TIDMNTEA
RNS Number : 4533C
Northern Electric PLC
16 April 2013
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Northern
Electric plc for the year ended 31 December 2012.
Pursuant to LR 17.3.1, the document has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
www.hemscott.com/nsm.do
The 2012 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/downloads/financialinfo.cfm
Enquiries:
John Elliott 0191 223 5103
REPORT OF THE DIRECTORS AND
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2012
FOR
NORTHERN ELECTRIC PLC
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012
Page
Company Information 1
Report of the Directors 2
Directors' Biographies 25
Report of the Independent Auditor 27
Consolidated Income Statement 29
Consolidated Statement of Comprehensive
Income 30
Consolidated Statement of Financial
Position 31
Company Statement of Financial Position 32
Consolidated Statement of Changes
in Equity 33
Company Statement of Changes in Equity 34
Consolidated Statement of Cash Flows 35
Company Statement of Cash Flows 36
Notes to the Consolidated Financial
Statements 37
Notice of Annual General Meeting 73
NORTHERN ELECTRIC PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2012
DIRECTORS: G E Abel
J A Andreasen
R Dixon
T E Fielden
J M France
P J Goodman
P A Jones
SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 02366942 (England and Wales)
AUDITOR: Deloitte LLP
Newcastle upon Tyne
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2012
The directors present the annual report and accounts of Northern
Electric plc (the "Company") and its subsidiary companies (together
the "Group") for the year ended 31 December 2012, which includes
the business review and audited financial statements for that year.
Pages 2 to 23 inclusive of this annual report comprise a directors'
report that has been drawn up and presented in accordance with the
Companies Act 2006.
Cautionary statement regarding forward-looking statements
This annual report has been prepared for the members of the
Company only. The Company, its directors, employees or agents do
not accept or assume responsibility to any other person in
connection with this document and any such responsibility or
liability is expressly disclaimed. This annual report contains
certain forward-looking statements, which can be identified by the
fact that they do not relate only to historical or current facts.
In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in
results of operations, business prospects, the availability of
financing to the Company and anticipated cost savings are
forward-looking statements.
By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the
date of preparation of this annual report and will not be updated
during the year. Nothing in this annual report should be construed
as a profit forecast.
PRINCIPAL ACTIVITY
The Company is part of the Northern Powergrid Holdings Company
group of companies (the "Northern Powergrid Group") and its
principal activity during the year was to act as a holding
company.
The activities of the Company's principal subsidiaries during
the year were the distribution of electricity by Northern Powergrid
(Northeast) Limited ("Northern Powergrid") and the provision of
engineering contracting services by Integrated Utility Services
Limited ("IUS").
Northern Powergrid serves an area of approximately 14,400 sq km
in the northeast of England with a resident population of 3.2
million, which extends from North Northumberland, south to York and
west to the Pennines. Northern Powergrid's distribution system
receives electricity from generators connected to it and from the
National Grid's transmission system and distributes it, at voltages
of up to 132kV, to approximately 1.6 million customers connected to
its network of transformers, switchgear, overhead and underground
cables and other equipment. Northern Powergrid is an authorised
distributor under the Electricity Act 1989 and holds an electricity
distribution licence granted by the Secretary of State.
IUS operates an engineering contracting business, which is
divided into three main streams. UK Contracting provides design,
construction and maintenance services to public and private
networks throughout the UK, Rail provides a total service from
feasibility to design, installation, commissioning and on-going
maintenance and Multi-utility provides new electrical, gas and
water connections to housing and property developers.
In common with the Northern Powergrid Group, the Group operates
a business model and strategy based on its six core principles (the
"Core Principles"), which are:
Principle Strategy Indicator
Financial strength Effective stewardship of Profitability, cash
the Group's financial resources, flow and maintenance
investing in assets and focusing of investment grade
on long-term opportunities, credit ratings.
which contribute to the Group's
future strength.
Customer service Delivering reliability, dependability, Improving network resilience
fair prices and exceptional and performance, measured
service. by: customer minutes
lost, customer interruptions
and customer satisfaction.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Principle Strategy Indicator
Operational Setting high standards for Effective asset management,
excellence the Group's operations, system managing commercial
investment and maintenance. risk and improving
network resilience
and performance.
Employee commitment Equipping employees with Leading safety performance,
the resources and support engaging employees
they need to operate successfully and effective leadership.
and in a safe and rewarding
work environment.
Environmental Using natural resources wisely Reducing environmental
respect and protecting the environment, impact and promoting
where it is impacted by the and pursuing long-term
Group's operations. sustainability.
Regulatory Adhering to a policy of strict Strong internal controls,
integrity compliance with applicable effective regulatory
laws, regulations, standards engagement and industry
and policies. influence.
RESEARCH AND DEVELOPMENT
In 2012 the Northern Powergrid Group continued working, in
partnership with British Gas, Durham University and EA Technology,
on a three-year project under Ofgem's Low Carbon Networks Fund,
known as the Customer-Led Network Revolution. This was the largest
project supported by Ofgem in the first year of the fund and the
Northern Powergrid Group will incur expenditure of GBP31.0m over
the three-year life of the project. Of that expenditure, 90% is
funded by electricity customers in Great Britain. Successful
delivery of the project over the three years agreed with Ofgem will
enable recovery of the additional 10% from customers and
potentially qualify for a further discretionary award. The project
is assessing the potential for new network technology and flexible
customer response to facilitate speedier and more economical
take-up by customers of low-carbon technologies and the connection
to the distribution network of increasing amounts of low-carbon or
renewable energy generation.
The second year of the project has seen the trialling of
equipment and operational techniques to allow the efficient
application of low carbon technologies to the network. All the key
project milestones for the year were met and the project remains on
track to deliver learning that is relevant, timely and
valuable.
The Group also supports a programme of research that is expected
to contribute to higher standards of performance and a more
cost-effective operation of its business. That programme includes
building on the previously successful field trials of newly
developed superconducting fault limiters to provide alternatives to
traditional engineering solutions for network constraints, the
first device having gone live on the network during 2012. Other
work includes the application of network risk methodologies to a
range of business processes allowing better planning and execution
of a variety of activities to improve efficiency and effectiveness
and a continuing programme to develop and improve further
condition-based reliability models of Northern Powergrid's key
assets.
During the year, the Group invested GBP8,066,000 (2011:
GBP4,075,000) (Note 6 to the accounts) in its research and
development activities. The increase in expenditure in comparison
to 2011 was mainly due to additional costs incurred in delivering
the Customer-Led Network Revolution project noted above.
FUTURE DEVELOPMENTS
The financial position of the Group, as at 31 December 2012, is
shown in the Consolidated Statement of Financial Position on page
31.
During the year, the Northern Powergrid Group published its view
of the future for its electricity distribution business in a
document entitled "Your Powergrid", which sets out what are
considered to be the priorities for the next price control period,
which will last for the eight years until March 2023. Those
priorities include the Northern Powergrid Group's plans for
investment and where in the asset base that investment is likely to
take place.
Building on those plans, the directors intend to continue to
develop the Group's business in a manner that concentrates on its
core activity of electricity distribution by continuing to operate
that business with the goal of out-performing the allowances in the
distribution price control, while efficiently investing in the
electricity distribution network with the aim of improving the
quality of supply and service provided to its customers.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
IUS will continue to develop its business in a manner that
concentrates on its core skills of engineering contracting by
delivering a high standard of service to its existing clients and
pursuing opportunities to increase its portfolio of clients across
all regions of the United Kingdom in the sectors within which it
operates.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2012 to the date of this report.
G E Abel Chairman
J A Andreasen General Counsel
R Dixon Non-executive Director
T E Fielden Finance Director
J M France Regulation Director
P J Goodman Executive Vice-President and Chief Financial
Officer, MidAmerican Energy Holdings Company
P A Jones President and Chief Executive Officer
GROUP'S POLICY ON PAYMENT OF CREDITORS
The Group complies with the Better Payment Practice Code for the
prompt payment of suppliers in accordance with the normal terms of
trade. It is Group policy with respect to its suppliers to settle
the terms of payment with those suppliers when agreeing the terms
of each transaction, to ensure that those suppliers are aware of
the terms of payment and to pay in accordance with the Group's
contractual and other legal obligations. The number of days'
purchases in trade creditors for the Group, as at 31 December 2012,
was 18 (2011: 23).
VOTE HOLDER AND ISSUER NOTIFICATION
There have been no disclosures to the Company under Disclosure
and Transparency Rule 5 (Vote Holder and Issuer Notification
Rules).
POLITICAL AND CHARITABLE CONTRIBUTIONS
During the year, charitable donations of GBP20,964 were made
(2011: GBP19,125), principally to local charities serving the
communities in which the Group operates. No contributions were made
to political organisations (2011: GBPnil).
STRATEGIC OBJECTIVES
The Group's strategic objectives are based on the Core
Principles, remain consistent and are to build a business,
which:
- continues to generate value over the long-term;
- invests in and manages its electricity distribution network in
an efficient and effective manner;
- provides its customers with an excellent standard of service;
- engages with its employees so that they feel rewarded and
recognised as part of a team that sets and achieves increasingly
high standards of performance; and
- is viewed as being a leader in shaping the future direction of
the electricity distribution sector in the United Kingdom.
As part of its strategy the Group continues to be committed to
putting safety first, respecting its customers, their time and
property, doing a quality job, responding effectively to major
incidents on the network in times of severe weather and caring for
its local environment.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
BUSINESS REVIEW
Review of the Year
The Group delivered a satisfactory financial performance for the
year, which was mainly attributable to a benefit from higher
distribution tariffs, which resulted in an increase in revenue
compared to the prior year, continued effective cost control and a
further change in the rate of corporation tax.
During the year, Northern Powergrid delivered its largest ever
capital expenditure programme, investing GBP186.1 million in its
distribution network. This expenditure represented a 52% increase
on the GBP122.7 million recorded in 2011 and was a significant
achievement in the context of the outputs Northern Powergrid
intends to deliver by the end of the Distribution Price Control 5
period ("DPCR5").
Northern Powergrid also continued to implement initiatives to
improve the quality of service provided to customers, as the new
regulatory incentive known as the Customer Service Broader Measure
took effect from 1 April 2012. Those improvements included the
enhancement of the Northern Powergrid Group's website and the
continued development of its internet-based services with Northern
Powergrid and its affiliate, Northern Powergrid (Yorkshire) plc,
being the first in the electricity distribution industry to provide
a web-based facility so that customers are able to order certain
services themselves. Northern Powergrid beat Ofgem's targets for
the quality of the electricity supply provided to its customers and
achieved a significant reduction in the average times taken to
restore supplies following a power cut, as compared to 2011. While
recognising that improvements still have to be made in the level of
customer service provided in order to meet its targets, the upward
trend in the Northern Powergrid's performance continued with the
best ever performance being recorded in 2012.
As delivery of the capital expenditure programme, the provision
of excellent customer service and ensuring a reliable electricity
supply are some of the most significant outputs Northern Powergrid
is required to deliver during DPCR5, the directors are confident
that 2012 provides a strong basis for a successful conclusion to
DPCR5 in March 2015.
