland’s transition to a low carbon energy system

GROUP STRATEGIC REPORT

The directors present their annual report and financial statements for Northern Ireland Electricity Networks Limited (NIE Networks or the Company) and its subsidiary undertakings (the Group) for the year ended 31 December 2018.

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 financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS.

The Company financial statements 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), a separate company owned by EirGrid plc, 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 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 880,000 consumers via a number of substations. This network ensures that electricity produced by generators is delivered to consumers through their nominated supplier. NIE Networks does not generate, 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 7.8TWh 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 RoI through a 275kV interconnector and to that in Scotland via the Moyle Interconnector. There are also two standby 110kV connections to 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. On 28 March 2018, NIE Networks successfully facilitated market opening for all new connections, including those less than 5MW, in accordance with the framework and principles agreed with the Utility Regulator. This required the completion of a very significant work programme involving substantial IT development, implementation of new processes and staff training to facilitate competition. For ‘contestable’ elements of connections, customers can now choose whether to accept a quotation from NIE Networks or to engage an accredited Independent Connection Provider (ICP) to construct the connection.

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 as well as 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 NIE Networks’ 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. 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 £720 million for capital investment and £471 million in respect of operating costs (2018-19 prices). Additional 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 market opening to competition 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, leading the way to a low carbon future. 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;

- strong customer service performance by providing a reliable and effective electricity service for Northern Ireland and an excellent experience for customers engaging with the business;

- continued investment in Northern Ireland’s electricity infrastructure to: replace worn assets; facilitate increased customer demand; improve the reliability of the network; and facilitate the connection of further renewable generation;

- performance through people by ensuring a working environment that maximises the potential of employees;

- delivery of better performance for stakeholders through a competitive and transparent cost base;

- maintenance of a strong investment grade credit rating;

- enabling Northern Ireland’s transition to an effective and affordable low carbon energy system; 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 financial statements was £109.1m for the year to 31 December 2018, an increase of £14.2m on the previous year. Group revenue of £275.8m has increased by £14.7m from the previous year primarily reflecting timing differences in respect of PSO revenues. Excluding PSO timing differences, operating profit has increased by £3.6m year on year largely as a result of an increasing regulatory return (due to the Group’s increasing asset base). Group operating costs of £166.7m are largely in line with operating costs of £166.2m in 2017.

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 and is a measure used by external reference agencies when assessing the Group’s credit rating. The ratio, as shown in note 6 to the financial statements, at 3.7 times for the year (2017 - 3.3 times) is above the target level of 3.0 times.

Net Assets

The Group’s net assets of £373.6m increased by £46.2m on the previous year largely reflecting profit after tax of £55.0m together with re-measurement gains (net of tax) of £15.5m on net pension scheme liabilities, partly offset by a dividend paid to the shareholder during the year of £22.0m.

Cash Flow

Cash and cash equivalents increased by £19.2m during the year reflecting net cash flows from operating activities of £90.7m together with net cash inflows associated with the Group’s re-financing of £59.3m, partly offset by investing activity out flows of £108.8m (reflecting the Group’s continued investment in the network) and the dividend paid of £22.0m.

Cash flows generated from operating activities of £90.7m are £44.2m higher than the £46.5m generated during 2017 reflecting the Group’s increased operating profit during the year together with a smaller reduction in trade and other payables from that seen between 2016 and 2017. The large reduction in trade and other payables from 2016 to 2017 reflected decreasing payments on account as the pipeline of generation connections approached 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’s debt finance at the year end comprised bonds of £350.0m and £400.0m (£348.1m and £398.7m respectively net of issue costs) which are due to mature in October 2025 and June 2026 respectively. The £350.0m bond was raised during the year.

During the year the Group repaid £289.0m of debt finance comprising a £175.0m bond and £114.0m drawn on a Revolving Credit Facility (RCF) provided by ESB. The Group has access to an RCF of £120.0m with ESB which remains undrawn at the year end.

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.

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 strong investment grade credit rating from Standard & Poor’s during the year.

Interest Rate Risk

The £350.0m and £400.0m bonds are denominated in sterling and carry fixed interest rates of 2.500% and 6.375% respectively.

Given that 100% 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). 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 achieve a back to back matching arrangement, the Company entered into RPI linked interest rate swaps with ESBNI Limited (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 financial statements 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 financial statements.

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	2018 £m	2017 £m

Cash and cash equivalents	30.4	11.2
Trade and other receivables (excluding prepayments and accrued income)	51.6	55.2
Other financial assets – current and non-current	499.4	579.5
	----------------	---------------
	581.4 ========	645.9 ========

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 financial statements.

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 financial statements.

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 new debt finance of £350m raised in September 2018 and an undrawn £120m RCF provided by ESB.

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 financial statements, 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 financial statements.

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	2018	2017
Health & Safety: Lost time incidents (number of) Network Performance:	2	1
Customer Minutes Lost (CML) - Planned CML (minutes) - Fault CML (minutes)	41 53	62 57
Customer Service:
Overall standards – defaults (number of)	None	None
Guaranteed standards – defaults (number of)	None	1
Stage 2 complaints to the Consumer Council (number of)	1	2
Connections:
Customer demand connections completed (number of)	5,095	5,557
Renewable generation connected (MW): - Small scale (< 5MW) - Large scale (> 5MW)	24 179	71 287
Sustainability:
Waste recycling rate (%)	97	98

Health & Safety

Ensuring the health, safety and wellbeing of employees, contractors and the general public continues 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 ISO 45001 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 Roads Authority and Utility Committees, 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 were two incidents during the year (2017 - one) both of which occurred during non-operational activities.

Safety Engineers are aligned with organisational structures on a ‘Business Partner’ relationship which facilitates integration of skills and allows influence and support. During 2018 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 reducing harm. The quality of reports continued to improve with an increase in reports detailing “unsafe acts”. 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;

- formal incident investigation procedures with monthly reporting to the Health and Safety Management Committee;

- three external ISO audits were completed with zero non-conformances identified including transition to the new ISO 45001 standard;

- 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 contractor management Safety Improvement Plans implemented;

- a further 18 employees attained certificates in Construction Health and Safety from the National Examination Board in Occupational Safety and Health (NEBOSH) bringing the total within the Group to 90 employees;

- over 4,000 site safety inspections completed, the focus of which was to provide coaching and recognition, and to encourage 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, Board and Health and Safety Management Committee meeting. This provides a level of regular assurance against objectives agreed in the annual Health, Safety and Wellbeing Business Plan.

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 a key priority for NIE Networks.

During 2018 NIE Networks continued to efficiently manage outages required for essential maintenance and development 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 2018 was 41 minutes (2017 - 62 minutes). The average number of CML due to faults on the distribution network in 2018 was 53 minutes (2017 - 57 minutes). Both measures show an improvement on the previous year and are calculated excluding incidences where Severe Weather Exemptions have been applied as agreed with the Utility Regulator.

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 2018 there were no defaults against Guaranteed Standards of Performance for customer service activities delivered (2017 - one). During the year 94.2% (2017 – 91.5%) 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 staff across the business 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 four occasions (wind and gales in early and mid-January, gales in June and Storm Ali in September) where adverse weather caused damage to the network and affected thousands of customers’ supplies. On each of these occasions on average 98% of affected customers were restored within 24 hours.

The focus on reducing the number of complaints from customers continued in 2018 with the number of complaints received being 7% 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 (Stage 2 Complaints). During the year, one Stage 2 Complaint was taken up by the CCNI on behalf of customers (2017 – two).

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 2019 as part of the Group’s “Customer Service Action Plan”. NIE Networks won the Customer Engagement Award at the 2018 Contact Centre Awards in NI demonstrating the Group’s commitment to providing the best possible customer service.

Connections

NIE Networks’ Connections business provides safe, secure, reliable and timely electricity connections within Northern Ireland. Typically, connections work involves: connecting new or additional load, for housing, farms and businesses; altering the network; or connecting generators to the distribution network. More recently, customers have expressed interest in connecting energy storage devices to the network.

The key areas of focus during 2018 were:

- preparing for market opening in March 2018 in respect of new distribution connections less than 5MW; and

- completing renewable generation connections in line with developers’ requirements to meet accreditation deadlines for the Northern Ireland Renewables Obligation (NIRO) scheme.

The market for greater than 5MW distribution connections has been open to competition since May 2016. On 28 March 2018, NIE Networks successfully facilitated market opening for all new connections, including those less than 5MW, in accordance with the framework and principles agreed with the Utility Regulator. This required the completion of a very significant work programme involving substantial IT development, implementation of new processes and staff training to facilitate competition. For ‘contestable’ elements of connections, customers can now choose whether to accept a quotation from NIE Networks or to engage an accredited ICP to construct the connection.

There are a number of accredited ICPs registered to complete the ‘contestable’ elements of connections in Northern Ireland. ICPs must adhere to NIE Networks' policies and technical specifications when completing the contestable works. NIE Networks has introduced new processes to carry out design reviews, inspections and asset adoption for any contestable elements of works carried out by ICPs.

