NewERA

Background and Functions
NewERA provides financial and commercial advice to Government in respect of a number of major commercial State bodies: ESB, Ervia (Irish Water & Gas Networks Ireland), Bord na Móna, Coillte and EirGrid plc. These bodies play a crucial role in the economy particularly through investment in enabling infrastructure, such as energy and water networks, which are critical to:

  • attracting multinationals to locate and invest in Ireland;
  • maintaining Ireland’s competitive position globally; and
  • ensuring a strong environment for job creation.

These companies play a substantial economic role in the State as demonstrated by their published annual reports for 2013/147 which show that, on a combined basis, they:

  • generated c. €6.6bn in revenues;
  • employed capital of c. €13.6bn; and
  • undertook capital expenditure of c. €1.3bn.

NewERA takes a commercial approach to the oversight of State bodies providing financial and commercial advisory services to relevant Ministers including in relation to financial performance, corporate strategy, capital and investment plans, proposed acquisitions or disposals, restructuring and board appointments. The role also involves the provision of financial and commercial advisory services in respect of other State bodies or assets at the request of the relevant Minister.

In addition, NewERA may, in consultation with relevant Ministers, develop proposals for investment in the energy, water, telecommunications and forestry sectors to support economic activity and employment.

Shareholder Expectations Framework
NewERA has developed a Shareholder Expectations Framework intended to provide clarity and guidance for each of the commercial State bodies within its core remit in relation to the Government’s strategic priorities, policy objectives, financial performance and reporting requirements for each body. In 2014 using this framework, ‘shareholder expectations’ letters, prepared by NewERA, were sent by the relevant Ministers to the boards of EirGrid plc, Bord na Móna plc and Coillte. The first such letter was issued to ESB in 2013.

The Shareholder Expectation Framework is tailored to the body concerned but typically covers the following areas: financial performance measures (shareholder returns, credit metrics etc.), peer company review, relevant policy objectives and reporting. One of the key areas addressed as part of reviewing shareholder returns is dividend policy. By the end of 2014 the boards of ESB, EirGrid, Bord na Móna and Coillte had engaged with NewERA and the relevant Government Departments with a view to developing new formal dividend policies with a particular focus on striking an appropriate balance between the payment of dividends and re-investment in the business. A new dividend policy for ESB, as announced by ESB in October 2013, will see ESB increase its dividend payout to 40 per cent of normalised profits after tax by 2017, subject to ESB sustaining a minimum credit rating of BBB+. The board of EirGrid plc during 2014 recommended for the first time an ordinary dividend of €3 million.

Analysis of Submissions from the Relevant Commercial State Bodies
During 2014 NewERA also provided detailed financial analysis and recommendations (where appropriate) to relevant Ministers on a total of 53 submissions for Ministerial consideration and (where appropriate) consent, made by the relevant commercial State bodies. This included €2.6 billion in financing-related submissions (including company borrowings and revolving credit facilities) and €0.6 billion in capital expenditure project submissions. One such project is the ESB Fibre to the Building Project whereby ESB and Vodafone agreed to enter into a joint venture which will utilise ESB’s existing electricity infrastructure to deliver a fibre-to-the-building broadband network offering speeds from 200 Mbps to 1,000 Mbps.

These submissions primarily stem from legislative obligations on commercial State bodies to seek Ministerial approval or arise under the Code of Practice for the Governance of State Bodies.

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Submissions by Company

 

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Source: NTMA

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Submissions by Type

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Source: NTMA

Portfolio Financial Overview
NewERA prepared its second annual Portfolio Financial Overview, of the commercial State bodies within its core remit during 20149 . The main financial and operating performance measures covered by the report are summarised below:

  • Turnover increased by 5 per cent from €6.3 billion to €6.6 billion in the latest reported financial year – this was the third consecutive year of turnover growth;
  • There was a €141 million increase in adjusted operating profit (EBIT) to €1.0 billion in the latest reported financial year. Growth was mainly driven by ESB and Ervia but there were increases across all bodies;
  • The level of adjusted operating profit generated was the highest level in five years;
  • Combined net debt reduced marginally to €6.7 billion from €6.8 billion in the latest reported financial year but is higher than the level of net debt five years ago (€4.3 billion);
  • There are continued high levels of investment. In the latest reported financial year the bodies spent an aggregate of €1.3 billion on capital investment, bringing the total gross spend over the past five years to €6.3 billion;
  • There was an increase in ordinary dividends to €204 million paid in the latest financial year from €102 million in the previous financial year reflecting increased underlying net profitability, the revised dividend policy of ESB and the request for additional dividend income from commercial State bodies that arose from Budget 2013;
  • The adjusted operating margin of 15.6 per cent is at its highest level for five years; and
  • The Return on Capital Employed of 7.6 per cent10 is 1 per cent higher than the previous year and at its highest level over the 5-year period.