In the first quarter of 2012 Ofgem began the process for
determining the next price control review, which is known as
RIIO-ED1 and will set the distribution price control for the period
of eight years through to 2023, as opposed to the five year periods
previously used. One of Northern Powergrid's most significant
projects during the year, therefore, was to begin the activity that
will be required to review developments in Ofgem's price control
policies and commence drafting the required well-justified business
plan for submission to Ofgem during 2013.
2012 produced a higher than usual number of major
weather-related incidents and their impact on the distribution
network was significant, with more serious flooding incidents being
experienced than in any previous year as well as the most
significant snow and ice storm for a number of years. Northern
Powergrid reacted robustly to those incidents by activating its
major incident management plan on a number of occasions to deal
with the consequential power cuts.
Environmental performance continued to be strong with Northern
Powergrid's response time to environmentally-related network events
improving, such that fewer incidents were reportable to the
Environment Agency than in 2011. However, more oil was lost to the
ground during the year than in any other year in the last five
years, with interference with Northern Powergrid's assets by third
parties intent on metal theft a significant contributory factor.
Northern Powergrid recognises the impact on the environment of such
events, is committed to reducing losses from its fluid-filled
cables and has a programme in place to increase its expenditure in
order to replace those assets on a phased and prioritised
basis.
IUS continued to provide engineering contracting services and
adapted its business to address the continuing challenging economic
conditions, which affected the markets within which it
operates.
The long-term trend in the Group's overall safety performance
continued to compare well with that of the industry but the
internal targets were missed in respect of lost time accidents and
operational incidents and preventable vehicle accidents. However,
fewer lost time accidents occurred in 2012 than in the previous
year, with the number of preventable vehicle accidents being the
same.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
CORE PRINCIPLES
Financial strength
During the year, the Group continued to maintain good control in
respect of both its capital and operating costs by effectively
managing the various financial risks that could have had an adverse
impact on its business as a result of the general economic
climate.
Northern Powergrid benefits from the stability provided by the
arrangements agreed in respect of DPCR5 in terms of its income
until 31 March 2015 and recognises that it needs to show that it is
delivering reliable services at a fair price to its customers,
while operating in an efficient and effective manner.
Key aspects of financial performance for the year were as
follows:
Revenue
The Group's revenue at GBP331,614,000 was GBP30,187,000 higher
than the prior year mainly due to additional allowances from the
DPCR 5 settlement.
Operating profit
The Group's operating profit at GBP185,963,000 was GBP14,745,000
higher than the previous year reflecting increased distribution
revenues, partly offset by increases in costs such as depreciation
and research and development.
Finance costs and investment income
Finance costs net of investment income at GBP34,970,000 were
GBP719,000 lower than the previous year reflecting lower interest
rates on long term borrowings.
Taxation
The effective tax rate in the current year is 10%. Details are
provided in Note 7 to the accounts.
Results and dividends
The Group made a profit after tax for the year of
GBP135,407,000. (2011: GBP116,139,000) An interim dividend of
GBP30,000,000 was paid during the year and the directors recommend
that no final dividend be paid in respect of the year.
Share capital and debt structure
There were no changes to the Company's share capital or debt
structure during the year.
Dividend policy
The Company's dividend policy is that dividends will be paid
only after having due regard to available distributable reserves,
available liquid funds and the financial resources and facilities
needed to enable the Company to carry on its business for at least
the next year. In addition, the level of dividends is set to
maintain sufficient equity in the Company so as not to jeopardise
its investment grade issuer credit rating.
Cash flow
The Group aims to collect from customers and pay suppliers
within contracted terms. Any surplus cash held is remitted to
Yorkshire Electricity Group plc ("YEG"), a company in the Northern
Powergrid Group, and invested accordingly, generating a market rate
of return for the Company.
Movements in cash flows were as follows:
- Operating activities: Cash flow from operating activities at
GBP106,354,000 was GBP18,114,000 lower than the previous year.
Increased revenues were offset by increased tax and interest paid
and adverse working capital movements.
- Investing activities: Net cash used in investing activities at
GBP130,928,000 was GBP56,064,000 higher than the previous year
reflecting higher net capital expenditure.
- Financing activities: The net cash used in financing
activities at GBP54,987,000 represents a GBP167,854,000 adverse
variance compared to the prior year reflecting the refinancing
activity undertaken in 2011.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Treasury
The Group's short-term financial objective is to ensure that it
has access to sufficient liquidity to enable it to meet its
obligations as they fall due and to provide adequately for
contingencies. The long-term objective is to provide a stable and
low cost of financing over time whilst observing approved risk
parameters. The main risks are liquidity and interest rate
risk.
Liquidity risk
Northern Powergrid has access to GBP75m under a five year
committed revolving credit facility provided by Lloyds TSB Bank
plc, The Royal Bank of Scotland plc and Abbey National Treasury
Services plc. The facility was renewed during the year, such that
it now expires on 20 August 2017. Northern Powergrid expects to
raise further facilities, as required, at that time.
In addition, the Group has access to further short-term
borrowing facilities provided by YEG and a GBP7m overdraft facility
provided by Lloyds TSB Bank plc, which is renewable annually.
The directors do not consider there to be any doubt over the
Group's ability to raise appropriate levels of finance in the
future, given its investment grade issuer credit rating and the
fundamental financial strength and nature of its business.
Interest rate risk
The Group is financed by long-term borrowings at fixed rates and
has access to short-term borrowing facilities at floating rates of
interest. As at 31 December 2012, 100% of the Group's long-term
borrowings were at fixed rates and the average maturity for these
borrowings was 16 years.
Currency risk
No material currency risks are faced by the Company.
Trading risk
Throughout the year under review, the Company's policy was that
no trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2012 and during the year it was the Company's
policy not to hold any derivative financial instruments.
Pensions
The Company is the principal employer in the Northern Powergrid
Group of the Electricity Supply Pension Scheme (the "Scheme"), a
defined benefit scheme. Full details of the Company's commitments
to the Scheme and the associated deficit repair payments are
provided in Note 24 to the accounts.
The Company also participates in the Northern Powergrid Pension
Scheme, which is a defined contribution scheme.
Insurance
As part of its insurance and risk strategy, the Northern
Powergrid Group has in place a range of insurance policies,
including policies which cover risks associated with damage to
property, employer's and third party motor liability and public
liability. The Northern Powergrid Group carries appropriate
excesses on those policies and is effectively self-insured up to
the level of those excesses. Consequently, the risk management and
health and safety programmes in place are viewed as extremely
important elements of the business, given the contribution they
make to the elimination or reduction of exposure to such risks.
Customer service
During the year, Northern Powergrid distributed electricity to
customers in its distribution services area and continued to
improve the overall performance of the distribution network through
an investment strategy targeted at delivering improvements in an
efficient and cost-effective manner. Northern Powergrid remains
focused on delivering a reliable and dependable supply of
electricity and a high standard of service to its customers.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Northern Powergrid is taking forward various initiatives in
order to deliver the overall goal of improving customer
satisfaction with the service provided, including:
-- monthly connections surgeries to enable new connections
customers to discuss their specific projects with Northern
Powergrid;
-- further development of the interactive voice response system
in order to deliver the benefits of automatic messaging and to
enable the provision of an improved service to customers during
power cuts, including text and voice-message updates;
-- extending the range of its stakeholder engagement to include
groups active in the area of fuel poverty and to increase joint
initiatives with other utility companies;
-- an online community to facilitate discussion among
stakeholders regarding Northern Powergrid's services and to provide
a dedicated web area so that stakeholders can influence Northern
Powergrid's policies and priorities and also maintain contact with
Northern Powergrid;
-- developing customer relationship management information
technology and social media and website services to provide more
accurate information to customers, particularly in respect of
estimated times for the restoration of supply during power cuts and
to engage more effectively with and receive feedback from
customers. In that respect, Northern Powergrid was the first in the
electricity distribution industry to provide the facility for
customers to order certain services online themselves;
-- improvements to the reliability of under-performing parts of
the distribution network by identifying "hot spots" of particularly
poor network performance and taking specific action to address the
issues in those areas;
-- maintaining and promoting the priority services register so
that Northern Powergrid becomes aware of people with disabilities
or special needs who may be affected by power cuts so that it can
take appropriate action to assist those people in such
circumstances, engaging the support of the Red Cross where
appropriate; and
-- completing a substantial training programme to provide
employees from across the Northern Powergrid Group with enhanced
customer service awareness and the tools and skills needed to
handle power cut calls during periods of peak call demand.
The performance of Distribution Network Operators ("DNOs")
against guaranteed standards, which are set for activities such as
restoring supplies after power cuts, provides a measure of the
level of customer service. Performance against these measures forms
part of Northern Powergrid's regular reporting to Ofgem.
Ofgem's incentive scheme for quality of service, by which the
DNOs are provided with financial incentives, is based upon targets
set by Ofgem with regard to each DNO's performance in terms of the
number of power cuts, the duration of those power cuts and customer
satisfaction.
Customer minutes lost ("CML") and customer interruptions ("CI")
are the key performance indicators used by Northern Powergrid to
measure the quality of supply and system performance. CML measures
the average number of supply minutes lost for every connected
customer due to power cuts and planned interruptions to the
electricity supply that last for three minutes or longer. CI
measures the average number of supply interruptions for every 100
connected customers due to power cuts and planned interruptions to
the electricity supply that last for three minutes or longer.
In respect of these key customer service performance indicators,
the goal is to achieve performance that is below Ofgem's target
number in respect of CML and CI. Northern Powergrid's performance
for the Regulatory Year to 31 March 2012 (the "Regulatory Year")
was as follows:
Actual Target
CML: 68.5 (2011: 71.1) 71.1 (2011: 71.3)
CI: 67.9 (2011: 65.2) 68.2 (2011: 68.3)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Performance in the Regulatory Year was better than Ofgem's
target for both CML and CI. Although there was a slight decline in
the CI category in comparison with the prior year, the improvement
in CML contributed to Northern Powergrid's improved overall
customer service performance in the year. With the introduction of
the Customer Service Broader Measure incentive with effect from 1
April 2012, work began on developing the Northern Powergrid's
customer service improvement plan and on a range of process and
technology initiatives, which will integrate Northern Powergrid's
various customer facing processes more effectively in order to
improve the service provided.
Connections to the Network
During the year, Northern Powergrid continued to improve the
connections services it provides, whilst also actively facilitating
the development of competition from independent connections
providers ("ICPs"), so providing choice to customers in the region.
As part of the DPCR5 final proposals, Ofgem put in place a
Competition Test to encourage all of the DNOs to make it easier for
ICPs to provide competing offers to customers. In October 2012,
Northern Powergrid and its affiliate, Northern Powergrid
(Yorkshire) plc, became the first DNO to pass Ofgem's Competition
Test in the largest connections market segment that relates mainly
to new housing developments and accounts for around 60% of the
value of the whole connections marketplace in the region.
Although the economic environment continued to reduce demand for
traditional forms of new electricity network connections such as
new housing and commercial developments, the proportion of requests
for low carbon generation connections continued to strengthen,
reflecting the national growth in renewable energy, with onshore
wind technology being the most significant feature. The geography
of Northern Powergrid's distribution services area is attractive to
wind farm developers and has led to a higher number of distributed
generation connections than in most of the other DNOs in
England.