Further information in relation to Competition in Connections for customers and ICPs is available on NIE Networks’ website at https://www.nienetworks.co.uk/connections/competition-in-connections.

A high level of renewable generation connections was also delivered during the year including, as outlined above, connections in line with developers’ requirements to meet accreditation deadlines for the NIRO scheme.

179MW of large scale generation (typically 5MW - 40MW windfarms) was connected during the year, taking the total large scale generation connected to the network to 1,284MW (78% of total renewable generation capacity).

A significant proportion of large scale generation was connected through clusters, including the construction during the year of a 90MW cluster at Drumquin in Co. Tyrone. Clusters are 110kV connection nodes established in the vicinity of a number of renewable generation projects to enable additional capacity to be connected in line with NIE Networks’ licence obligation to develop the network in an efficient and economic manner.

24MW of small scale generation (typically 20kW – 5MW single wind turbines, anaerobic digesters, photovoltaic and hydro installations) was connected during the year, taking the total connected small scale generation to 284MW (17% of total renewable generation capacity). Total micro-generation connections (typically 4 - 12kW photovoltaic panels on domestic rooftops) to the network increased to 83MW (5% of total renewable generation capacity) including 1MW added during 2018.

With over 1.6GW of renewable generation connected to the network by the end of 2018 and over 0.2GW of further capacity committed to be connected, the total connected renewable capacity is expected to reach more than 1.8GW by 2020.

Due to capacity constraints on the transmission and distribution networks, NIE Networks initiated a joint consultation with SONI during 2018 on connecting further generation in Northern Ireland. A ‘next steps’ paper was published in June 2018 which resulted in a Connections Innovation Working Group being established. This group includes representatives from industry, the Utility Regulator, the Department for the Economy, SONI and NIE Networks. The aim of this group is to consider and progress appropriate solutions which facilitate the connection of further Distributed Energy Resources (DER) in Northern Ireland which are technically and commercially feasible for both the electricity system operators and for DER developers and operators of new and existing projects. Findings and outputs from the Connections Innovation Working Group are expected to be published before the end of 2019.

The number of customer demand type connections completed during the year reduced, mainly reflecting a lower number of applications received in relation to connections for commercial premises and network alterations.

During the year, the Connections business has also continued to deliver in relation to the outputs outlined in the NIE Networks RP6 business plan including:

- strengthening customer service and account management for project developers seeking connections to the electricity network, including the establishment of an internal team to coordinate the delivery of connections on larger housing sites; and

- ensuring information provided in documentation and online meets the needs of customers. To this end the Connections section of NIE Networks’ website has been enhanced during the year including: applications which facilitate online payments and online customer feedback; an online portal tracking individual job status accessible to both the relevant customer and ICP; and, user friendly links to relevant customer information and online applications.

The Connections business will continue to deliver in relation to these outputs to provide an excellent service to customers connecting to the network whilst facilitating competition in the connections market.

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 certified to ISO 14001. 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 steps 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 2018 the Company continued to focus on each of the following areas:

- managing environmental incidents and ensuring clean up procedures are followed where environmental incidents occur;

- 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 97% (2017 – 98%);

- a continued reduction in energy usage across operational sites; and

- improving the management of biodiversity working closely with Ulster Wildlife to produce a Wildlife Aware Guide for all staff and continual liaison with environmental stakeholders.

In Business in the Community’s 2018 Northern Ireland Environmental Benchmarking Survey, NIE Networks retained its top level Platinum Award.

Network Investment

In 2018 NIE Networks invested a total of £89.0m (2017 - £108.9m) (net of customer contributions) in the transmission and distribution networks. The investment was primarily related to the refurbishment and replacement of worn transmission and distribution assets to maintain reliability of supply and ensure the safety of the network. The reduction in investment from the prior year reflects an increased level of investment required during 2017 to successfully deliver the physical outputs specified in the RP5 price control which concluded on 30 September 2017.

During the year 1,800km of transmission and distribution overhead lines were refurbished as part of an ongoing programme. Tree cutting is an essential ongoing programme of work to maintain the networks’ resilience to storm conditions. Tree cutting was performed over 9,820km of overhead lines during 2018.

Other key investments during the year included the completion of three 275/110kV substations at Kells, Castlereagh and Tandragee.

During 2018 NIE Networks secured funding from the Utility Regulator of up to £6.4m to pilot innovation projects. The objective of these projects is to develop cost effective alternatives to conventional network investment. The Group also issued a Call for Evidence in a bid to understand, from a Northern Ireland perspective, what changes are required to be made to its current functions as a Distribution Network Operator (DNO) to transition to a Distribution System Operator (DSO) in the future. Understanding this evolution will be a key focus for plans to decarbonise the energy system of the future and to this end, NIE Networks published a consultation document on the DNO / DSO Evolution in February 2019.

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 2018, 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 Integrated 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 2018 with NIE Networks replacing 43,000 meters during the year. This programme has involved the replacement of circa 30% of customers’ meters since it commenced in 2015.

People

NIE Networks’ resourcing strategy is to use highly skilled employees 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. Organisation management structures have continued to be streamlined creating development opportunities for all levels of employees. The number of employees at the end of 2018 was 1,180 (2017 – 1,273).

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. In 2018 management, following a consultation with employee representatives, implemented a further restructuring redundancy programme under which 82 employees were selected for redundancy.

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 has 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 2018 four engineers and seven 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 as well as support to stop 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 3.25% of employee time, an increase of 0.15% from the previous year owing to long-term sickness absences.

Employee Engagement

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 and Innovation continue to grow.

Employee relations are positive and constructive. During 2018 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 meetings 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 substantially aligned to the Group’s financial and operational performance.

Investors in People

NIE Networks is accredited with Gold level Investors in People Sixth Generation Standard.

Looking Forward

Key priorities for 2019:

- 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 improved customer service through the continuing “Think Customer” programme;

- ongoing focus on delivery against RP6 price control allowances and outputs;

- competing successfully in the open connections market;

- continued investment in employees to enhance NIE Networks’ capability;

- maintaining a strong investment grade credit rating;

- engaging effectively with key stakeholders; and

- preparing the network for a low carbon future.

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 proportionate 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 provides 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 remained consistent between 2017 and 2018, 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 ISO 45001 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 a dedicated Compliance Manager to monitor compliance with all regulatory licence obligations and to report 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 in the event that NIE Networks’ credit metrics were not maintained 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 on a timely basis. The Group sets its financial plans cognisant of the requirement to ensure adequate funding for its activities and to maintain an investment grade credit rating with rating agencies. 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 1998 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 deficit repair plan was updated in 2018 following the conclusion of the latest triennial review of the deficit as at 31 March 2017. The deficit repair plan will be reviewed in line with the next triennial review of the deficit as at 31 March 2020.
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: Risk of stranded costs arising from either a reduced market and/or market share arising from contestability in connections.	NIE Networks continuously reviews and analyses its cost base to ensure the Group delivers value for customers. The Group also actively forecasts market movements to establish the likely impact on connections activities and costs.
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 per 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. Governance structures are in place to ensure ongoing compliance with the Network and Information Systems Directive which became effective in May 2018.
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. Governance structures are in place to ensure the Group continues to be compliant with the new General Data Protection Regulation which became effective in May 2018. 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, develop and retain 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. Employee development is a key priority for the Group with continued investment in staff training, skills development and on-going performance improvement. Focused employee development programmes are in place to maximise the potential of staff and ensure adequate succession planning.

Brexit

The Group does not foresee a significant risk to its activities arising from the UK’s withdrawal from the European Union due to the fact that its revenues and costs are largely generated and incurred within the UK. However, the Group continues to monitor Brexit developments and, in particular, the risks that could arise in the event of a disorderly withdrawal.

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 2018 and agreed by the Board. The review also considered the impact upon principal risks and mitigating strategies.

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 responses are well managed and executed. The exercising and testing of these plans is key to ensuring NIE Networks’ preparedness for a business continuity event.

On behalf of the Board

Paul Stapleton

Managing Director

Northern Ireland Electricity Networks Limited

Registered Office:

120 Malone Road

Belfast BT9 5HT

Registered Number: NI026041

Date: 12 March 2019

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 2018 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 107 events to promote safety around electricity apparatus and provide skills, careers advice and guidance.

Safety

Electricity provides a vital service for everyone in Northern Ireland, however it is dangerous and NIE Networks aims to continually heighten and improve the awareness of those in the close vicinity of the electricity network. NIE Networks’ Public Safety programme addresses the Group’s moral and legislative obligations in respect of safety and involves employees from across the Group.

During 2018, approximately 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, including social media, with 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.

Arrangements are in place with ESB Networks, Northern Ireland Water, Openreach Northern Ireland 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 district 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’ medical customer care information service is a priority service for approximately 9,000 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. In addition, NIE Networks is a member of the PSNI Quick Check 101 scheme.

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, 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 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 in NI to promote opportunities to study Science, Technology, Engineering and Maths (STEM) subjects;

- offering four further Electrical & Electronic Engineering scholarships at Queen’s University Belfast taking the total number of NIE Networks’ scholarship students to 25; and

- work experience for 42 GCSE and A-Level students studying STEM subjects as well as sponsoring, mentoring and facilitating a four week research and development experience for an A-Level student and other academic bursaries.

