For Generations Ahead
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For generations ahead... www.esb.ie Financial Highlights €339m 52% Adjusted operating profit: €339m Gearing: 52% -3% on prior year +11% on prior year €12 ,112 m 6,911 Total Assets: €12,112m Employee Numbers: 6,911* +27% on prior year -8% on prior year 42% 47% Supply all-island market share: 42% Generation all-island market share: 47% -8% on prior year +5% on prior year Revenue by segment Capital expenditure by segment* 1% 11% 12% 18% 21% €2,707m €819 m 67% 70% ESB Electric Ireland 67% ESB Energy International 11% ESB Networks 70% Renewables 18% ESB Networks 21% Other segments 1% Energy International and other 12% * Excludes NIE CONTENTS 1. BUSINESS OVERVIEW 6 Chairman’s Statement 7 Chief Executive Review 8 2. OPERATING AND FINANCIAL REVIEW 10 Strategy 12 Financial Review 13 Business Unit Sections: ESB Networks 20 ESB Electric Ireland 26 ESB Energy International 32 3. CORPORATE SOCIAL RESPONSIBILITY 38 Sustainability and Corporate Responsibility 40 4. CORPORATE GOVERNANCE 46 The Board 48 The Executive Team 50 Board Members’ Report 52 Risk Management Report 60 5. FINANCIAL STATEMENTS 62 Statement of Board Members’ Responsibilities 64 Auditor’s Report 65 Statement of Accounting Policies 66 Financial Statements 72 Notes to Financial Statements 80 Prompt Payments Act 138 Glossary 139 Our plan reaffirms our ambition to be a world-leading, commercially successful and environmentally responsible utility. ESB Annual Report 2010 - For Generations Ahead BUSINESS OVERVIEW In this section CHAIRMAn’s stATEMENT 07 OVERVIEW CHIEF EXECutive’s REVIEW 08 ESB delivered a strong performance in 2010 in a very challenging business environment. In this section Chairman Lochlann Quinn and Chief Executive Padraig McManus discuss the key events that shaped 2010 and outline the priorities for the business in 2011 and beyond. 6 Chairman’s Statement Once again ESB delivered Dividend payments 2002 to 2010 a strong performance in 2 2 2010 in a very challenging 'm m 270 Cumulative since 2002 900 business environment. 240 800 Paid in year 210 700 The financial statements 180 600 show an operating profit of 150 500 In year €339 million (2009: €350 120 400 Cumulative million) before exceptional 90 300 Chairman’s statement 07 items. The exceptional 60 200 CHIEF EXECutive’s REVIEW 08 item relates to the Pension 30 100 Agreement reached with staff to resolve the €2 billion 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 actuarial deficit in ESB’s pension scheme. Allowing for Year this exceptional item, there is an operating profit of €9 million. I wish to compliment management and staff who, ESB to continue to make a very significant contribution through ESB’s partnership process, achieved such a to the Irish economy in difficult times. beneficial pension outcome for all involved. During 2010 Georgina Kenny, Bobby Yeates and John The Board is recommending a final dividend of 3.89 Nugent completed their terms on the Board. In early cent per unit stock or €77 million in aggregate. 2011 Eoin Fahy completed his term of office after ten years as a Board member. I would like to thank them The economic recession has led to a reduction in for their contribution to ESB. electricity demand. Competition has increased with the arrival in the Irish market of major UK and European Padraig McManus, our Chief Executive since 2002, utilities. ESB’s share of the generation market on an has recently announced his intention to retire when a all-island basis is now 47%. Our share of the supply replacement is appointed. Padraig has an extraordinary market on an all-island basis is 42%. record of achievement as Chief Executive and I look forward to working with him during 2011 as we ESB has responded to this more challenging continue to build on that success. environment by launching a cost reduction programme across the Group. Our aim is to take €280 million out I would like to pay a special tribute to ESB staff who of our cost base by 2015 – including a 20% reduction have shown their loyalty and commitment as we in payroll costs. address the challenges of a changing industry and a difficult economic environment. We continue to focus on growth. Capital expenditure was over €2 billion in 2010 of which €1.2 billion In accordance with the provisions of the Electricity relates to the acquisition of NIE, the electricity (Supply) Acts 1927 to 2004 the Board presents the network in Northern Ireland. This strategic investment Annual Report and Accounts for the year ended 31 will provide real benefits to ESB, to NIE and to our December 2010. customers in the years and decades ahead, including supporting the delivery of an all-island smart electricity network in line with ESB strategy. Over the last decade ESB has grown annual revenues to some €3 billion, has made capital investments averaging €1 billion a year and has contributed almost €1.2 billion in dividends and subsidies to the Lochlann Quinn Exchequer. This growth and