Northern Powergrid regularly seeks feedback from its customers
in order to assist with developing further improvements to its
service and, in that respect, its connections customers commented
that the initiatives in 2012 were beneficial, including the
continuation of the customer surgeries, greater collaboration with
customers on a one-to-one basis and engagement with groups of
customers through bodies such as the National Farmers Union. The
new web-based services introduced in the year were very well
received by the full range of Northern Powergrid's connections
customers, enabling them to see at a glance the likely costs and
timescales for the size of connection they require.
Corporate responsibility
The Group values its relationship with its customers and other
stakeholders and recognises the importance of maintaining a secure
and safe power supply for its customers and their local
communities. That commitment is underpinned by five customer
promises, which are to put safety first, to respect the Group's
customers, their time and property, to do a really good job, to be
there when needed and to care for the local environment.
The Group aims to enhance its relationship with various
stakeholders through direct engagement on the actions and
investment planned to improve the performance of the network and on
the environmental and social implications of its operations.
Northern Powergrid has in place a small donation programme, which
is focused on Northern Powergrid's key priorities of support for
youth, education and the environment and from which grants were
made during the year to organisations such as charitable trusts and
community groups.
In order to improve its response to emergency situations,
Northern Powergrid has developed key partnerships with the
Environment Agency, the local authorities and the local resilience
forums, via a Civil Contingency Co-ordinator, so that it can
respond quickly to significant faults on or threats to the network.
In the event that river levels rise and flood warnings are issued,
staff can be deployed immediately to erect perimeter flood defences
at major substation sites and portable defence barriers at lower
risk sites. In addition, Northern Powergrid has well-established
emergency procedures that are triggered in times of weather-related
incidents or long-duration power cuts when people are without power
for some time.
As well as redeploying staff from planned works to help restore
power as quickly as possible when major incidents occur, Northern
Powergrid dispatches customer service vehicles to the heart of
areas affected. Those vehicles are able to distribute hot drinks
and to microwave meals and generally assist with the welfare of
customers in order to alleviate the impact of the incident.
Northern Powergrid also utilises 'customer ambassadors' and works
with the Red Cross in order to pay particular attention to
customers on the priority services register so that those customers
are kept informed of the situation throughout the event and after
the power has been restored.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
As safety is its first priority and underpins every aspect of
its operations, Northern Powergrid participates alongside other key
organisations in 'Crucial Crew', which is a schools-based safety
initiative that teaches children to recognise and avoid situations
that put them in danger, such as climbing electricity pylons and
fishing near power lines. This campaign and a school visits
programme promoting safety messages are supported through an
interactive website and mobile phone game. In addition, the
Northern Powergrid Group supports a sports programme in partnership
with England Athletics, which is delivered through local schools
and combines important safety messages with the promotion of
healthy lifestyles.
Operational excellence
Northern Powergrid's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP186.1 million was
invested in the improvement of the distribution network a 52%
increase on the GBP122.7 million recorded in 2011. That investment
included the replacement of assets and continued network
improvements intended to increase the quality of the electricity
supply provided to customers.
Operational activity
Northern Powergrid's investment strategy is designed to deliver
improvements in an efficient and cost-effective manner in order to
improve the network's resilience by minimising the number of power
cuts that occur. Reducing the average number of customers affected
by a power cut and providing a quicker restoration service in the
event of a power cut are key elements of Northern Powergrid's
operational strategy.
Northern Powergrid's Field Operations structure is designed to
provide the best possible foundation for optimum operational
performance and is based on seven individual business units. Those
business units are Health and Safety, Network Operations, which
provides the day-to-day and reactive management of the network,
Service Delivery, which has responsibility for the control and
management of the direct labour force, Network Repairs, which
focuses on core repair activities, Connections Delivery, which
undertakes customer-driven work, Programme Delivery, which includes
primary engineering projects and technical services, and
Operational Services, which includes supply chain management and
training services.
Northern Powergrid's priorities during the year included
delivery of a significant increase in its capital expenditure on
the network in comparison to previous years, a further reduction in
the average level of fault repair work in progress, increased focus
on the restoration times associated with both high and low voltage
power cuts, with the Northern Powergrid Group's high voltage
restoration performance seeing on-going improvement through the
year and averaging some 61 minutes, and continuation of the robust
approach to the control of operations on the low voltage
network.
The major projects undertaken in support of those targets and as
part of the investment strategy included:
-- Continuation of works to reinforce the 33kV network in the
Harrogate area, to replace the 20kV switchgear at Fawdon and
Hartmoor substations and to replace the 11kV switchgear at
Northallerton and Catterick Camp substations;
-- Commencement of works to replace the 66/11kV transformers and
20kV switchgear at Sunderland, to replace the 66kV circuit breakers
at Cramlington, Grangetown and Coalburns substations, to replace
the 66kV transformer at Maddison Street and to replace the 33kV
transformers at Mount Road substation;
-- Completion of the replacement of 1.8km of 33kV cables and
commencement of works on a number of projects across the North East
that will replace approximately 40km of 33kV cables, 26km of 66kV
cables and 12km of 132kV cable in 2013;
-- The completion of refurbishment or rebuilding works on 47km
of 66kV overhead line, 20km of 132kV overhead line and the
refurbishment or rebuilding of 225km of high voltage overhead line
and 158km of low voltage overhead line;
-- Replacement of 47 units of high voltage outdoor switchgear,
53 high voltage distribution substations and 213 units of high
voltage indoor switchgear;
-- The upgrade and reinforcement of 22 sites to address the
quality of supply performance issues relating to those circuits;
and
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
-- The installation and commissioning of 174 new remote control points on the network.
In order to deliver its investment strategy, Northern Powergrid
used a mix of its own staff and contractors to undertake its
activities, including affiliated companies in the Northern
Powergrid Group.
Employee commitment
Health and safety
The focus on health and safety continued to be of paramount
importance for the directors, as it is for all employees. There is
a continuous drive for improvement in safety performance through
the setting of challenging goals and the pursuit of a comprehensive
safety and health improvement plan, which reflects the Group's
fundamental objective that none of its staff should go home injured
and all employees should commit to behaving safely all of the time.
The Group makes no compromise in respect of its health and safety
obligations and centres its safety plans and systems on the
principles found in companies with world class safety
performance.
During the year, Northern Powergrid received a President's Award
from the Royal Society for the Prevention of Accidents for
achieving 11 consecutive Gold Awards, which had been presented in
recognition of achievements in 2011 and for continued or improving
standards of health and safety over a sustained period. IUS
received its fourth consecutive Gold Medal from the Royal Society
for the Prevention of Accidents. Northern Powergrid also continued
to maintain its occupational health and safety management system
and retained its Occupational Health and Safety Assessment Series
("OHSAS") 18001 certification and environmental management system
ISO 14001 certification.
In respect of the main key performance indicators used by the
Group to monitor safety performance, the goal is to achieve
performance that is below the target number. Those key performance
indicators are as follows:
Year to December 2012 Year to December 2011
Target Actual Target Actual
Lost time accidents 2 3 2 5
Restricted duty
accidents 1 1 1 0
Medical treatment
accidents 3 3 3 1
Operational incidents 4 6 4 5
Preventable vehicle
accidents 13 15 13 15
The Group continued to implement a safety and health improvement
plan that targets delivery of continuous improvement and, as part
of that plan, the Group carried out a cross-business operational
assurance audit programme by senior managers during the year in
order to reinforce the operational safety values. 2012 saw the
conclusion of an extensive project to research, design and produce
innovative protective work wear clothing, which provides protection
for the Group's employees against the effects of events such as
electrical flashovers. The Group has invested a substantial amount
in this new clothing and believes that it is unique in the industry
and will be a significant factor in reducing the risk to its
employees. The Group also delivered operational seminars and stand
down briefings to cascade information on safety trends and to
launch a new method of site-specific risk assessment.
The number of lost time accidents experienced by the Group
reduced in comparison to 2011, although the Group missed its
internal target slightly, and the long-term trend in the Group's
overall safety performance continued to compare well with that of
the industry. While the number of operational incidents exceeded
target, none gave rise to any significant safety-related
issues.
Performance in respect of preventable vehicle accidents failed
to achieve the target for 2012 and was the same as in 2011. The
Group continued to implement a robust road risk management plan,
which involved electronic driving licence checking, refreshing the
Northern Powergrid Group's expected standards of driving behaviour
and using risk reduction tools such as the Institute of Advanced
Motorists' online driver assessment and training module followed by
an on-road refresher training session if required. The driver
training programme provides practical driving training to a
targeted population of drivers and is the primary route to
improving driver skills in the longer term.
The sickness absence rate across the Northern Powergrid Group
was 2.55% (2011: 2.82%), which was an improvement on 2011 and does
not give rise to any particular cause for concern.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Management structure
Operational management of Northern Powergrid's business and that
of Northern Powergrid (Yorkshire) plc, an affiliated company in the
Northern Powergrid Group, is undertaken by a single senior
management team, with specific functional responsibilities. Those
functional responsibilities are in respect of field operations
(including health, safety and environment), asset management
(including procurement), commercial (including customer operations
and information technology), regulation and strategy, human
resources and finance. Certain of those functions also provide
services across the Northern Powergrid Group. IUS has its own
dedicated management team.
Employees
The Group continued to apply appropriate control to its
headcount policy and to place significant emphasis on the
importance and application of high standards of management and
performance in support of the Core Principles. The Group ensures
that a level of consistency is adopted in so doing and, in respect
of employee relations, continued to work towards building
constructive and partnered relationships with the trades unions.
During the year, the Northern Powergrid Group finalised a long-term
pay agreement with its professional and administrative staff, which
means that consistent terms and conditions are now in place across
the Northern Powergrid Group.
Given the demographics of Northern Powergrid's workforce, the
increasing investment in the distribution network and in order to
encourage investment in a sustainable workforce, Ofgem provided an
allowance in its DPCR5 final proposals in order to fund the plans
for workforce renewal across the DPCR5 period. Ofgem has stated
that the allowance is on a "use it or lose it" basis and Northern
Powergrid will need to demonstrate that it has used that allowance
appropriately and efficiently to recruit and train new staff or for
other means of renewing its workforce and report annually on its
progress in that respect. The Northern Powergrid Group recruited a
total of 118 members of staff in 2012 and has a target to recruit
an additional 75 in 2013 under its workforce renewal programme.
During 2012, the first of the trainees recruited under the Northern
Powergrid's workforce renewal project graduated from their training
programmes and formally commenced work as part of Northern
Powergrid's operations. Overall, plans are in place to have
recruited a total of 275 graduate trainees, technical trainees and
craft apprentices by the end of 2015.
The Group is committed to proper business conduct and, in common
with MidAmerican Energy Holdings Company ("MidAmerican"), its
parent company, has adopted a code of business ethics that
emphasises the requirement for all staff to manage their activities
to achieve the highest level of ethical conduct. A "speaking up"
policy is in place so that members of staff are able to raise any
instances of unethical acts, malpractice or impropriety. An
additional process is also available to all staff via an
international, anonymous help line operated by an independent
company.
Human resource policies focus on skills, motivation and
excellence and the promotion of high standards of probity among
staff. In addition, the appropriate organisational structure has
been developed to control business units and to delegate authority
and accountability, having regard to acceptable levels of risk.
The Group employed 1,224 staff at the end of December 2012
(2011: 1,162).