Community Initiatives

NIE Networks continues to be a member of Business in the Community (BiTC). Throughout 2018 employees served on the boards of 24 local voluntary, community and social enterprise organisations many through BiTC’s “Business on Board” programme.

The Group, along with other utility partners, launched a rebranded PSNI Quick Check Scheme to its customers through its website and social media channels. Quick Check encourages homeowners and particularly the elderly and vulnerable to check the identity of callers at their homes and provides a 24 hour telephone helpline.

During the year NIE Networks worked with the NOW Group, the social enterprise that supports people with learning difficulties and autism into employment, on its JAM Card initiative. NIE Networks is the first company to develop a ‘JAM friendly’ badge for employees who have undertaken the relevant training.

Charitable Giving and Sponsorship

Charitable giving by employees is promoted through the NIE Networks’ Staff and Pensioners Charity Fund, to which the Group contributed £10,000 during the year. In 2018 the Charity Fund donated £40,000 to local charities.

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 and is a UK Business Supporter of National Energy Action.

BOARD OF DIRECTORS

STEPHEN KINGON CBE was appointed independent non-executive Chairman of the Board in March 2011. He is Chairman of the Northern Ireland Centre for Competitiveness and Lagan Homes Group Ltd. He is Pro-Chancellor at Queen’s University Belfast and a non-executive director of Anderson Spratt Group, Balcas Ltd, Dale Farm Group Ltd and NI Opera. 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, a member of KPMG’s Northern Ireland Advisory Board, a member of Belfast Harbour Commissioners and a director of QUBIS Ltd and Ulster Garden Villages Ltd. In November 2018 she was appointed as a member of the Industrial Strategy Council, a new independent body set up to assess the progress of the UK Government’s Industrial Strategy. 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 Chair of the windfarm developer Viking Energy Shetland LLP. He is a member of Ofgem’s Customer Challenge Group for the RIIO-2 networks price review. 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 Scottish Water, Infinis Energy plc and at Iberdrola USA. He is a Fellow of the Institution of Engineering and Technology.

PAUL STAPLETON, Managing Director, was appointed to the Board in May 2018. He is a director of Energy Networks Association Ltd and a committee member of the Institute of Directors in Northern Ireland. He joined ESB in 1991 where he held a number of senior management positions including General Manager of Electric Ireland, one of the largest retail businesses in Ireland, ESB Group Treasurer with responsibility for managing ESB Group’s debt, funding and liquidity positions and Financial Controller of ESB Networks Limited, an independent ring-fenced subsidiary within ESB Group. He is a member of the Chartered Institute of Management Accountants.

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 2018 show a profit after tax of £55.0m (2017 - £44.7m). During the year the Company paid a final dividend of £22.0m (2017 - £18.0m). 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.

The NIE Networks Board comprises three independent non-executive directors and two executive directors. Throughout 2018, Stephen Kingon CBE continued to chair the Board and Dame Rotha Johnston DBE and Alan Bryce served as the Board’s other independent non-executive directors. Following seven years of service, Ronnie Mercer CBE retired as a non-executive director on 3 March 2018. Nicholas Tarrant stood down as Managing Director at the end of April 2018 to take up a position within ESB, and Paul Stapleton was appointed as Managing Director and member of the Board on 1 May 2018. Peter Ewing, Deputy Managing Director and Director of Regulation and Market Operations served as the other executive director throughout the year. Peter Ewing will be stepping down from this role at the end of April 2019 and the Board expresses its gratitude to Peter for his significant contribution to the Company over the last 20 years. Gordon Parkes, Human Resources Director, will be appointed to the Board as an executive director from 1 May 2019. Biographies for current directors 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 financial statements;

- 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. The Executive Committee meets monthly and on other occasions as necessary and reports on its activities to each Board meeting.

Current 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)

- Alan Bryce (Independent Non-Executive Director)

- Paul Stapleton (Managing Director)

- Peter Ewing (Deputy MD and Director of Regulation and Market Operations)

Audit & Risk Committee

- Rotha Johnston DBE (Chair)

- Stephen Kingon CBE

- Alan Bryce

Executive Committee

- Paul Stapleton, Managing Director

- 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

- Gavan Walsh, 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 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 seven meetings during the year.

The terms of reference, which were updated during 2018, set out the duties of the Audit & Risk Committee. The most significant issues considered by the Committee during 2018, and up to the date of this report, are outlined below:

Financial Reporting

- reviewed the annual, interim and regulatory financial statements for NIE Networks and annual financial statements for NIE Finance PLC and NIE Networks Services Limited, considering the appropriateness of accounting policies, whether the financial statements 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 2018 and received regular updates on progress;

- considered the Group’s principal 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 Group’s principal risks and other key business activities;

- considered an assessment of ‘High Impact Low Probability’ risks;

- considered the potential impact of a ‘no deal’ scenario in relation to the UK’s exit from the European Union;

- monitored readiness for compliance with the General Data Protection Regulation and Networks Information Systems Directive, each effective from May 2018;

- reviewed the Group’s statements for publication on the prevention of slavery and human trafficking; and

- reviewed the operation of the Group’s key ethics policies including the adequacy of the arrangements in place for employees to raise concerns about possible wrongdoing.

Internal Audit

- considered Deloitte’s annual report of the internal audit plan conducted during 2017;

- reviewed and approved the 2018 internal audit plan and monitored progress against this plan to assess the effectiveness of this function;

- considered Deloitte’s annual assurance opinion on the adequacy and effectiveness of the Group’s governance risk management and control during 2018;

- reviewed reports detailing the results of internal audits and the timeliness of the implementation of actions; and

- reviewed and approved the 2019 internal audit plan to be conducted by Deloitte.

The Committee had the facility to discuss any areas of the programme with Deloitte without the presence of management.

External Audit

- reviewed reports from PricewaterhouseCoopers LLP (PwC) on the audit of the 2017 statutory financial statements and March 2018 regulatory financial statements and considered PwC’s review of the June 2018 interim financial statements;

- reviewed and challenged the proposed external audit plan for the 2018 statutory financial statements to ensure that PwC had identified all key risks and developed robust audit procedures;

- considered PwC’s adherence to independence requirements;

- approved updated policies on the supply of non-audit services from the external auditor and on the employment of former employees of the external auditor in order to ensure that the independence and objectivity of the external auditor is maintained;

- approved the engagement of PwC for the provision of permitted non-audit services in relation to the offering circular for a bond issue in September 2018; and

- reviewed the report from PwC on the audit of the 2018 statutory financial statements and comments on accounting, financial control and other audit issues.

The Committee had the facility to discuss any areas of the audit with PwC without the presence of management.

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;

- a 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;

- 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 and has concluded that during 2018, the overall governance, risk management and internal control framework was adequate to provide reasonable assurance of sound internal control and that NIE Networks maintained an effective system of internal control which would prevent or detect against material misstatement or loss.

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

PwC were reappointed as external auditors of the Company by the passing of a shareholder resolution in April 2018. In accordance with Section 487 of the Companies Act 2006, PwC will be deemed to be reappointed as external auditors of the Company.

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 (2017 - £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 7 - 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 12 - 14); and

- an indication of activities in the Group in the field of research and development (see page 12).

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 IFRSs 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 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 also 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 and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

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

Paul Stapleton

Managing Director

Northern Ireland Electricity Networks Limited

Registered Office:

120 Malone Road

Belfast BT9 5HT

Registered Number: NI026041

12 March 2019

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 parent company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 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 International Financial Reporting Standards (IFRSs) as adopted by the European Union;

- the parent 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 Financial Statements (the “Annual Report”), which comprise: the Balance sheets as at 31 December 2018; the Group income statement and Statements of comprehensive income, the Group statement of cash flows, and the Group and parent company statements of changes in equity for the year then ended; and the notes to the financial statements, 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 parent company.

Other than those disclosed in note 4 to the financial statements, we have provided no non-audit services to the group or the parent company in the period from 1 January 2018 to 31 December 2018.

Our audit approach

Overview

Materiality	Overall group materiality: £3,307,500 (2017: £2,650,000), based on 5% of profit before tax. Overall parent company materiality: £3,207,500 (2017: £2,550,000), based on 5% of profit before tax.
Audit scope	We performed full audit scope over financially significant components (Northern Ireland Electricity Networks Limited, NIE Finance PLC and NIE Networks Services Limited).
Key audit matters	Accounting estimates - unbilled debt (Group and parent). Accounting for connections (Group and parent).

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.

Capability of the audit in detecting irregularities, including fraud

Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to the Listing Rules, the requirements of the Northern Ireland Authority for Utility Regulation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure, and management bias in accounting estimates. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included:

- Discussions with management, internal audit and the group’s legal advisors, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;

- We have audited key reconciliations, obtained external confirmations and incorporated elements of unpredictability into our audit testing;

- Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to accounting for unbilled debt (see related key audit matter below);

- We have discussed and understood the nature of open matters between the company and the Northern Ireland Authority for Utility Regulation; and

- Identifying and testing journal entries, in particular any journal entries posted with an unusual description, unusual nominal account combinations against revenue, operating expenses and unbilled debt or entries made by unexpected persons.