Appointment of Directors
As set out in the National Treasury Management Agency (Amendment) Act 2014 NewERA has a statutory function to provide advice to the relevant Ministers on the appointment of directors and chairpersons to the boards of bodies within NewERA’s remit.

In keeping with the new approach to appointments to State boards through the Public Appointments Service (PAS) as announced by the Minister of Public Expenditure and Reform in November 2014, NewERA is implementing this role in conjunction with the PAS. A protocol on the appointment process for bodies within NewERA’s remit has been published as an Appendix to the Guidelines on Appointments to State Boards.

RTÉ
In 2014 NewERA finalised its financial review of RTÉ (a redacted version of which was published by the Minister for Communications, Energy and Natural Resources on 21 April 2015). The review analysed RTÉ on a group and divisional basis and included a benchmarking exercise of its financial performance relative to selected peer broadcasting organisations.

Ervia (formerly BGE): Disposal of Energy Business
NewERA provided advice and project management services to Government in relation to the sale of the Ervia energy business. The sale to a consortium comprising Centrica plc, Brookfield Renewable Energy Partners LP and iCON Infrastructure was completed on 30 June 2014. Dividends to the State arising from the sale and planned subsequent re-gearing are expected to be up to €1 billion (with the first €150 million paid in 2014).

ESB: Disposal of Non-Strategic Power Generation Capacity
ESB was asked by the Government to develop proposals for the sale of some non-strategic generation capacity, with the specific objective of delivering special dividends to the Government targeted at up to €400 million by end-2014. NewERA worked closely with ESB and the Government Steering Group established to oversee these disposals. Following on from the completion of the sale of ESB’s shareholding in Marchwood Power Limited (MPL) and Bizkaia Energia SL (BES) special dividends totalling €197 million from proceeds of sales of ESB’s shareholding in MPL and BES were paid to Government in 2014. The balance of the special dividend of €203 million was paid to Government in January 2015.

Bord na Móna/Coillte: Beneficial Merger
NewERA prepared a report for Government on the financial costs and benefits of a merger between Bord na Móna and Coillte. In June 2014 the Government announced that it has decided to streamline and refocus the commercial operations of Bord na Móna and Coillte, via the establishment of a joint venture between the companies. It will focus on their common business activities in biomass, wind energy, shared services, and recreation and tourism. NewERA is overseeing the implementation process.

Aer Lingus Group plc
Following the announcement by Aer Lingus on 18 December 2014 in relation to a potential offer for the company from International Consolidated Airlines Group S.A (IAG), NewERA provided financial and commercial advisory services to the relevant Ministers in relation to the offer from IAG to acquire the State’s shareholding in Aer Lingus.

Irish Water
During 2014 NewERA continued its work with the relevant Government Departments and Irish Water to progress the establishment of a regulated national water utility. NewERA has provided advice in relation to certain financial, funding, financial regulatory and corporate structure aspects of Irish Water. Irish Water has been successful in securing its first round of commercial debt facilities in 2014.

Telecommunications
In April 2014 the Minister for Communications, Energy and Natural Resources announced details of the proposed State intervention under the National Broadband Plan (NBP). This proposed intervention will involve an end-to-end strategy for the delivery of quality and reliable high speed broadband that includes a major fibre build-out to rural areas and is to ensure that the solution delivered is capable of scaling up to meet future demand and will address current connectivity challenges in a meaningful and sustainable way.

Detailed planning work was undertaken in 2014 in order to progress delivery of the project with NewERA providing input from a financial and commercial perspective on specific aspects of NBP programme delivery including funding and ownership options that may be considered by the Minister.

BioEnergy
During 2014 NewERA assisted the Department of Communications, Energy and Natural Resources with the National BioEnergy Strategy and related enabling measures. The draft BioEnergy plan was published by the Department in October 2014. NewERA is involved in a number of workstreams, including measures to stimulate demand and increase supply, the establishment of BioEnergy Ireland and identification of pilot projects.

Forestry
NewERA is assisting with the establishment of market based mechanisms to fund afforestation in Ireland as part of the Department of Agriculture, Food and the Marine’s Forestry Programme 2014-2020. This work involves NewERA exploring the development of sources of institutional, industry and private funding/investment for afforestation and engaging with the relevant stakeholders on the roll-out of the relevant sections of the Forestry Programme.

7 Based on the following Annual Reports: EirGrid – year end 30 September 2013; ESB, Ervia and Coillte – year end 31 December 2013; and Bord na Móna – year end 31 March 2014.

8 “Other” includes advice on such matters as pensions and establishment of subsidiaries.

9 This was carried out by reference to the published annual financial statements for each entity available at the time: i.e. EirGrid – 30 Sep. 2013; Coillte, Ervia and ESB – 31 Dec. 2013; Bord na Móna – 27 Mar. 2014.

10 NewERA calculation – excludes pension liabilities and employee liabilities (where applicable), if pension liabilities and employee liabilities are included then ROCE is 6.9 per cent (0.9 per cent higher than the previous year).