Disabled employees
The Northern Powergrid Group is committed to equality at work
and, as such, its policy is to provide all protected groups,
including disabled people, with equality at work in respect of
employment, training, career development and promotion, having
regard to their aptitudes and abilities. Should any member of staff
become disabled during their employment, the Group would work to
retrain and/or redeploy that member of staff, wherever
possible.
Employee consultation
The Northern Powergrid Group has a constitutional framework in
place for employee consultation and has agreed that framework with
trade union representatives. In addition, the Northern Powergrid
Group communicates directly and through the management structure
with personal contract holders and keeps them informed of and
involved as appropriate in developments that may impact on them now
or in the future.
The Northern Powergrid Group is committed to maintaining and
improving effective communication with employees, principally
through regular staff briefs on current issues, meetings with staff
and their representatives and the issue of an employee publication.
During the year, the President and Chief Executive Officer of the
Northern Powergrid Group delivered quarterly broadcast briefings
using telephone conference call facilities in order to provide
employees with updates on the Northern Powergrid Group's financial,
organisational, safety and customer service performance.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Environmental respect
The Northern Powergrid Group's approach to environmental
compliance is governed by its environmental policy and the policy
of Environmental RESPECT (Responsibility, Efficiency, Stewardship,
Performance, Evaluation, Communication and Training) implemented by
MidAmerican. These policies and their subordinate operational
control procedures and systems address compliance with legal and
other key environmental requirements, pollution prevention and
continual improvement and also promote environmental awareness and
best practice amongst the Group's staff and contractors.
Northern Powergrid has operated a United Kingdom Accreditation
Service scheme for environmental management since the late 1990s,
certified to the environmental management systems standard ISO
14001:2004. It is subject to regular six-monthly assessment visits
and a three-yearly certificate renewal assessment by an accredited
external certification body in order to retain that status.
The most recent visit was a six-monthly surveillance assessment
carried out by Lloyd's Register Quality Assurance in October 2012.
The assessment report drew management attention to only two minor
non-conformances to be addressed by agreed proposed actions. The
report also noted good processes for identifying environmental
aspects and legal requirements and taking them into account in the
system. There were no major non-conformances noted and continued
certification was recommended and subsequently confirmed.
Improvements in support of the Northern Powergrid Group's
environmental policy objectives included replacing selected
fluid-filled cable sections with non-fluid polymeric equivalents,
replacing oil-filled circuit breakers with vacuum and sulphur
hexafluoride gas filled units at outdoor substations to reduce the
potential for oil leakage and installing underground cables using
trenchless technology as opposed to open-cut excavations, where it
was efficient and practicable to do so. In addition, the Group
provides environmental awareness training for new personnel and
contractors and periodic refresher training for all staff.
The environmental impact on protected structures, features,
areas, wildlife and habitat is a central consideration when
planning improvements to Northern Powergrid's electricity
distribution network. This includes protecting bird life by placing
bird-diverters on power lines where they are in proximity to
reserves, wetlands, flight paths or in locations where rare species
of bird are known to live or breed and also in response to
information obtained from incident trends.
Sustainability
The Group takes its responsibilities in respect of its
contribution to reducing the impact of global warming seriously,
both in its capacity as a major participant in the United Kingdom
energy industry and in terms of its own carbon footprint. The Group
is contributing to the target of reducing the carbon emissions of
the United Kingdom economy by working with customers to assist in
solving issues raised by the introduction of low-carbon generation
and technologies and their implications for the planning and
operation of the distribution network. The Group is also actively
involved in low-carbon interest groups, both regionally and
nationally, and has frequent contact on these matters with
government and regulators. The Northern Powergrid Group measures
and publishes details of its own carbon footprint. Between 2009 and
2012 it reduced its carbon footprint by 12% and has set a target to
reduce its carbon footprint further by over 3% in 2013. The Group
has a policy of fitting speed limiters wherever feasible to the
vehicle fleet and recycles office waste at all major office sites.
In line with Ofgem's requirements, Northern Powergrid has
contributed to the sustainability agenda through public reporting
on the carbon footprint of its business. Northern Powergrid also
holds certification under CEMARS (the Certified Emissions
Measurement and Reduction Scheme) that its measurement of its
greenhouse gas emissions was in compliance with ISO 14064.
The number of installations by customers of low-carbon
technologies such as photovoltaic solar panels and heat pumps
continued to increase during 2012 and Northern Powergrid continued
to work with customers and installers to facilitate the process of
connecting this technology to the electricity network. The Northern
Powergrid Group's Customer-Led Network Revolution project continues
to consider how novel network technology and changes in customers'
energy usage may lead to the speedier and lower cost connection of
low-carbon technologies to the distribution network. By the end of
2012, more than 10,000 customers were participating in the trials
and much of the network technology had been installed, with the
testing phase of the project due to continue throughout 2013.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Regulatory integrity
The Group manages its business to the highest behavioural
standards and adheres to a policy of strict compliance with all
relevant standards, legislation and regulatory conditions. The
Governance and Risk Management Group ("GRMG") monitored and managed
performance in risk-related and compliance areas and met on four
occasions during the year.
As has been the case for some years, breaches by a DNO of its
licence conditions could lead to financial penalties, which Ofgem
has stated "will have a proportionate impact on shareholder
returns". In order to assure compliance with its licence and other
regulatory obligations, Northern Powergrid operates a regulatory
compliance affirmation process, under which ownership of the
approximately 1,700 regulatory obligations contained within the
compliance database is currently assigned to around 60 responsible
managers. Those responsible managers are required, on a quarterly
basis, to review compliance with the relevant obligations that have
been assigned to them for certification and report on any perceived
risks to the compliance process, which are then addressed. The
Regulation Manager reports to Northern Powergrid's board of
directors on the outcome of each quarter's exercise.
A revenue-related issue arose during 2010 in that the adjustment
of settlements data by certain suppliers had the effect of
distorting the apparent performance of Northern Powergrid under the
losses incentive scheme for the regulatory year ended 31 March
2010. Throughout 2012, Northern Powergrid continued to engage with
Ofgem and other industry participants to resolve the complex issues
surrounding the losses incentive arrangements for both the current
and previous price control periods. At the time of finalising these
accounts, Ofgem has taken a decision to remove the DPCR5 losses
incentive and is consulting on a potential resolution to the issues
associated with the Distribution Price Control Review 4 period
losses incentive. Northern Powergrid expects to reach a final
conclusion to this issue with Ofgem during 2013. In accordance with
International Financial Reporting Standards, the Group has not
included any recognition of this issue in these Accounts.
Under the new RIIO (revenue = incentives + innovation + outputs)
model for regulation, price controls will be set for eight years
(rather than five as at present), with provision for a mid-period
review of the outputs that network companies are required to
deliver. The first price control review in electricity distribution
under the RIIO framework (known as RIIO-ED1) was triggered by Ofgem
in the first quarter of 2012. During the course of 2012, Ofgem has
been developing its price control policies and the DNOs will submit
their detailed business plans during 2013. On conclusion of the
process, Northern Powergrid's revenues will be set for the period
from 2015 to 2023.
During the year, at Ofgem's request, Northern Powergrid joined
with the other DNOs in developing and trialling more formalised
arrangements for assuring the accuracy of information returns
submitted to Ofgem. This exercise has involved the development of
risk-assessment matrices and the preparation and submission to
Ofgem of risk-based data-assurance plans, which will be followed by
the submission of reports detailing the assurance work actually
carried out and the findings of that work. This new regime will
continue to be trialled by all DNOs until April 2015 when it is
expected to be incorporated into the licences for the next price
control period.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have an impact on the Group, its financial position and its
operations and may cause actual results to vary materially from
those expected or historically experienced. The principal risks are
outlined as follows:
Financial risk
As a holder of an electricity distribution licence, Northern
Powergrid is subject to regulation by the Gas and Electricity
Markets Authority ("GEMA"), which acts through Ofgem. Most of the
revenue of the electricity distribution licence holders is
controlled by the distribution price control formula set out in the
electricity distribution licence. The price control formula does
not constrain profits from year to year but sets a maximum
permitted revenue for each regulatory year and is a control on
revenue that operates independently of most of the electricity
distribution licence holder's costs. Where Northern Powergrid
recovers more, or less, than this maximum, the difference is
carried forward, with interest, into the entitlement for the
following year.
It has been the practice of Ofgem to review and reset the
formula at five-year intervals, although the formula has been, and
may be, reviewed at other times at the discretion of Ofgem. A
resetting of the formula can now be made by GEMA without the
consent of the electricity distribution licence holder but, if a
licensee wishes to appeal such a modification, the licensee may
insist that the matter is referred to the Competition Commission
for it to determine whether the modification should be made.
Certain other interested parties have the same right.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
The current five-year price control period became effective on 1
April 2010 and has set Northern Powergrid's revenues through to 31
March 2015. However, it is expected that the next price control
will be set for eight years. During the term of the current price
control, changes in costs incurred will have a direct impact on
Northern Powergrid's financial results, as will changes in
performance under incentive schemes, such as in customer service,
which can lead to adjustments to allowed revenues.
Ofgem recognises that defined benefit pension schemes and,
particularly, the current deficit positions of various schemes,
represent a significant cost to the DNOs and, in its DPCR5 final
proposals, confirmed that DNOs would be allowed to recover the
actuarial value of the deficits attributable to a licensee's
distribution business in existence as at 31 March 2010 via its
regulated revenues (after an adjustment to reflect the residual of
unfunded early retirement deficiency costs as at 31 March
2010).
However, given the stable and regulated nature of the DNOs'
businesses, Ofgem took the view that a notional repair period of 15
years was appropriate for the purpose of assessing the DNOs'
allowed revenues in respect of pension costs over the DPCR5
period.
The other financial risks facing the Group are outlined in the
Treasury section on page 7 of this report.
Operational risk
There are a number of risks to the Group's operational
performance in respect of which mitigating actions have been taken.
Appropriate credit cover arrangements are in place with the
electricity suppliers, which would allow recovery of defaulted
payments through the price control mechanism and a robust major
incident management plan is implemented whenever severe weather
impacts on the distribution network's performance. Metal theft
continued to be a significant issue for Northern Powergrid during
the year with the activities of metal thieves causing power cuts on
various occasions, which affected a large number of customers in
aggregate. In response, Northern Powergrid maintained the programme
of risk-assessed and enhanced security measures at its sites and
pursued awareness raising activity at a national and local level,
which contributed to a change in the law such that a new criminal
offence was created prohibiting scrap metal dealers from paying for
scrap metal in cash.
Commercial risk
Managing commercial risk in the current economic climate
continued to be of key importance and the Group remained focused on
ensuring that its policies for credit checking, payment terms,
payment performance tracking and debt management were strictly
adhered to.
Northern Powergrid's relationship with its main customers is
governed by a distribution connection and use of system agreement
("DCUSA"), which is in place with each of those customers. Those
customers are the electricity suppliers who, under the terms of the
DCUSA, pay charges for the use of the distribution network, in
respect of which it is necessary to ensure that the credit cover
arrangements in line with Ofgem's guidance remain in place. The
principal electricity suppliers that use Northern Powergrid's
network are RWE Npower, British Gas, EdF Energy, E.on, Scottish and
Southern Energy and Scottish Power.