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. Also, 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.

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 Group and parent	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.
Accounting for connections For each connections job, the Group incurs direct and indirect costs as well as a margin that is capitalised. On receipt of the customer payment a deferred income balance arises which is released to the Income Statement over time. The application of IFRS 15 to this area and the interrelationship between the balances (deferred income/capitalisation) and release to the Income Statement is complex and therefore a focus for our audit work. Group and parent	We assessed that revenue recognition is in line with the revenue recognition requirements of IFRS15: Revenue from Contracts with Customers. We identified, assessed and tested key controls that exist within the NIE Networks capitalisation process to ensure that they are designed, implemented and operating effectively. We examined if costs capitalised during the year were accounted for in accordance with the requirements of IAS 16: Property, Plant and Equipment and the Group Policy. We gained an understanding of and performed testing over the opening IFRS15 adjustment which resulted in an increase to the deferred income balance in relation to incomplete performance obligations. We performed substantive testing over deferred income balances including transfers from payments on account as well as testing the associated capitalisation of costs and revenue releases.

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
Group and parent

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.

Accounting for connections
For each connections job, the Group incurs direct and indirect costs as well as a margin that is capitalised. On receipt of the customer payment a deferred income balance arises which is released to the Income Statement over time. The application of IFRS 15 to this area and the interrelationship between the balances (deferred income/capitalisation) and release to the Income Statement is complex and therefore a focus for our audit work.
Group and parent

We assessed that revenue recognition is in line with the revenue recognition requirements of IFRS15: Revenue from Contracts with Customers.
We identified, assessed and tested key controls that exist within the NIE Networks capitalisation process to ensure that they are designed, implemented and operating effectively.
We examined if costs capitalised during the year were accounted for in accordance with the requirements of IAS 16: Property, Plant and Equipment and the Group Policy.
We gained an understanding of and performed testing over the opening IFRS15 adjustment which resulted in an increase to the deferred income balance in relation to incomplete performance obligations.
We performed substantive testing over deferred income balances including transfers from payments on account as well as testing the associated capitalisation of costs and revenue releases.

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 parent company, the accounting processes and controls, and the industry in which they operate.

As part of our procedures to develop our Audit Strategy, as well as meeting with management, we attended some Audit & Risk Committee meetings during the year, engaged with Internal Audit and performed interim review procedures.

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*	*Parent company financial statements*
*Overall materiality*	£3,307,500 (2017: £2,650,000).	£3,207,500 (2017: £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.

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 £2,650,000. 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 £165,000 (Group audit) (2017: £132,500) and £132,500 (Parent company audit) (2017: £165,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern

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 parent 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.

We have nothing to report in respect of the above matters.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and parent company’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union, which is currently due to occur on 29 March 2019, are not clear, and it is difficult to evaluate all of the potential implications on the company’s trade, customers, suppliers and the wider economy.

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 2018 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 parent 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 Directors’ Responsibilities Statement 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 parent 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 parent 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 parent 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 parent 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 parent 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 directors on 17 October 2017 to audit the financial statements for the year ended 31 December 2017 and subsequent financial periods. The period of total uninterrupted engagement is 2 years, covering the years ended 31 December 2017 to 31 December 2018.

Kevin MacAllister (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Belfast

12 March 2019

GROUP INCOME STATEMENT

for the year ended 31 December 2018

	Note	2018 £m	2017 £m

Revenue	3	275.8	261.1

Operating costs	4	(166.7)	(166.2)
		-----------	-----------
OPERATING PROFIT		109.1	94.9
		-----------	-----------
Finance revenue	6	0.2	-
Finance costs	6	(38.3)	(38.5)
Net pension scheme interest	6	(3.0)	(3.6)
		-----------	-----------
Net finance costs	6	(41.1)	(42.1)
		-----------	-----------
PROFIT BEFORE TAX		68.0	52.8

Tax charge	7	(13.0)	(8.1)
		-----------	-----------
PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY		55.0	44.7
		========	========

STATEMENTS OF COMPREHENSIVE INCOME

for the year ended 31 December 2018

Group and Company


	Note	2018 £m	2017 £m

Profit for the financial year		55.0	44.7
		-----------	-----------
Other comprehensive income: Items not to be reclassified to profit or loss in subsequent periods:
Re-measurement gains on pension scheme assets and liabilities	21	18.7	8.2
Deferred tax charge relating to components of other comprehensive income	7	(3.2)	(1.4)
		-----------	-----------
Net other comprehensive income for the year		15.5	6.8
Total comprehensive income for the year attributable to the equity holders of the parent company		----------- 70.5	----------- 51.5
		========	========

BALANCE SHEETS

as at 31 December 2018

		Group		Company
	Note	2018 £m	2017 £m	2018 £m	2017 £m
Non-current assets
Property, plant and equipment	9	1,791.1	1,715.5	1,791.9	1,716.3
Intangible assets	10	21.2	20.0	21.2	20.0
Derivative financial assets	17	486.9	500.0	486.9	500.0
Investments	11	-	-	7.9	7.9
		-----------	-----------	-----------	-----------
		2,299.2	2,235.5	2,307.9	2,244.2
Current assets		-----------	-----------	-----------	-----------
Inventories	12	13.4	15.2	13.4	15.2
Trade and other receivables	13	53.9	57.1	53.9	57.1
Current tax receivable		4.7	1.4	4.7	1.4
Derivative financial assets	17	12.5	79.5	12.5	79.5
Cash and cash equivalents	14	30.4	11.2	30.4	11.2
		-----------	-----------	-----------	-----------
		114.9	164.4	114.9	164.4
		-----------	-----------	-----------	-----------
TOTAL ASSETS		2,414.1	2,399.9	2,422.8	2,408.6
		-----------	-----------	-----------	-----------
Current liabilities
Trade and other payables	15	69.0	89.2	78.2	98.4
Deferred income	16	18.6	18.0	18.6	18.0
Financial liabilities:
- Derivative financial liabilities	17	12.5	79.5	12.5	79.5
- Other financial liabilities	18	17.2	307.2	17.2	307.2
Provisions	20	3.8	1.1	3.8	1.1
		-----------	-----------	-----------	-----------
		121.1	495.0	130.3	504.2
Non-current liabilities		-----------	-----------	-----------	-----------
Deferred tax liabilities	7	72.0	64.7	72.0	64.7
Deferred income	16	512.2	483.4	512.2	483.4
Financial liabilities:
- Derivative financial liabilities	17	486.9	500.0	486.9	500.0
- Other financial liabilities	18	746.8	398.5	746.8	398.5
Provisions	20	4.0	3.9	4.0	3.9
Pension liability	21	97.5	127.0	97.5	127.0
		-----------	-----------	-----------	-----------
		1,919.4	1,577.5	1,919.4	1,577.5
		-----------	-----------	-----------	-----------
TOTAL LIABILITIES		2,040.5	2,072.5	2,049.7	2,081.7
		-----------	-----------	-----------	-----------
NET ASSETS		373.6	327.4	373.1	326.9
		========	========	========	========
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	306.7	260.5	306.2	260.0
		-----------	-----------	-----------	-----------
TOTAL EQUITY		373.6	327.4	373.1	326.9
		========	========	========	========

The profit after tax of the Company for the year is £55.0m (2017 - £44.7m).

The financial statements on pages 32 to 63 were approved by the Board of Directors on 6 March 2019 and signed on its behalf by:

Paul Stapleton

Director

Date: 12 March 2019

STATEMENTS OF CHANGES IN EQUITY

for the year ended 31 December 2018

Group

	Note	Share capital	Share premium	Capital redemption reserve	Accumulated profits	Total equity
		£m	£m	£m	£m	£m

At 1 January 2017		36.4	24.4	6.1	227.0	293.9

Profit for the year		-	-	-	44.7	44.7
Net other comprehensive 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
Profit for the year		-	-	-	55.0	55.0
Net other comprehensive income for the year		-	-	-	15.5	15.5
Total comprehensive income for the year		----------- -	----------- -	----------- -	----------- 70.5	----------- 70.5
Dividends to the shareholder	22	-	-	-	(22.0)	(22.0)
Opening balance adjustment on adoption of IFRS 15	2	-	-	-	(2.3)	(2.3)
		-----------	-----------	-----------	-----------	-----------
At 31 December 2018		36.4	24.4	6.1	306.7	373.6
		======	======	======	======	======

STATEMENTS OF CHANGES IN EQUITY

for the year ended 31 December 2018

Company

	Note	Share capital	Share premium	Capital redemption reserve	Accumulated profits	Total equity
		£m	£m	£m	£m	£m