investment has allowed Chairman ESB Annual Report 2010 - For Generations Ahead Chief Executive’s Review HIGHLIGHTS g Completed the acquisition of Northern Ireland Electricity (NIE) g Landmark agreement to resolve the g2 billion pension deficit g Commercial freedom in the residential market from April 2011 In spite of the extremely difficult economic extension of our core businesses and we are of a competitive strategy involving a range climate prevailing through 2010, ESB fully committed to making the investment of special value electricity and gas tariffs for performed strongly, marking the year with a required to help deliver Northern Ireland’s customers. €1 billion investment in vital infrastructure, strategic energy framework subject to In a time when savings were never as finalising the acquisition of Northern Ireland continuing regulatory support. important for customers, ESB Electric Ireland Electricity and resolving its pension deficit. ESB also reached a landmark agreement also launched a number of energy efficiency As a strong, innovative Irish energy with staff to resolve a €2 billion actuarial initiatives, including the countrywide insulation company, ESB continued to make a major pension deficit. This agreement allows the and retrofit HALO Programmes. contribution to the economy, delivering a company to meet its commitments to the dependable and secure electricity service pension scheme on a sustainable basis. The Q What actions did ESB take and offering the best possible service to scheme protects the income of pensioners in 2010 as part of its sustainable customers. The company contributed while securing future pensions of existing development? € approximately 2.2 billion to the Irish staff. A A strong electricity infrastructure lies economy through purchases from Irish at the heart of any economy and ESB has suppliers, wages, taxes, rates and dividends. Q How did ESB respond to effectively rebuilt its Networks since 2002 to Abroad, ESB International continued to deregulation requirements and make it one of the most robust and safe in the grow expanding its interests in Tanzania, their impact on customers? world. It is now in the process of extending the Bahrain, Romania and Southern Africa. A Dedication to customer care is always potential of the Networks to underpin a whole the primary focus of ESB’s business through range of future development from greater Q What were ESB’s key the delivery of the best possible service, at wind capacity to Smart Metering to powering achievements in 2010? every level. We are all aware of how difficult our transport fleet. € A ESB’s acquisition of Northern Ireland 2010 was for business and for the individual In 2010 ESB invested almost 600 million Electricity (NIE) in December 2010 for €1.2 customer; accordingly, we embarked on through ongoing renewal and extension of billion represented a strategic alignment of the major adjustments to accommodate change the Transmission and Distribution grids and Transmission and Distribution systems across and develop services to assist their needs. connecting wind generators to the Network. the island of Ireland. NIE owns the regulated In line with regulatory requirements, In excess of 1700 MWs of wind is now electricity networks in Northern Ireland and ESB prepared for a smooth transition from connected to the network. is responsible for planning, development, regulation to commercial freedom when the By international standards, ESB, working construction and maintenance of the entire company could compete in the deregulated with the Department of Communications, network. It also acts as operator of the residential market. ESB’s market share in Energy and Natural Resources and the Distribution network. this sector fell to 60% through 2010. Commission for Energy Regulation (CER), is NIE has a long history of strong and stable The company proceeded with the well ahead in advancing the introduction of financial performance, with enormous potential rebranding of its supply business – to be smart metering, a system that can potentially for growth and synergies of skill and expertise known as “ESB Electric Ireland” on an interim overhaul the way we consume or save between the two businesses. The acquisition basis and “Electric Ireland” from 2012 – and electricity. In 2010, the Smart Metering project also supports the delivery of an all-island also prepared for entry to the gas market in and customer behaviour trials were completed. Smart Grid which will be reinforced with the 2011. These will inform the cost-benefit analysis construction of planned inter-connection. The impending arrival of full competition in and technical aspect of the national roll-out of ESB regards the acquisition as a natural the electricity market meant the development Smart Metering. 8 ESB Annual Report 2010 01 O BUSINESS V For more details see ER V Financial Review P13 IEW We are working towards being a world leading, commercially ‘‘’’successful and environmentally responsible utility.