The Group operates its business utilising a mix of direct labour
and contracted resource and has a range of contracts in place with
various service providers for delivery of its work programmes,
which are subject to regular market testing and tendering
exercises. Those services include vegetation management, overhead
line inspection and construction, substation construction and
maintenance, underground cable laying services, vehicle leasing and
servicing, tower painting and information technology services. The
Group also has an extensive suite of contracts in place for the
procurement of all of the goods and equipment it requires to
deliver its capital expenditure programme and to run its business,
including for varying types of transformers, switchgear and
cables.
Risk management
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk, as part of the
overall risk management approach. Risks are assessed with due
regard to probability and impact and the risk environment is
reviewed continually in order that new or emerging potential risks
are identified. Those risks assessed to be significantly high are
logged within a risk register that the GRMG reviews regularly and
key indicators are used to track and monitor those risks considered
to be significant.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Risk mitigation and loss control plans are prepared in response
to strategic risks in order that the directors can be assured that
appropriate mitigating actions are in place and are being
implemented. These plans are monitored through to implementation
and reviewed to determine whether the level of residual, mitigated
risk is within an acceptable level of tolerance.
The Northern Powergrid Group identifies and assesses risks
associated with the achievement of its strategic objectives,
including those of an environmental and social nature. Any key
actions needed to further enhance the control environment are
identified, along with the person responsible for the management of
the specific risk. A regular review of the key risks, controls and
action plans is undertaken. The risk management programme includes
regular review of the crisis management, disaster recovery and
major incident plans, which are periodically tested, the sharing of
best practice on disaster preparedness and response, penetration
tests against firewall systems and disaster recovery tests of IT
servers and priority processes and a peer review of the Northern
Powergrid Group's risk management systems by MidAmerican.
Risk management continues to be a central theme of senior
management priority setting as well as an explicit business process
that helps to stimulate the senior leadership's consciousness of
lower probability, high consequence threats to business success or
continuity. This approach is reinforced by that of the wider
MidAmerican group, whose activities have continued to include a
structured benchmarking of risk management activities across its
business units, including the sharing of significant lessons
learned associated with risk management.
A key element and requirement of the risk management process is
that a written certificate is provided by the President and Chief
Executive Officer of the Northern Powergrid Group confirming that
the effectiveness of the system of internal controls has been
reviewed during the year. A self-certification process is in place,
in support of this review, whereby senior managers are required to
confirm that the system of internal control in their area of the
business is operating effectively.
Internal control
A rigorous internal control environment exists within the
Northern Powergrid Group based on regular reporting, a series of
operational and financial policy statements, investigations
undertaken by internal audit and a stringent process for ensuring
the implementation of any recommendations. MidAmerican requires a
quarterly control risk self-assessment to be undertaken by all
senior managers as part of its programme for compliance with the
requirements of the United States Sarbanes-Oxley Act. A review is
undertaken of the company-wide controls in place on a regular basis
and, while no significant areas of weakness have been identified,
any recommended improvements are implemented.
In addition, the Group employs comprehensive business planning
and financial reporting procedures, regularly reviews key
performance indicators to assess progress towards its goals and has
a strong internal audit function to provide independent scrutiny of
its internal control systems. The Group has risk management
procedures in place, including the standards required by the United
States Sarbanes-Oxley Act, and has centralised treasury operations
and established procedures for the planning, approving and
monitoring of major capital expenditure.
The Northern Powergrid Group is committed to preventing
corruption in all its forms and continues to have a zero-tolerance
approach to corruption in its business or by those with whom it
does business. The board of Northern Powergrid Holdings Company has
addressed the risks introduced by the Bribery Act 2010 through a
compliance policy, changes to contractual terms, training and other
staff awareness measures. The introduction of annual risk
assessments and enhanced due diligence in respect of new business
transactions has further assisted in ensuring compliance. The
Northern Powergrid Group requires staff, suppliers of services and
business partners to comply with the Bribery Act. Its policies
encourage an employee who has any suspicion of bribery or other
form of corruption within or related to the Northern Powergrid
Group to report the suspicion to a manager.
Northern Powergrid has appropriate controls in place directed at
ensuring compliance with the conditions in its licence requiring
any payments made to, or received from, affiliates or related
undertakings in respect of goods and services provided or supplied
to be on an arm's length basis and on normal commercial terms.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
CORPORATE GOVERNANCE STATEMENT
The Financial Reporting Council issued a revised version of the
Combined Code on Corporate Governance (the "Code") in June 2010.
The Disclosure and Transparency Rules ("DTR") require an issuer, to
which section 7.2 of the DTR applies, to provide, in its annual
Directors' Report, a corporate governance statement. That statement
sets out how the issuer has applied the main principles in the Code
and, to the extent that it departs from the Code, the issuer is
required to explain from which parts of the Code it departs and the
reasons for doing so.
The Company, therefore, provides the following statement by
reference to the principles in the Code.
Compliance statement
Set out below and in the Review of the Year in the Directors'
Report are the areas in which the Company adopts and complies with
the main principles of the Code. The Company has not complied with
certain of the main principles of the Code, including main
principles A2, A3, B2, B6, B7, D1, D2 and E2. The directors confirm
that such non-compliance was of a continuing nature throughout the
year but consider the governance framework in place to be
appropriate to the circumstances of the Company, given that the
framework is agreed with MidAmerican and includes regular reporting
to and meetings with the Chairman and senior management of
MidAmerican, the presence of an independent non-executive director
at board meetings of the Company and a strong internal control
environment designed to meet the standards required by the United
States Sarbanes-Oxley Act.
The Code includes the "comply or explain" approach and the
directors are of the opinion that, in the instances where the
Company does not comply with certain provisions of the Code, this
approach is justifiable, given that the Company is a wholly-owned
subsidiary of MidAmerican and, as mentioned above, the governance
framework in place throughout the Northern Powergrid Group is
agreed with MidAmerican.
Section A: Leadership
Main Principle A1: The Role of the Board
The board of directors is responsible for the overall management
of the Company and its system of internal controls. The directors
have agreed a quarterly schedule of board meetings at which they
review performance, strategy and operational and risk-related
issues. Regular items on the agenda for consideration at board
meetings include general business performance, internal control,
key business activities and projects and the regulatory compliance
process.
In addition, the President and Chief Executive Officer of the
Northern Powergrid Group participates in weekly performance review
meetings with the Chairman of MidAmerican and other senior managers
of the MidAmerican group, including the Executive Vice President
and Chief Financial Officer. At those weekly meetings, the views of
the Chairman of MidAmerican and the senior management team
regarding the key, current issues facing the Group are
discussed.
The Chairman of MidAmerican also receives weekly, monthly and
quarterly reports on the Group's performance from the Northern
Powergrid Group's President and Chief Executive Officer.
MidAmerican's Executive Vice President and Chief Financial Officer
and Executive Vice President, General Counsel and Corporate
Secretary also hold similar weekly review meetings in respect of
MidAmerican's financial and legal functions, at which the Company's
Finance Director and General Counsel present their respective
weekly reports.
The board meets quarterly and as required to consider relevant
issues and met on six occasions in total during the year, with the
attendance of those directors, who were directors as at 31 December
2012, being as follows:
G E Abel Chairman 0
J A Andreasen General Counsel 1
R Dixon Non-Executive Director 6
T E Fielden Finance Director 6
J M France Regulation Director 6
Executive Vice President and Chief Financial
P J Goodman Officer, MidAmerican 0
P A Jones President and Chief Executive Officer 6
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Operational management of the Group's business (and that of its
affiliate, Northern Powergrid (Yorkshire) plc) is delegated to a
single senior management team, with specific functional
responsibilities. That senior management team meets monthly with
the senior management of the Northern Powergrid Group to monitor
performance and address issues of policy across all areas of the
business and holds weekly conference calls to report on and
consider performance-related issues for that week. Further details
of the management structure of the Northern Powergrid Group are
provided in the directors' report.
The directors have overall responsibility for the internal
control environment, which, within the Northern Powergrid Group, is
based on regular reporting, a series of operational and financial
policy statements, investigations undertaken by internal audit and
a stringent process for ensuring the implementation of any
recommendations. In addition, MidAmerican requires a quarterly
control risk self-assessment to be undertaken by all senior
managers as part of its programme for compliance with the
requirements of the United States Sarbanes-Oxley Act.
A review is undertaken of the company-wide controls in place on
a regular basis and, while not identifying any areas of significant
weakness, the most recent review resulted in the implementation of
various recommended improvements. The key features of the Northern
Powergrid Group's internal control system and the issues addressed
by the Company and the Northern Powergrid Group during the year can
be found in the report of the directors.
A schedule of key delegations of authority has been approved by
the board, which delegates authority for decision-making to senior
and other managers in respect of issues such as capital
expenditure, procurement, contractual, human resource, payment
matters and for the conduct of claims and litigation. That schedule
reserves decision-making to the directors above certain financial
limits.
During the year, there were a number of committees in operation,
acting under delegated terms of reference, which oversee Northern
Powergrid Group and, therefore, Company policy. As part of the
approved terms of reference, certain of those committees report
regularly to the board on their activities. The committees in place
are as follows:
Health and Safety Management Committee
The board of Northern Powergrid Holdings Company has established
the Northern Powergrid Group Health and Safety Management Committee
with delegated powers to manage the health and safety policy and
performance of the Northern Powergrid Group. Membership of the
committee comprises:
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
P A Jones President and Chief Executive Officer
A J Maclennan Managing Director, Integrated Utility
Services Limited
G M Earl Head of Health, Safety and Environment
The committee meets on a regular basis in order to oversee
implementation of the health and safety policy, review and agree
strategy for the management of health and safety issues, monitor
health and safety performance across the Northern Powergrid Group,
review the effectiveness of the health and safety policies and the
health and safety management system and consider recommendations
for changes in Northern Powergrid Group policy due to changes in
appropriate legislation, codes of practice or guidance or due to
recommendations arising from significant incidents.
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies outlined in the directors' report and comprises:
G E Abel Chairman
P Ainsley Financial Controller
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Executive Vice President and Chief Financial Officer,
MidAmerican
P A Jones President and Chief Executive Officer
M Flint Corporate Accountant and Secretary to the Committee
O Sutherland Investor Reporting Manager
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Pensions Committee
The Pensions Committee oversees the Northern Powergrid Group's
approach to the pension schemes to which it contributes and
comprises:
P Ainsley Financial Controller
T E Fielden Finance Director
J M France Regulation Director
K Mawson Head of Finance Development and Systems
A Patterson Director of Human Resources
N Dawson Pensions Manager
L Tweedie Head of Service Delivery
Governance and Risk Management Group
The GRMG is the principal management forum in the Northern
Powergrid Group with regard to corporate governance. Its purpose is
to ensure that Northern Powergrid Group companies apply and
maintain appropriate arrangements to deliver sound corporate
governance and comply with the overall strategy, framework and
supporting policies. The GRMG monitors and reviews the strategic
risk environment, ensuring the continued suitability, adequacy and
effectiveness of risk management arrangements and reports to the
Northern Powergrid Group's Audit Committee. The GRMG comprises:
P Ainsley Financial Controller
D Anderson Head of Internal Audit
J P Barnett Commercial Director
R Dixon Non-Executive Director
M Drye Director of Asset Management
G Earl Head of Safety, Health and Environment
J Elliott Company Secretary
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
A J Maclennan Managing Director, Integrated Utility Services
Limited
A Patterson Director of Human Resources
The risk management framework was monitored regularly during the
year to ensure that all strategic risks, including those relating
to environmental and social issues, were being addressed. Risk
management policies and procedures were reviewed and updated to
ensure a robust and clear approach was maintained. Mr Dixon
attended meetings of the GRMG to provide an independent view in
respect of the matters discussed.