At 1 January 2017		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
Profit for the year		-	-	-	55.0	55.0
Net other comprehensive income for the year		-	-	-	15.5	15.5
Total comprehensive income for the year		----------- -	----------- -	----------- -	----------- 70.5	----------- 70.5
Dividends to the shareholder	22	-	-	-	(22.0)	(22.0)
Opening balance adjustment on adoption of IFRS 15	2	-	-	-	(2.3)	(2.3)
At 31 December 2018		----------- 36.4	----------- 24.4	----------- 6.1	----------- 306.2	----------- 373.1
		======	======	======	======	======

CASH FLOW STATEMENT

for the year ended 31 December 2018

		Group
	Note	2018 £m	2017 £m
Cash flows generated from operating activities
Profit for the year		55.0	44.7
Adjustments for:
- Tax charge		13.0	8.1
- Net finance costs	6	41.1	42.1
- Depreciation of property, plant and equipment	9	70.5	66.0
- Amortisation of intangible assets	10	4.3	5.2
- Release of customers’ contributions and grants	16	(17.5)	(16.0)
- Defined benefit pension charge less contributions paid	21	(13.8)	(14.4)
- Net movement in provisions	20	0.5	(0.2)
Operating cash flows before movement in working capital		----------- 153.1	----------- 135.5

Decrease / (increase) in inventories		1.8	(2.3)
(Increase) / decrease in trade and other receivables		(0.9)	3.8
Decrease in trade and other payables		(20.3)	(46.5)
Increase in working capital		----------- (19.4)	----------- (45.0)
		-----------	-----------
Cash generated from operations		133.7	90.5

Interest received		0.2	-
Interest paid		(39.1)	(38.2)
Current taxes paid		(4.1)	(5.8)
Net cash flows generated from operating activities		----------- 90.7	----------- 46.5
		-----------	-----------

Cash flows used in investing activities
Purchase of property, plant and equipment		(147.9)	(206.9)
Customers’ cash contributions	16	44.6	86.3
Purchase of intangible assets		(5.5)	(0.9)
Net cash flows used in investing activities		----------- (108.8)	----------- (121.5)
		-----------	-----------
Cash flows generated from financing activities
Dividends paid to shareholder	22	(22.0)	(18.0)
Amounts (repaid to) / received from group undertakings	18	(114.0)	94.9
Amounts received from financing activities	18	348.3	-
Repayment of external borrowings	18	(175.0)	-
		-----------	-----------
Net cash flows generated from financing activities		37.3	76.9
		-----------	-----------
Net increase in cash and cash equivalents		19.2	1.9
Cash and cash equivalents at beginning of year		11.2	9.3
Cash and cash equivalents at end of year	14	----------- 30.4	----------- 11.2
		=======	=======

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 FINANCIAL STATEMENTS

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:

- constructing and maintaining the electricity transmission and distribution networks in Northern Ireland and operating the distribution network;

- connecting demand and 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.

2. Accounting Policies

The principal accounting policies applied in the preparation of these financial statements 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

The Group has adopted IFRS 15, ‘Revenue from Contracts with Customers’, (IFRS 15) and IFRS 9, ‘Financial Instruments’, (IFRS 9) both of which are effective for the first time for the financial year beginning on 1 January 2018. The impact of adoption on the financial statements of the Group and Company is outlined below:

IFRS 15

The adoption of IFRS 15 resulted in a change in the timing of recognition in respect of an aspect of connections revenue. This reduction in revenue has been offset by a commensurate reduction in operating costs associated with those elements of revenue, therefore having no impact on the operating profit of the Group or Company. On transition, the Group and Company recognised a £2.3m reduction in accumulated profits in respect of the change in timing of revenue recognition which related to contracts with customers for which performance obligations were not complete as at 31 December 2017. The reduction in accumulated profits is disclosed in the Statement of Changes in Equity for both the Group and Company and resulted in a corresponding increase in deferred income as disclosed in note 16.

IFRS 9

As a result of the Group and Company’s limited exposure to credit risk in respect of its trade receivables the adoption of IFRS 9 has had no material impact on the financial statements of the Group or 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 2019, 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 or Company with the exception of IFRS 16, ‘Leases’, (IFRS 16) as noted below:

IFRS 16

IFRS 16 addresses the definition of a lease, the 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 at the same time. NIE Networks intends to apply IFRS 16 from 1 January 2019.

Based on the Group’s current lease portfolio, the Group estimates financial liabilities associated with future lease commitments of £8.9m and a corresponding right of use asset of £8.9m will be recognised on the Group’s balance sheet at 31 December 2019. The Group expects profit before tax to decrease by £1.3m as a result of the accounting changes required by IFRS 16.

The Group is aware that the IASB has made a submission to the IFRS Interpretations Committee (IFRS IC) to clarify the accounting position of specific issues under IFRS 16. The Group will review the outcome of this submission to assess if it will require any change to the Group’s accounting treatment however it is the Group’s assessment that any change arising from this submission will not have a material impact on the financial statements of the Group or Company.

Basis of Preparation

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS IC 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 financial statements 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 financial statements 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 financial statements. The Group’s debt finance at the year end comprised bonds of £350.0m and £400.0m (£348.1m and £398.7m respectively net of issue costs) which are due to mature in October 2025 and June 2026 respectively.

The Group repaid its expiring £175.0m bond and £114.0m drawn on the RCF from ESB in September 2018.

Basis of consolidation

The Group financial statements consolidate the financial statements 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 is 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.

The Group classifies its financial instruments into one of the categories discussed below, depending on the purpose for which the instrument was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises derivative assets and liabilities. Derivatives are carried in the balance sheet at fair value with changes in fair value recognised in the income statement within net finance costs.

Financial assets measured at amortised cost

Assets measured at amortised cost principally arise from the provision of services to customers (trade receivables) but also incorporate other types of financial assets where the objective is to hold assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The Group's financial assets measured at amortised cost comprise trade and other receivables, cash and cash equivalents and loans and receivables.

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.

Trade and other receivables

Trade receivables do not carry any interest. The Group assesses, on a forward looking basis, the expected credit losses associated with trade receivables. The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

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.

Other financial liabilities

Other financial liabilities include the bank borrowings and trade payables.

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 payables

Trade payables are not interest bearing and are stated at their amortised cost.

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

The Group has applied IFRS 15 using the cumulative effect method and therefore the comparative information has not been restated and continues to be reported under IAS 18. Other than the change in the timing of recognition in respect of some elements of connections revenue outlined above, IFRS 15 has not resulted in significant changes in revenue recognition for the Group. For completeness the Group has outlined the principles applied in respect of revenue recognition when applying IFRS 15 and IAS 18, however as noted, this has not resulted in a material change.

2018 Revenue recognition principles – IFRS 15

Revenue is recognised when the Group has satisfied its performance obligations in respect of the contract with the customer. Revenue is measured based on the consideration specified in a contract with a customer.

2017 Revenue recognition principles – IAS 18

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.

Specific revenue recognition principles – IFRS 15 and IAS 8

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.

Customers’ contributions

Customers’ 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 financial statements 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 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 but not yet invoiced, 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.

All of the Group’s revenue is derived from contracts with customers.

	2018 £m	2017 £m

Revenue:
Regulated tariff revenue	239.2	225.4
Release of customers’ contributions	17.0	25.3
PPB PSO	10.6	0.2
Other unregulated revenue	9.0	10.2
	----------- 275.8	----------- 261.1
	=======	=======

Revenue of £275.8m (2017 - £261.1m) includes £14.2m (2017 - £4.2m) recognised at a point in time comprising PPB PSO revenue of £10.6m (2017 - £0.2m) and elements of other unregulated revenue £3.6m (2017 – £4.0m).

As outlined in note 13, the Group does not have contract assets arising from contracts with customers (2017 – none).

The Group’s contract liabilities are in the form of payments received on account (note 15) and deferred income in respect of customers’ contributions (note 16), both of which relate to amounts charged to customers in respect of connections to the network. Revenue from the release of customers’ contributions of £17.0m (2017 - £25.3m) represents revenue recognised during the year which would have been included within contract liabilities in the prior year.

None of the Group’s revenue recognised during the year (2017 – none) relates to performance obligations satisfied in prior years.

During the year, three customers accounted for sales revenue totalling £158.0m (2017 – four customers accounted for £198.8m).