Asset risk continued to be a strong focus through the Asset Risk
Management Executive Review Group and comprehensive plans continued
to be in place to manage risks affecting all critical property
assets and to strengthen the arrangements for crisis management and
business continuity planning.
Further details of the Northern Powergrid Group's approach to
corporate governance and the management of internal controls can be
found in the directors' report.
As explained in respect of main principles B2 and D1, the
Company does not have either a remuneration committee or a
nomination committee
Main Principle A2: Division of Responsibility
Mr G E Abel, the Chairman of MidAmerican, is Chairman of the
Company. As President and Chief Executive Officer, Dr Jones is
responsible for the operation and management of both the Group and
the Northern Powergrid Group and reports directly to Mr Abel.
Main Principle A3: The Chairman
Dr Jones chairs board meetings and is responsible for the
operation and management of both the Company and the Northern
Powergrid Group and reports directly to Mr Abel.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Main Principle A4: Non-executive Directors
Mr Dixon was the Company's sole independent non-executive
director during the year and acts under agreed terms of
reference.
Section B: Effectiveness
Main Principle B1: The Composition of the Board
The board comprises six executive directors and Mr Dixon, an
independent non-executive director, who, collectively, bring a
range of skills and experience to the board. Although Mr Dixon is
the sole non-executive director, so the board does not include a
balanced number of executive and non-executive directors, the board
believes that it possesses the skills and experience necessary to
provide effective leadership, stewardship and control of the
Company.
Main Principle B2: Appointments to the board
The Company does not have a nomination committee. Appointments
to the board are made by MidAmerican, in conjunction with the
President and Chief Executive Officer.
Main Principle B3: Commitment
The Company's non-executive director commits sufficient time to
preparation for and attendance at board meetings, although his
terms of reference do not quantify the time commitment
required.
Main Principle B4: Development
The directors continually update their knowledge of and
familiarity with the operations of the Group due to the robust
reporting arrangements in place and have on-going access to the
Group's operations and its staff.
Main Principle B5: Information and support
Directors receive monthly reports outlining progress against the
Group's goals and targets, enabling financial performance against
budget and operational performance against a number of indicators
to be reviewed, and are also able to participate in weekly
meetings, which consider the key issues of that week in some
detail. The directors are able to utilise the advice and services
of the Company Secretary, in respect of their duties and
responsibilities as directors and any new legislation that may
affect those duties and responsibilities. The directors also have
access to internal and external legal advice should they feel it
necessary. Interim briefings are provided to the non-executive
director, as appropriate.
Main Principle B6: Evaluation
As part of their approved terms of reference, certain committees
report regularly on their activities, enabling the directors to
evaluate the activities of those committees. However, the board
does not have a process of evaluation of its own performance or of
the performance of individual directors in their capacity as
directors. MidAmerican has a performance appraisal and development
scheme in place, under which each senior manager of the Northern
Powergrid Group is subject to a formal annual appraisal of
performance against his individual and MidAmerican's goals
Main Principle B7: Re-election
The directors retire by rotation and offer themselves for
re-election in accordance with the Company's articles of
association.
Section C: Accountability
Main Principle C1: Financial and Business Reporting
The board believes that the directors' report and review of the
year provide a balanced and understandable assessment of the
Company's position and prospects. The directors explain, at page 2,
the Core Principles behind the Company's strategy and, at page 22,
their responsibility for preparing the report and accounts, have
reported, at page 22 in the directors' report, that the Company is
a going concern and included the independent auditor's report to
the Company at page 27 of the report and accounts.
Main Principle C2: Risk Management and Internal Control
Details of the principal risks and uncertainties facing the
Company and its internal control system, together with details of
the issues addressed by the Company during the year, can be found
at pages 14 to 16 of the directors' report.
Other key features of the internal control system are:
- Comprehensive business planning and financial reporting
procedures, including the annual preparation of detailed
operational budgets for the year ahead and projections for
subsequent years;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
- Regular review of key performance indicators to assess progress towards objectives;
- A range of policies, codes of practice and more detailed
instructions that define the processes to be followed;
- A strong internal audit function, which provides independent
scrutiny of internal control systems and risk management
procedures, including the standards required by the United States
Sarbanes-Oxley Act;
- On-going health and safety performance reviews carried out by
in-house safety professionals in addition to the regime of routine
health and safety risk assessment and management processes carried
out within each of the operating units;
- Processes and procedures to operate under OHSAS 18001, which
is subject to external certification and regular assessment;
- An external obligations register, which assists with
compliance with financial, legal and regulatory obligations;
- Centralised treasury operations that operate within defined
limits and are subject to regular reporting requirements and audit
reviews; and
- Established procedures for planning, approving and monitoring
major capital expenditure, major projects and the development of
new business which includes short and long-term budgets, risk
evaluation, detailed appraisal and review procedures, defined
authority levels and post-investment performance reviews.
Main Principle C3: Audit Committee and Auditors
The board of Northern Powergrid Holdings Company has established
an audit committee for the Northern Powergrid Group under delegated
terms of reference, which include monitoring of the financial
reporting process, the effectiveness of the internal control,
internal audit and risk management systems, the statutory audit of
the accounts, the independence of and the provision of additional
services by the auditor.
The Audit Committee receives annual reports from the GRMG and
from the Northern Powergrid Group's Head of Internal Audit on the
work of the Internal Audit Section during the year and the audit
plan for the following year. The Audit Committee comprises:
R Dixon Non-Executive Director
T E Fielden Finance Director
The directors confirm that fees of GBP209,000 were payable by
the Company to Deloitte LLP in relation to non-audit services
during the year.
The employee section on page 12 of the directors' report
contains details of the Company's "speaking up" policy.
Section D: Remuneration
Main Principle D1: The Level and Components of Remuneration
The Company does not have a remuneration committee. Annual
remuneration awards for senior management of the Northern Powergrid
Group are subject to the performance appraisal and development
scheme process and consideration by the Chairman of MidAmerican and
the President and Chief Executive Officer. As the Company has no
equity securities listed on the London Stock Exchange, it is not
required to make directors' remuneration disclosures, other than
those required for private companies.
Main Principle D2: Procedure
As mentioned under main principle D1, the annual remuneration
awards for senior management of the Northern Powergrid Group is
subject to the performance appraisal and development scheme process
and consideration by the Chairman of MidAmerican and the President
and Chief Executive Officer. Mr Fielden, Dr France, and Dr Jones
are subject to the performance appraisal and development scheme
process in their capacity as senior managers of the Northern
Powergrid Group and not, specifically, in their capacity as board
directors. No director is involved in deciding his own
remuneration.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
Section E: Relations with Shareholders
Main Principle E1: Dialogue with Shareholders
As the Company is a wholly-owned subsidiary of a privately held
group of companies, the board is in continuing dialogue with
MidAmerican.
Main Principle E2: Constructive Use of the Annual General Meeting
This section of the Code is not applicable to the Company, as it
is a wholly-owned subsidiary of a privately held group of companies
and, therefore, has no institutional shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Report of the
Directors and the Financial Statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. 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
Company and the Group and of the profit or loss of the Group for
that period. In preparing these financial statements, the directors
are required to:
- properly select and apply accounting policies;
- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
- provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Company's financial position and financial performance;
and
- make an assessment of the Company's and the Group's ability to
continue as a going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's and
the Group's transactions and disclose with reasonable accuracy at
any time the financial position of the Company and the Group and
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
GOING CONCERN
The Group's business activities, together with details regarding
its future development, performance and position are set out in the
Business Review in the Directors' Report. In addition, the Group's
objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial
instruments and hedging activities and its exposures to credit risk
and liquidity risk are included in the Directors' Report and the
appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
into account a number of factors, including the following:
a) The Group's main subsidiary, Northern Powergrid, is a stable
electricity distribution business operating an essential public
service and is regulated by GEMA. In carrying out its functions,
GEMA has a statutory duty under the Electricity Act 1989 to have
regard to the need to secure that licence holders are able to
finance the activities, which are the subject of obligations under
Part 1 of the Electricity Act 1989 (including the obligations
imposed by the electricity distribution licence) or by the
Utilities Act 2000;
b) The Group is profitable with strong underlying cash flows.
The Company and Northern Powergrid hold investment grade credit
ratings;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2012
c) The Group is financed by long-term borrowings with an average
maturity of 16 years and has access to borrowing facilities
provided by Lloyds TSB Bank plc, Royal Bank of Scotland plc and
Abbey National Treasury Services plc; and
d) No repayments of long term debt are due until 2018.
Consequently, after making enquiries, the directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the financial statements.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITOR
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
a) so far as he is aware, there is no relevant audit information
of which the Company's auditor is unaware; and
b) he has taken all the steps he ought to have taken as a
director in order to make himself aware of any relevant audit
information and to establish that the auditor is aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITOR
A resolution to reappoint Deloitte LLP and to authorise the
directors to determine their remuneration will be proposed at the
Annual General Meeting.
ON BEHALF OF THE BOARD:
J Elliott
Company Secretary
22 March 2013
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
Each of the directors as at the date of the Annual Report, whose
names and functions are set out on page 4 of the Directors' Report
confirms that, to the best of their knowledge:
a) the accounts, prepared in accordance with applicable UK law
and in conformity with IFRS, give a true and fair view of the
assets, liabilities, financial position and profit of the Company
and the undertakings included in the consolidation taken as a
whole; and
b) the Report of the Directors includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation as a
whole, together with a description of the principal risks and
uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 22 March 2013 and signed on its behalf by:
T E Fielden
Finance Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
DIRECTORS' BIOGRAPHIES
GREGORY E ABEL
Appointed in January 1997, Mr Abel, 50 is chairman, president
and chief executive officer of MidAmerican Energy Holdings Company,
based in Des Moines, Iowa. He serves as chairman and chief
executive officer of PacifiCorp, which provides electricity
services to six Western states and approximately 1.6 million
customers, and as chairman of the Northern Powergrid Group, which
distributes electricity to approximately 3.8 million customers in
England. Mr Abel is also a director of Kern River Gas Transmission
Company and Northern Natural Gas Company. Kern River is a 1,700
mile interstate pipeline transporting Rocky Mountain and Canadian
natural gas to markets in California, Nevada and Utah. Northern
Natural Gas Company operates 16,400 miles of pipeline extending
from the Permian Basin in Texas to the Upper Midwest. His
responsibilities at MidAmerican are the operation and management of
the holdings company, PacifiCorp's and MidAmerican Energy Company's
supply and marketing and delivery services businesses, the Northern
Powergrid distribution businesses, CalEnergy's operations as an
independent power producer and the Kern River Gas Transmission
Company and
Northern Natural Gas Company pipeline operations.
JON A ANDREASEN
Appointed in March 2010, Mr Andreasen, 49, has been Vice
President & General Counsel for the Northern Powergrid Group
since 2005. In addition to this appointment, he provides legal
counsel to MidAmerican Energy Holdings Company and its other
subsidiaries. He is a 1989 graduate of the University of Iowa
College of Law and has worked in the electricity utility business
since 1989. From 2000-2002 he worked in Newcastle-upon-Tyne for the
Northern Powergrid Group and is currently based in Urbandale, Iowa,
USA.
RONALD DIXON
Appointed in October 1997, Mr Dixon, 75, worked for North
Eastern Electricity Board and Northern Electric plc throughout his
career, being appointed Secretary in 1987. He was appointed
Managing Director of the Power Division in 1990, responsible for
electricity supply and distribution, and Commercial Director in
1991. He retired from the board on 31 July 1997 and was
re-appointed in the capacity of a non-executive director on 22
October 1997. Mr Dixon is also a non-executive director of Northern
Powergrid Holdings Company, Northern Powergrid (Northeast) Limited
and Northern Powergrid (Yorkshire) plc.
JOHN M FRANCE
Appointed in January 2000, Dr France, 55, is Regulation Director
for the Northern Powergrid Group. After leaving university he
joined the British Gas Corporation where he held a number of posts
before becoming a member of the team that handled the privatisation
of British Gas in 1986. He joined Northern Electric plc as its
Regulation Manager in 1989 and has been involved with all the
distribution (and supply) price control reviews that have affected
the Company since privatisation. He was a member of the team that
negotiated the acquisition of the distribution business of
Yorkshire Electricity Group plc and the sale of the Northern
Electric plc supply businesses in 2001.
THOMAS E FIELDEN
Mr Fielden joined the Northern Powergrid Group in July 2009,
became Finance Director on 12 October 2009 and was appointed as a
director of the Company on 16 October 2009. Mr Fielden, 42, is a
chartered accountant, having started his career at Coopers &
Lybrand and has held a variety of finance appointments in BT,
working in BT Group and BT Global Services, before joining Great
North East Railway (GNER) as Financial Controller in 2005. He
became Finance Director of GNER in 2006, transferring to National
Express East Coast in 2007.
PATRICK J GOODMAN
Appointed in May 1999, Mr Goodman, 46, is Senior Vice President
and Chief Financial Officer of MidAmerican and is responsible for
managing all aspects of MidAmerican's financial operations. Mr
Goodman supports the negotiation and closing of MidAmerican's
international and domestic project financings along with supporting
future acquisitions and project developments. Additionally, Mr
Goodman manages all accounting, financial reporting, tax, budgeting
and long-range financial planning functions for MidAmerican. Since
joining MidAmerican in 1995, Mr Goodman has served in various
financial positions including Chief Accounting Officer. Prior to
joining MidAmerican, he served as a financial manager for National
Indemnity Company and was a senior associate at
PricewaterhouseCoopers.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
DIRECTORS' BIOGRAPHIES (CONTINUED)
PHILIP A JONES
Appointed in April 2007, Dr Jones, 44, is President and Chief
Executive Officer of the Northern Powergrid Group, the UK platform
in the global portfolio of MidAmerican. Prior to his appointment as
President and Chief Executive Officer, he was Strategy &
Investment Director and, as such, was responsible for technical,
economic and regulatory strategy within the organisation. Dr Jones
is a chartered electrical engineer and has been working in the UK
power distribution sector since completing his PhD in Electronic
& Electrical Engineering in 1993. He has held a range of
technical and managerial roles, mostly in the engineering field. He
is also actively involved in a range of other industry bodies. He
has been a director of the Institute of Asset Management and of the
Energy Networks Association, the trade association that represents
the power transmission and distribution companies.
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF NORTHERN
ELECTRIC PLC
We have audited the financial statements of Northern Electric
plc (the "Company") for the year ended 31 December 2012 which
comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated and Company
Statements of Financial Position, the Consolidated and Company
Statements of Changes in Equity, the Consolidated and Company
Statements of Cash Flows and related notes 1 to 28. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as regards the parent
company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
a Report of the Auditors and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a
body for our audit work, for this report or for the opinions we
have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors'
Responsibilities set out on page 22, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's and the parent company's circumstances
and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the Report of the Directors to
identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Group's and the
parent company's affairs as at 31 December 2012 and of the Group's
profit for the year then ended;
- have been properly prepared in accordance with IFRSs as adopted
by the European Union;
- the parent company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union and
as applied in accordance with the provisions of the Companies
Act 2006; 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 Regulations.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Report of the
Directors for the financial year for which the financial statements
are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- 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
- the parent company financial statements are not in agreement with
the accounting records and returns; or
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF NORTHERN
ELECTRIC PLC (CONTINUED)
- certain disclosures of directors' remuneration specified by law
are not made; or
- we have not received all the information and explanations we require
for our audit; or
- the directors were not entitled to take advantage of the small
companies' exemption in preparing the Report of the Directors.
Christopher Powell FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Newcastle upon Tyne
Date: 10 April 2013
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 331,614 301,427
Cost of sales (30,274) (24,035)
GROSS PROFIT 301,340 277,392
Administrative expenses (115,377) (106,174)
OPERATING PROFIT 185,963 171,218
Other gains 285 358
Finance costs 5 (36,882) (37,617)
Finance income 5 1,912 1,928
PROFIT BEFORE INCOME TAX 6 151,278 135,887
Income tax 7 (15,871) (19,748)
PROFIT FOR THE YEAR 135,407 116,139
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011
GBP'000 GBP'000
PROFIT FOR THE YEAR 135,407 116,139
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 135,407 116,139
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2012
2012 2011
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 12 7,388 4,164
Property, plant and equipment 13 1,646,514 1,515,896
Investments 14 3,325 3,346
Pension asset 24 244,500 201,800
Trade and other receivables 16 4,658 3,780
1,906,385 1,728,986
CURRENT ASSETS
Inventories 15 15,354 13,383
Trade and other receivables 16 61,903 54,882
Cash and cash equivalents 17 150,071 229,632
227,328 297,897
TOTAL ASSETS 2,133,713 2,026,883
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 18 72,173 72,173
Share premium 19 158,748 158,748
Other reserves 19 6,185 6,185
Retained earnings 19 644,867 539,460
TOTAL EQUITY 881,973 776,566
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 20 473,421 441,679
Borrowings 21 470,086 468,640
Deferred tax 23 163,210 172,120
Provisions 22 2,196 2,594
1,108,913 1,085,033
CURRENT LIABILITIES
Trade and other payables 20 122,800 113,588
Borrowings 21 11,425 37,789
Tax payable 7,218 12,907
Provisions 22 1,384 1,000
142,827 165,284
TOTAL LIABILITIES 1,251,740 1,250,317
TOTAL EQUITY AND LIABILITIES 2,133,713 2,026,883
The financial statements were approved by the Board of Directors
on 22 March 2013 and were signed on its behalf by:
T E Fielden
Director
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2012
2012 2011
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 13 1,837 1,802
Investments 14 328,070 328,070
329,907 329,872
CURRENT ASSETS
Trade and other receivables 16 566 800
Tax receivable 4,518 78
Cash and cash equivalents 17 46,271 57,357
51,355 58,235
TOTAL ASSETS 381,262 388,107
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 18 72,173 72,173
Share premium 19 158,748 158,748
Other reserves 19 6,185 6,185
Retained earnings 19 124,872 130,861
TOTAL EQUITY 361,978 367,967
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings 21 1,117 1,117
Deferred tax 23 7,051 7,680
Provisions 22 1,743 1,600
9,911 10,397
CURRENT LIABILITIES
Trade and other payables 20 7,100 7,470
Borrowings 21 2,273 2,273
9,373 9,743
TOTAL LIABILITIES 19,284 20,140
TOTAL EQUITY AND LIABILITIES 381,262 388,107
The financial statements were approved by the Board of Directors
on 22 March 2013 and were signed on its behalf by:
T E Fielden
Director
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2012
Called up
share Retained Share Other Total
capital earnings premium reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2011 72,173 453,321 158,748 6,185
690,427
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 116,139 - - 116,139
Balance at 31 December 2011 72,173 539,460 158,748 6,185
776,566
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 135,407 - - 135,407
Balance at 31 December 2012 72,173 644,867 158,748 6,185
881,973
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2012
Called up
share Retained Share Other Total
capital earnings premium reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2011 72,173 131,229 158,748 6,185
368,335
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 29,632 - - 29,632
Balance at 31 December 2011 72,173 130,861 158,748 6,185
367,967
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 24,011 - - 24,011
Balance at 31 December 2012 72,173 124,872 158,748 6,185
361,978
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 27 171,882 183,032
Finance costs paid (36,970) (33,177)
Interest received 1,912 1,536
Group relief paid (4,568) (828)
Tax paid (25,902) (26,095)
Net cash from operating activities 106,354 124,468
Cash flows from investing activities
Purchase of intangible fixed assets (3,960) (2,654)
Purchase of tangible fixed assets (169,658) (131,186)
Sale of tangible fixed assets 285 813
Customer contributions 42,071 57,771
Dividends received 334 392
Net cash used in investing activities (130,928) (74,864)
Cash flows from financing activities
Movement in external loans (22,000) 141,154
Loans from Group undertakings (2,987) 1,713
Equity dividends paid (30,000) (30,000)
Net cash (used in)/from financing activities (54,987)
112,867
(Decrease)/increase in cash and cash equivalents (79,561) 162,471
Cash and cash equivalents
at beginning of year 229,632 67,161
Cash and cash equivalents
at end of year 150,071 229,632
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 27 520 3,233
Finance costs paid (9,605) (9,618)
Interest received 951 1,010
Dividends received 30,351 30,553
Group relief paid - (1,256)
Tax paid (3,247) 1,025
Net cash from operating activities 18,970 24,947
Cash flows from investing activities
Purchase of tangible fixed assets (56) (296)
Net cash used in investing activities (56) (296)
Cash flows from financing activities
Movement in borrowings in year - (2,541)
Equity dividends paid (30,000) (30,000)
Net cash used in financing activities (30,000) (32,541)
Decrease in cash and cash equivalents (11,086) (7,890)
Cash and cash equivalents
at beginning of year 57,357 65,247
Cash and cash equivalents
at end of year 46,271 57,357
The notes on pages 37 to 72 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012
1. GENERAL INFORMATION
Northern Electric plc is a company originally incorporated in
England and Wales under the Companies Act 1985. The address of the
registered office is Lloyds Court, 78 Grey Street,
Newcastle-upon-Tyne, NE1 6AF.
The nature of the Group's operations and its principal
activities are set out in the Business Review in the Directors'
Report and in Note 3.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
financial statements have also been prepared in accordance with
IFRSs as adopted by the European Union and with those parts of the
Companies Act 2006 (the "Act") that are applicable to companies
reporting under IFRS. The parent company's financial statements
have also been prepared in accordance with IFRS, as applied in
accordance with the provisions of the Act. The directors have taken
advantage of the exemption offered by Section 408 of the Act not to
present a separate income statement for the parent company. The
financial statements have been prepared under the historical cost
convention. A summary of the more important group accounting
policies is set out below.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements. Further
detail is contained within the Directors' Report on page 22.