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:

	2018	2017
	£m	£m

Employee costs (note 5)	34.1	29.3
Depreciation and amortisation	74.3	70.7
Other operating charges	58.3	66.2
	-----------	-----------
	166.7 =======	166.2 =======

Operating costs include:
Depreciation charge on property, plant and equipment	70.5	66.0
Amortisation of intangible assets	4.3	5.2
Amortisation of grants	(0.5)	(0.5)
Minimum payments due under operating leases	3.2	3.3
Cost of inventories recognised as an expense	1.1	1.3

Operating costs include:

	2018	2017
Auditors’ remuneration	£’000	£’000
Ernst & Young LLP:
Fees payable to the Group and Company auditors for the audit of the financial statements	-	-
Fees payable to the Group and Company auditors for other services:
The audit of the company’s subsidiaries pursuant to legislation	-	-
Audit related assurance services	-	27
Permitted tax compliance services	-	3

PricewaterhouseCoopers LLP:
Fees payable to the Group and Company auditors for the audit of the financial statements	49	29
Fees payable to the Group and Company auditors for other services:
The audit of the company’s subsidiaries pursuant to legislation	4	4
Audit related assurance services	50	10

5. Employees

Employee costs – Group and Company

	2018	2017
	£m	£m

Wages and salaries	53.9	52.8
Social security costs	5.5	5.6
Pension costs
- defined contribution plans	5.3	4.4
- defined benefit plans	14.3	11.0
	----------- 79.0	----------- 73.8
Less: amounts capitalised to property, plant and equipment and intangible assets	(44.9)	(44.5)
	-----------	-----------
Charged to the income statement	34.1 =======	29.3 =======

Average and actual headcount for the Group and Company are disclosed in the table below:

	Average		Actual headcount as at 31 December
	2018 Number	2017 Number	2018 Number	2017 Number

Management, administration and support	290	318	280	312
Electrical services	913	966	900	961
	-----------	-----------	-----------	-----------
Employee numbers	1,203	1,284	1,180	1,273
	=======	=======	=======	=======

Directors’ emoluments

The remuneration of the directors paid by the Company was as follows:

	2018	2017
	£’000	£’000
Emoluments in respect of qualifying services	662	654

Emoluments in respect of qualifying services include deferred remuneration awarded in the current and prior year but payable in future years. £422,548 is payable to directors in respect of termination benefits (2017 - £nil). 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:

	2018	2017
	Number	Number
Defined benefit pension scheme	-	-
Defined contribution scheme	2	1

Aggregate contributions by the Company to the Company’s defined contribution pension scheme in respect of the directors during the year was £23,791 (2017 - £4,212).

The remuneration in respect of the highest paid director was as follows:


For the year ended	2018	2017
	£’000	£’000
Emoluments	287	312
Total accrued pension at 31 December (per annum)	-	-
Contributions by the Company to the Company’s defined contribution pension scheme in respect of the highest paid director was £5,791 (2017 - £4,212).

6. Net Finance Costs

	2018 £m	2017 £m
Finance revenue:
Bank interest receivable	0.2	-
	-----------	-----------
Finance costs:
£175m bond	(8.6)	(12.0)
£400m bond £350m bond	(25.5) (2.3)	(25.5) -
Amounts payable to parent undertakings (note 26)	(1.5)	(0.8)
	----------- (37.9)	----------- (38.3)

Less: capitalised interest	-	0.1
	-----------	-----------
Total interest charged to the income statement	(37.9)	(38.2)
	-----------	-----------

Other finance costs:
Amortisation of financing charges	(0.4)	(0.3)
	-----------	-----------
Total finance costs	(38.3)	(38.5)
	-----------	-----------
Net pension scheme interest	(3.0)	(3.6)
	-----------	-----------
Net finance costs	(41.1)	(42.1)
	=======	=======

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 from operations. The calculation of the ratio, as reported in the Financial Review, is shown below:

	2018	2017
	£m	£m

Operating profit	109.1	94.9
Add back depreciation and amortisation	74.3	70.7
Deduct pension deficit repair contributions	(17.7)	(17.2)
Deduct amortisation of customer contributions	(17.0)	(15.5)
Deduct tax paid	(4.1)	(5.8)
	-----------	-----------
Funds from operations	144.6	127.1

Interest paid	(39.1)	(38.2)
	-----------	-----------
FFO to interest paid (times)	3.7	3.3
	=======	=======

Pension deficit repair contributions of £17.7m (2017 - £17.2m) reflect contributions in respect of past service costs as explained in note 21.

7. Tax Charge

(i) Analysis of charge during the year

	2018	2017
Group Income Statement	£m	£m

*Current tax charge*
UK corporation tax at 19.0% (2017 – 19.25%)	9.0	6.4
Over-provided in prior years	-	(2.0)
Total current income tax	----------- 9.0	----------- 4.4
	-----------	-----------
*Deferred tax charge*
Origination and reversal of temporary differences in current year	3.8	3.7
Origination and reversal of temporary differences in previous year	0.2	-
Total deferred tax charge	----------- 4.0	----------- 3.7
	-----------	-----------
Total tax charge for the year	13.0 =======	8.1 =======

Tax relating to items charged in other comprehensive income

*Deferred tax*
Deferred tax charge relating to components of other comprehensive income	3.2	1.4
	=======	=======

(ii) Reconciliation of total tax charge

The tax charge in the Group Income Statement for the year is the same as (2017 – lower than) the standard rate of corporation tax in the UK of 19.0% (2017 – 19.25%). The differences are reconciled below:

	2018	2017
	£m	£m

Profit before tax charge	68.0	52.8
	-----------	-----------
Profit before tax multiplied by the UK standard rate of corporation tax of 19.0% (2017 – 19.25%)	12.9	10.2

*Tax effect of:*
Impact of deferred tax at reduced rate	(0.4)	(0.5)
Other permanent differences	0.3	0.4
Tax under/(over) provided in prior years	0.2	(2.0)
	-----------	-----------
Tax charge for the year	13.0	8.1
	=======	=======

(iii) Deferred tax

The deferred tax included in the Group and Company Balance Sheet is as follows:


	2018 £m	2017 £m

*Deferred tax assets*
Pension liability	16.5	21.6
Other temporary differences	0.2	0.3
	----------- 16.7	----------- 21.9
	-----------	-----------
*Deferred tax liabilities*
Accelerated capital allowances	(87.9)	(85.8)
Held-over losses on property disposals	(0.8)	(0.8)
	----------- (88.7)	----------- (86.6)
	-----------	-----------
Net deferred tax liability	(72.0)	(64.7)
	=======	=======

Deferred tax has been calculated at 17.0% as at 31 December 2018 (2017 – 17.0%) reflecting future reductions in the corporation tax rate enacted at the balance sheet date.

The deferred tax charge included in the Group Income Statement is as follows:

	2018 £m	2017 £m

Accelerated capital allowances	2.1	1.9
Temporary differences in respect of pensions	1.8	1.8
Other temporary differences	0.1	-
	-----------	-----------
Deferred tax charge	4.0	3.7
	=======	=======

8. Profit for the Financial Year

The profit of the Company is £55.0m (2017 - £44.7m). 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 2017	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

Additions	137.4	-	8.2	0.5	146.1
	-----------	-----------	-----------	-----------	-----------
At 31 December 2018	2,776.9	5.1	90.1	2.9	2,875.0

Depreciation:
At 1 January 2017	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

Charge for the year	64.4	0.1	5.5	0.5	70.5
	-----------	-----------	-----------	-----------	-----------
At 31 December 2018	1,014.0	2.0	65.6	2.3	1,083.9
	-----------	-----------	-----------	-----------	-----------
Net book value:
At 31 December 2017	1,689.9 =======	3.2 =======	21.8 =======	0.6 ======	1,715.5 =======

At 31 December 2018	1,762.9	3.1	24.5	0.6	1,791.1
	=======	=======	=======	======	=======

Infrastructure assets include amounts in respect of assets under construction of £83.1m (2017 - £77.9m).

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 2017	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

Additions	137.4	-	8.2	0.5	146.1
	-----------	-----------	-----------	-----------	-----------
At 31 December 2018	2,778.5	5.1	90.1	2.9	2,876.6
	-----------	-----------	-----------	-----------	-----------
Depreciation:
At 1 January 2017	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

Charge for the year	64.4	0.1	5.5	0.5	70.5
	-----------	-----------	-----------	-----------	-----------
At 31 December 2018	1,014.8	2.0	65.6	2.3	1,084.7
	-----------	-----------	-----------	-----------	-----------
Net book value:
At 31 December 2017	1,690.7	3.2	21.8	0.6	1,716.3
	=======	=======	=======	=======	=======
At 31 December 2018	1,763.7	3.1	24.5	0.6	1,791.9
	=======	=======	=======	=======	=======

Infrastructure assets include amounts in respect of assets under construction of £83.1m (2017 - £77.9m).

10. Intangible Assets

Computer software – Group and Company
	2018	2017
	£m	£m

Cost:
At the beginning of the year	103.8	102.9

Additions acquired externally	5.5	0.9
	-----------	-----------
At the end of the year	109.3	103.8
	-----------	-----------
Amortisation:
At the beginning of the year	83.8	78.6

Amortisation charge for the year	4.3	5.2
	-----------	-----------
At the end of the year	88.1	83.8
	-----------	-----------
Net book value:
At the beginning of the year	20.0	24.3
	=======	=======
At the end of the year	21.2	20.0
	=======	=======

Software assets include amounts in respect of assets under construction amounting to £nil (2017 - nil).

Software assets include £12.2m (2017 - £15.7m) in respect of market and customer software invested in following separation from the Viridian Group. The relevant software has a remaining useful life of 3.5 years.

11. Investments

Company – Investment in subsidiaries

	2018	2017
	£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 financial statements. 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.

The principal activity of NIE Finance PLC is the provision of financing services, being the issuer of the £400m and £350m bonds which were on-lent to the Company. Further details of the bond issues 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 2018 is £nil (2017 - £nil).

12. Inventories

Group and Company	2018 £m	2017 £m

Materials and consumables	13.1	14.9
Work-in-progress	0.3	0.3
	-----------	-----------
	13.4	15.2
	=======	=======

13. Trade and Other Receivables

Group and Company	2018 £m	2017 £m
Current
Trade receivables (including unbilled consumption)	47.1	49.8
Other receivables	0.6	0.6
Prepayments and accrued income	2.3	1.9
Amounts owed by fellow subsidiary undertakings (note 26)	3.9	4.8
	-----------	-----------
	53.9	57.1
	=======	=======

Trade receivables include amounts relating to unbilled consumption of £17.7m (2017 - £17.6m).The largest trade receivable at the year end, due from one customer, is £8.1m (2017 - £8.8m).

Trade receivables include £nil (2017 – nil) in respect of contract assets arising from contracts with customers.

Trade receivables are stated net of an allowance of £0.7m (2017 - £0.5m) for estimated irrecoverable amounts based on the lifetime expected credit loss of the trade receivable referencing the Group’s past default experience. There are no allowances for estimated irrecoverable amounts included in ‘amounts owed by fellow subsidiary undertakings’.

Group and Company	2018 £m	2017 £m

At the beginning of the year	0.5	0.3
Increase in allowance	0.3	0.3
Bad debts written off	(0.1)	(0.1)
	-----------	-----------
At the end of the year	0.7	0.5
	=======	=======

The allowance of £0.7m (2017 - £0.4m) reflects individual balances impaired based on past default experience.

The following shows an aged analysis of current trade receivables for the Group and Company:

	2018 £m	2017 £m
Within credit terms:
Current	44.4	46.6
Past due but not impaired:
Less than 30 days	0.2	0.5
30 - 60 days	0.7	0.9
60 - 90 days	1.0	0.2
+ 90 days	0.8	1.6
	-----------	-----------
	47.1	49.8
	=======	=======

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.

14. Cash and Cash Equivalents

Group and Company
	2018 £m	2017 £m

Cash at bank and in hand	17.4	11.2
Short term deposits	13.0	-
	-----------	-----------
	30.4	11.2
	=======	=======

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are placed for varying periods of between one day and one month depending on the immediate cash requirements of the Group and Company, and earn interest at the respective short-term 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
	2018	2017	2018	2017
	£m	£m	£m	£m

Trade payables	15.3	19.0	15.3	19.0
Payments received on account	11.9	29.9	11.9	29.9
Amounts owed to fellow subsidiary undertakings (note 26)	9.7	5.3	9.7	5.3
Amounts owed to subsidiary undertakings	-	-	9.2	9.2
Tax and social security	9.6	7.9	9.6	7.9
Accruals	20.4	24.0	20.4	24.0
Other payables	2.1	3.1	2.1	3.1
	-----------	-----------	-----------	-----------
	69.0	89.2	78.2	98.4
	=======	=======	=======	=======

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	15.7	16.2

Non-current	5.4	409.5	414.9
	-----------	-----------	-----------
Total at 1 January 2017	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
	-----------	-----------	-----------
Receivable	-	44.6	44.6
Released to income statement	(0.5)	(17.0)	(17.5)
Opening balance adjustment on adoption of IFRS 15	-	2.3	2.3
	-----------	-----------	-----------
Current	0.5	18.1	18.6

Non-current	4.4	507.8	512.2
	-----------	-----------	-----------
Total at 31 December 2018	4.9	525.9	530.8
	=======	=======	=======

The opening balance adjustment on the adoption of IFRS 15 arises as a result of the change in the timing of recognition of an aspect of connections revenue. The £2.3m increase in customers’ contributions reflects revenue recognised in the income statement during 2017 in respect of contracts with customers for which performance obligations were not complete as at 31 December 2017. A corresponding reduction has been recognised in accumulated profits and disclosed in the Statement of Changes in Equity of both the Group and Company.

17. Derivative Financial Instruments

Group and Company - Interest rate swaps	2018	2017
	£m	£m

Current assets	12.5	79.5
Non-current assets	486.9	500.0
	----------- 499.4 =======	----------- 579.5 =======


Current liabilities	(12.5)	(79.5)
Non-current liabilities	(486.9)	(500.0)
	----------- (499.4) =======	----------- (579.5) =======

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. £71.5m was paid in respect of swap accretion in 2018. Future accretion payments are now scheduled to occur every 5 years, with remaining accretion paid on maturity.

Arising from a negative impact of higher forward RPI rates, partly reduced by a positive impact of higher forward interest rates, negative fair value movements of £5.7m occurred in 2018 (2017 – positive fair value movements of £3.8m). These have been recognised in finance costs in the income statement.

The decrease in the current portion of the interest rate swaps in 2018 is largely owing to accretion payments made during the year.

At the same time that the restructuring took effect in 2014, 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 financial statements 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 2018 is considered by the Company to fall within the level 2 fair value hierarchy. The Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There have been no transfers between level 1 or 3 of the hierarchy during the 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 £53.2m / (£56.7m) (2017 - £58.1m / (£63.3m)). 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 £53.2m / (£56.7m) (2017 - £58.1m / (£63.3m)) 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
	2018 £m	2017 £m	2018 £m	2017 £m
Current
Interest payable on £175m bond	-	3.4	-	3.4
Interest payable on £400m bond Interest payable on £350m bond	14.8 2.3	14.8 -	- -	- -
Interest payable to parent undertaking (note 26)	0.1	0.2	0.1	0.2
Interest payable to subsidiary undertaking	-	-	17.1	14.8
£175m bond	-	174.8	-	174.8
Amounts owed to parent undertaking (note 26)	-	114.0	-	114.0
	-----------	-----------	-----------	-----------
	17.2	307.2	17.2	307.2
	=======	=======	=======	=======
Non-current
£400m bond	398.7	398.5	-	-
£350m bond	348.1	-	-	-
Amounts owed to subsidiary undertaking	-	-	746.8	398.5
	-----------	-----------	-----------	-----------
	746.8	398.5	746.8	398.5
	=======	=======	=======	=======

Loans and other borrowings outstanding are repayable as follows:

Group and Company	2018	2017
	£m	£m

In one year or less or on demand	17.2	307.2
Between two and five years	-	-
In more than five years	746.8	398.5
	-----------	-----------
	764.0	705.7
	=======	=======

Other financial liabilities are held at amortised cost.

The principal features of the Group’s borrowings are as follows:

- 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

- the 7 year £350m bond is repayable in 2025 and carries a fixed rate of interest of 2.500% which is payable annually in arrears on 27 October. The bond issue incurred £1.9m of costs associated with raising finance. In back to back arrangements, NIE Finance PLC has a loan of £350m with the Company, which was issued net of £1.9m of costs associated with raising finance. Interest is paid on the loan at a fixed rate of 2.500% annually in arrears on 27 October.

The £400m and £350m bonds, which are listed on the London Stock Exchange’s regulated market, had fair values at 31 December 2018 of £519.6m (2017 - £545.3m) and £352.0m respectively, based on current market prices. The Company’s back-to-back loans had a fair value at 31 December 2018 of £519.6m (2017 - £545.3m) and £352.0m respectively based on the fair value of the £400m and £350m bonds.

The fair value of bonds as at 31 December 2018 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 100% (2017 – 83%) of Group and Company borrowings carry fixed interest rates, the Group and Company are 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 2018	On demand	Within 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
	£m	£m	£m	£m	£m	£m

£400m bond (including interest payable)	-	-	25.5	102.0	476.5	604.0
£350m bond (including interest payable)	-	-	9.5	35.0	367.5	412.0
Trade and other payables	11.9	47.5	-	-	-	59.4
Interest rate swap liabilities	-	-	12.5	173.3	375.7	561.5
	-----------	-----------	-----------	-----------	-----------	-----------
	11.9	47.5	47.5	310.3	1,219.7	1,636.9
	=======	=======	=======	=======	=======	=======

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
	=======	=======	=======	=======	=======	=======

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 2018	On demand	Within 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
	£m	£m	£m	£m	£m	£m

Amounts owed to subsidiary undertaking	-	-	35.0	137.0	844.0	1,016.0
Trade and other payables	11.9	56.7	-	-	-	68.6
Interest rate swap liabilities	-	-	12.5	173.3	375.7	561.5
	-----------	-----------	-----------	-----------	-----------	-----------
	11.9	56.7	47.5	310.3	1,219.7	1,646.1
	=======	=======	=======	=======	=======	=======

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
	=======	=======	=======	=======	=======	=======

19. Analysis of Net Debt

Group	At 1 January 2018	Cash flow	Non- cash movement	At 31 December 2018
	£m	£m	£m	£m

Cash and cash equivalents	11.2	19.2	-	30.4
Interest payable on £175m bond	(3.4)	12.0	(8.6)	-
Interest payable on £400m bond	(14.8)	25.5	(25.5)	(14.8)
Interest payable on £350m bond	-	-	(2.3)	(2.3)
Interest payable to parent undertaking	(0.2)	1.6	(1.5)	(0.1)
£175m bond	(174.8)	175.0	(0.2)	-
£400m bond	(398.5)	-	(0.2)	(398.7)
£350m bond	-	(348.3)	0.2	(348.1)
Amounts owed to parent undertaking	(114.0)	114.0	-	-
	-----------	-----------	-----------	-----------
	(694.5)	(1.0)	(38.1)	(733.6)
	=======	=======	=======	=======


Company	At 1 January 2018	Cash flow	Non- cash movement	At 31 December 2018
	£m	£m	£m	£m

Cash and cash equivalents	11.2	19.2	-	30.4
Interest payable on £175m bond	(3.4)	12.0	(8.6)	-
Interest payable to parent undertaking	(0.2)	1.6	(1.5)	(0.1)
Interest payable to subsidiary undertaking	(14.8)	25.5	(27.8)	(17.1)
£175m bond	(174.8)	175.0	(0.2)	-
Amounts owed to parent undertaking	(114.0)	114.0	-	-
Amounts owed to subsidiary undertaking	(398.5)	(348.3)	-	(746.8)
	-----------	-----------	-----------	-----------
	(694.5)	(1.0)	(38.1)	(733.6)
	=======	=======	=======	=======

20. Provisions

Group and Company	Environment £m	Liability and damage claims £m	Total £m
	-----------	-----------	-----------
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 1 January 2018	1.6	3.4	5.0
	-----------	-----------	-----------

Applied in the year	-	3.4	3.4

Released to income statement	-	(0.6)	(0.6)
	-----------	-----------	-----------
Current	0.6	3.2	3.8

Non-current	1.0	3.0	4.0
	-----------	-----------	-----------
Total at 31 December 2018	1.6	6.2	7.8
	=======	=======	=======

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 and employee matters. 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 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.

Under the Focus section of 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 2017 and showed a deficit of £136.9m. The Company is paying deficit contributions of £17.2m per annum (increasing in line with inflation) from 1 April 2018. The Company also pays contributions of 39.6% of pensionable salaries in respect of Focus employees currently employed in the company (active members of the scheme) plus £77,500 monthly expenses, 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 20% of the liabilities are attributable to current employees, 5% to former employees and 75% 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 14 years (2017 – 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 is likely to 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 Limited, NIE Networks’ actuary, has have provided a valuation of Focus under IAS 19 as at 31 December 2018 based on the following assumptions (in nominal terms) and using the projected unit credit method:

	2018	2017

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)	2.80%	2.50%
Inflation assumption (CPI) (per annum)	2.10%	2.10%
Life expectancy:
Current pensioners (at age 60) – males	26.2 years	27.4 years
Current pensioners (at age 60) – females	28.6 years	29.9 years
Future pensioners (at age 60) – males	* 27.8 years	* 29.3 years
Future pensioners (at age 60) – females	* 30.2 years	* 31.9 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 2018 shows a net pension liability (before deferred tax) of £97.5m (2017 - £127.0m). 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
	2018	2017	2018	2017
	£m	£m	£m	£m

0.5% change in rate of increase in pensionable salaries	(7.9)	(9.5)	7.6	9.3
0.5% change in rate of pensions in payments	(58.2)	(58.9)	55.7	54.2
0.5% change in annual discount rate	68.1	81.6	(71.8)	(86.2)
0.5% change in annual inflation rate (CPI)	(66.9)	(65.3)	63.7	61.7
1 year change in life expectancy	(40.1)	(43.4)	40.1	43.4

Assets and Liabilities

The Group and Company’s share of the assets and liabilities of Focus are:

	Value at 31 December 2018	Value at 31 December 2017
	£m	£m

Equities – quoted	229.1	276.8
Bonds – quoted	232.0	225.8
Diversified growth funds – quoted	377.9	410.1
Multi-asset credit investments	208.7	217.0
Cash	7.0 -----------	9.5 -----------
Total market value of assets	1,054.7	1,139.2
Actuarial value of liabilities	(1,152.2)	(1,266.2)
	-----------	-----------
Net pension liability	(97.5)	(127.0)
	=======	=======

Changes in the market value of assets – Group and Company

	2018	2017
	£m	£m

Market value of assets at the beginning of the year	1,139.2	1,105.4
Interest income on scheme assets	27.6	29.3
Contributions from employer	28.1	25.4
Contributions from scheme members	0.3	0.4
Benefits paid	(83.3)	(66.7)
Administration expenses paid	(1.6)	(1.3)
Re-measurement (losses) / gains on scheme assets	(55.6)	46.7
	-----------	-----------
Market value of assets at the end of the year	1,054.7	1,139.2
	=======	=======

Changes in the actuarial value of liabilities – Group and Company

	2018	2017
	£m	£m

Actuarial value of liabilities at the beginning of the year	1,266.2	1,251.4
Interest expense on pension liability	30.6	32.9
Current service cost	6.9	8.0
Curtailment costs Past service costs	4.1 1.7	1.7 -
Contributions from scheme members	0.3	0.4
Benefits paid Effect of changes in demographic assumptions	(83.3) (45.7)	(66.7) -
Effect of changes in financial assumptions	(44.4)	32.9
Effect of experience adjustments	15.8	5.6
	-----------	-----------
Actuarial value of liabilities at the end of the year	1,152.2	1,266.2
	=======	=======

The curtailment loss (cost) arising in 2018 and 2017 reflects past service costs associated with employees leaving the company under a restructuring exit arrangement.

Past service costs of £1.7m in 2018 (2017 - £nil) reflect changes to member benefits arising from a clarification of the law in respect of Guaranteed Minimum Pension Equalisation for male and female members.

The Group expects to make contributions of approximately £25.1m to Focus in 2019.

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)

	2018	2017
	£m	£m

Current service cost	(6.9)	(8.0)
Administration expenses paid	(1.6)	(1.3)
Curtailment costs Past service costs	(4.1) (1.7)	(1.7) -
	-----------	-----------
Total operating charge	(14.3)	(11.0)
	=======	=======

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

	2018	2017
	£m	£m

Interest income on scheme assets	27.6	29.3
Interest expense on liabilities	(30.6)	(32.9)
	-----------	-----------
Net pension scheme interest expense	(3.0)	(3.6)
	=======	=======

The actual return on Focus assets was a loss of £28.0m for the Group and Company (2017 – gain of £76.0m for the Group and Company).

Analysis of amounts recognised in the Statement of Comprehensive Income

	2018	2017
	£m	£m

Re-measurement (losses) / gains on scheme assets	(55.6)	46.7
Actuarial gains / (losses) on scheme liabilities	74.3	(38.5)
	-----------	-----------
Net gains	18.7	8.2
	=======	=======

The cumulative actuarial losses recognised in the Group and Company Statements of Comprehensive Income since 1 April 2004 are £132.4m and £134.5m respectively (2017 – £151.1m and £153.2m 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
	2018	2017	2018	2017
	£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	306.7	260.5	306.2	260.0
	----------- 373.6 =======	----------- 327.4 =======	----------- 373.1 =======	----------- 326.9 =======

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:	2018	2017
	£m	£m

145,566,431 ordinary shares of 25p each	36.4	36.4
	=======	=======

Dividend

The following dividends were paid by the Group

	2018	2017
	£m	£m

15.1 pence per allotted share (2017 – 12.4 pence)	22.0	18.0
	=======	=======

23. Lease Obligations

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:

	2018 £m	2017 £m

Within one year	2.5	2.9
After one year but not more than five years	4.6	6.2
More than five years	9.1	9.3
	-----------	-----------
	16.2	18.4
	=======	=======

24. Commitments and Contingent Liabilities

(i) Capital commitments

At 31 December 2018 the Group and Company had contracted future capital expenditure in respect of property, plant and equipment of £13.8m (2017 - £8.7m) and computer assets of £4.4m (2017 - £3.4m).

(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.

25. Financial Commitments

In June 2011 and September 2018 NIE Finance PLC, a subsidiary undertaking of the Company, issued £400m and £350m bonds respectively on behalf of the Company. The Bonds have 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 and £350m bonds are unconditionally and irrevocably guaranteed by the Company.

26. 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.

	2018	2017
	£m	£m

Salaries and short-term employee benefits	1.6	1.6
Post-employment benefits	0.3	0.2
Other long-term benefits	0.1	0.1
Termination benefits	0.4	-
	-----------	-----------
	2.4	1.9
	=======	=======

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 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, DO3 A995. A full list of the subsidiary undertakings of ESB is included in its financial statements.

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 2018
ESB	(1.5)	-	-	-	-	(0.1)
ESB subsidiaries	- -----------	24.8 -----------	(5.4) -----------	(22.0) -----------	3.9 -----------	(9.7) -----------
	(1.5) =======	24.8 =======	(5.4) =======	(22.0) =======	3.9 =======	(9.8) =======

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) =======

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 £33.4m (2017 - £29.8m Group and Company) to NIEPS in respect of Focus and Options employer contributions, including an element of deficit repair contributions in respect of Focus.

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