Judgments in applying accounting policies and key sources of
estimation uncertainty
Many of the amounts included in the financial statements involve
the use of judgment and/or estimation. These judgments and
estimates are based on management's best knowledge of the relevant
facts and circumstances, having regard to previous experience, but
actual results may differ from the amounts included in the
financial statements. Information about such judgments and
estimates is contained in the accounting policies and/or the notes
to the financial statements and the key areas are summarised
below.
Areas of judgment and estimation which have the most significant
effect on the amounts recognised in the financial statements
are:
- the estimation of useful economic lives for property, plant and equipment;
- the split of operating and capital expenditure and the
allocation of overheads to capital projects;
- impairment reviews carried out to evaluate the carrying value
of assets held at the balance sheet date;
- assumptions used when evaluating long-term pension plan assets and liabilities; and
- assumptions used when evaluating construction contracts.
Critical accounting policies
The critical accounting policies adopted by the directors relate
to property, plant and equipment, taxation, pensions, revenue and
construction contracts and are described below. These and all other
accounting policies adopted by the directors have been applied
consistently throughout the year and the preceding year.
Adoption of new or revised standards
Several new or revised Standards and Interpretations, including
amendments to IAS 19, have been issued and will apply to the year
ending 31 December 2013. Consequently, the Group did not adopt any
of those standards in these financial statements. With the
exception of the amendments to IAS 19, the adoption of these
standards is not expected to have a material impact on the Group's
financial statements for the year ended 31 December 2013.
The amendment to IAS 19 will remove the option to defer
recognition of actuarial gains and losses and any past service cost
via the "corridor method". All actuarial gains and losses will be
recognised immediately in Other Comprehensive Income, with the
Statement of Financial Position reflecting the full deficit/surplus
in the pension scheme.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
2. ACCOUNTING POLICIES - continued
The amendment to IAS 19 will also require the recognition of the
net interest charge arising on the net defined benefit pension
liability to be based on applying the discount rate to the net
liability on the Statement of Financial Position. Currently the net
interest is calculated by applying the discount rate to the defined
benefit obligation and the expected rate of return to the relevant
pension assets. The change in the calculated charge would have
equated to an increase in finance costs of approximately GBP3.0m if
it had been applied to the 2012 financial statements. If the
revised standard had been in place at 31 December 2012, the
Statement of Financial Position would show a deficit of GBP36.5m
rather than the surplus of GBP244.5m.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is
achieved where the Company has the power to govern the financial
and operating policies of an investee company so as to obtain
benefits from its activities.
Revenue
Revenue is only recognised when the risks and rewards of
ownership have been transferred to a third party. No revenue is
recognised where there are significant uncertainties regarding the
consideration to be received or the costs associated with the
transaction.
Revenue represents charges for the use of the Group's
distribution network, amortisation of customer contributions,
recharge of costs incurred on behalf of companies in the Northern
Powergrid Holdings Company group of companies (the "Northern
Powergrid Group") and the invoiced value of other goods sold and
services provided, exclusive of value added tax.
Revenues from charges to end customers for the use of the
Group's distribution network include estimates of the units
distributed. The estimated usage is based on historic data,
judgment and assumptions. Revenues are gradually adjusted to
reflect actual usage in the period during which actual meter
readings are obtained.
Any under or over-recovery of allowed distribution network
revenues as prescribed by Ofgem is not provided for in the
financial statements and will be recovered/repaid through future
tariffs.
Customer contributions towards distribution system assets are
included in deferred revenue. The Group's policy is to credit the
customer contribution to revenue over 45 years on a straight-line
basis, in line with the useful life of the distribution system
assets.
Income from credit sale charges is apportioned in the income
statement over the period of the sales agreements.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable.
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established.
Construction contracts
Where the outcome of a construction contract can be estimated
reliably, revenue and costs are recognised by reference to the
stage of completion of the contract activity at the balance sheet
date. This is normally measured by the proportion that contract
costs incurred for work performed to date bear to the estimated
total contract costs, except where this would not be representative
of the stage of completion. Variations in contract work, claims and
incentive payments are included to the extent that they have been
agreed with the customer.
Where the outcome of a construction contract cannot be estimated
reliably, revenue in respect of that contract is recognised to the
extent of the costs incurred where it is probable they will be
recovered. Contract costs are recognised as expenses in the period
in which they are incurred.
When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised as an expense
immediately.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
2. ACCOUNTING POLICIES - continued
Operating profit
Operating profit is stated before profit on disposals, the share
of the results of joint ventures, investment income and finance
costs.
Software Development Costs
Costs in respect of major developments are capitalised and
amortised over the expected life of the software.
Capitalised software costs that are not an integral part of the
related hardware are included in intangible assets on the balance
sheet and amortised over the expected life of the software of up to
10 years.
Investments
Undertakings, other than subsidiary undertakings, which the
Group jointly controls, are treated as joint ventures.
The results and assets and liabilities of joint ventures are
incorporated in these financial statements using the equity method
of accounting. Investments in joint ventures are carried in the
balance sheet at cost as adjusted by post-acquisition changes in
the Group's share of the net assets of the joint venture, less any
impairment in the value of individual investments. Losses of the
joint venture in excess of the Group's interest in those joint
ventures are not recognised.
Fixed asset investments are stated at cost less provision for or
amounts written off for impairment in value.
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost. Cost includes
the purchase price of the asset and any costs, including internal
employee and other costs, directly attributable to bringing the
asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
The charge for depreciation is calculated to write off assets to
their residual values over their estimated useful lives using the
straight-line basis:
Distribution system assets 45 years
Distributed generation 15 years
Metering equipment included in distribution system up to 4 years
assets
Information technology equipment included in distribution up to 10 years
system assets
Non-operational assets:
Buildings - freehold up to 60 years
lower of lease
Buildings - leasehold period or 60
years
Fixtures and equipment up to 10 years
Software development costs up to 10 years
Freehold land is not depreciated.
Assets in the course of construction are carried at cost.
Depreciation on these assets, on the same basis as other assets,
commences when the assets are commissioned.
The estimated useful economic lives of property, plant and
equipment are based on management's judgement and experience. When
management identifies that actual useful lives differ materially
from the estimates used to calculate depreciation, that charge is
adjusted prospectively. Due to the significance of the Company's
investment in property, plant and equipment, variations between
actual and estimated useful lives could impact operating results
both positively and negatively, although historically, few changes
to estimated useful lives have been required.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
2. ACCOUNTING POLICIES - continued
In accordance with IFRS, the Group is required to evaluate the
carrying values of property, plant and equipment for impairment
whenever circumstances indicate, in management's judgment, that the
carrying value of such assets may not be recoverable. An impairment
review requires management to make judgments concerning the cash
flows, growth rates and discount rates for the cash-generating
units under review.
Financial instruments
Financial assets and financial liabilities are recognised on the
balance sheet when the Group or Company becomes a party to the
contractual provisions on the instrument.
Financial assets are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been
impacted.
For certain categories of financial assets, such as trade
receivables and construction contract debt, assets that are
assessed not to be impaired individually are subsequently assessed
for impairment on a collective basis. Objective evidence of
impairment for a portfolio of receivables and construction contract
debts could include the Group's past experience of collecting
payments, an increase in the number of delayed payments in the
portfolio past the average credit period of 30 days, as well as
observable changes in national or local economic conditions that
correlate with default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables and construction contract debts,
where the carrying amount is reduced through the use of an
allowance account. When a trade receivable or construction contract
debt is considered uncollectable, it is written off against the
allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
income statement.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangement entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Company after deducting all
of its liabilities.
Inventories
Inventories are stated at the lower of cost and net realisable
value as follows:
- Raw materials and consumables are valued at purchase cost
determined on an average price basis.
- Work in progress in relation to construction contracts is
valued based on the cost of direct materials and labour plus
attributable overheads based on the normal level of activity less
progress payments.
- Net realisable value is based on estimated selling price less
further costs expected to be incurred to completion and costs to be
incurred in marketing, selling and distribution.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
2. ACCOUNTING POLICIES - continued
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, 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.
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 asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred 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 deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Research costs
Expenditure on research activities is written off to the income
statement in the year in which it is incurred.
Other than software development costs noted below, the Group and
Company do not carry out any other development activity that would
give rise to an intangible asset.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Rental costs under operating leases are charged to the income
statement or to property, plant and equipment in equal amounts over
the periods of the leases.
Pensions
The Group contributes to the Northern Powergrid Group of the
Electricity Supply Pension Scheme (the "Northern Powergrid Group of
the ESPS"), a defined benefit scheme.
The cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at
each December balance sheet date. Actuarial gains and losses
arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of the
plan assets or 10% of the defined benefit obligation are spread to
income over the employees' expected average remaining working
lives.
Past service cost is recognised immediately to the extent that
the benefits are already vested and otherwise is amortised on a
straight-line basis over the average period until the benefits
become vested.
The asset or liability recognised in the balance sheet
represents the present value of the defined benefit obligation less
the fair value of the scheme assets on a bid value basis, together
with adjustments for unrecognised actuarial gains and losses and
past service costs. The asset or liability initially recognised is
then assessed against the requirements of IFRIC 14, The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their
Interaction, and adjustments made when appropriate.
The defined benefit obligation is calculated annually by an
independent actuary using the projected unit credit method. The
present value of the defined benefit obligation is determined by
discounting the future cash outflows using yields on high quality
sterling corporate bonds that have terms to maturity approximating
to the terms of the related pension liability.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
2. ACCOUNTING POLICIES - continued
The key assumptions used for the actuarial valuation are based
on the best estimate of the variables that will determine the
ultimate cost of providing post-employment benefits and follow
discussions with the actuary. The operating results are affected by
the actuarial assumptions used. These assumptions include
investment returns on the scheme's assets, discount rates, pay
growth and increases to pensions and deferred pensions. These
assumptions may differ from actual results due to changing market
and economic conditions and longer or shorter lives of scheme
members. Further detail is provided in Note 24.
The Group also participates in a defined contribution scheme.
Contributions payable to the defined contribution scheme are
charged to the income statement in the year. Differences between
contributions payable in the year and contributions actually paid
are shown as either accruals or prepayments in the balance
sheet.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event and it is probable that the
Group will be required to settle that obligation. Provisions are
measured at the directors' best estimate of the expenditure
required to settle the obligation at the balance sheet date.
Reasonable estimates involve judgments made by management after
considering information including notifications, settlements,
estimates performed by independent parties and legal counsel,
available facts, identification of other potentially responsible
parties and their ability to contribute and prior experience.
Trade receivables
Trade receivables are measured at initial recognition at fair
value. Appropriate allowances for estimated irrecoverable amounts
are recognised in the income statement when there is objective
evidence that the asset is impaired.
Trade payables
Trade payables are not interest bearing and are stated at their
nominal value.
Borrowings
Borrowings are classified as other financial liabilities at
amortised cost. They are recorded at the proceeds received, net of
direct issue costs. Finance charges, including premiums payable on
settlement for redemption and direct issue costs, are accounted for
on an accruals basis in the income statement using the effective
interest rate method. They are added to the carrying amount of the
instruments to the extent that they are not settled in the period
in which they arise.
Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class
of assets on the face of the balance sheet) comprise cash at bank
and other short-term highly liquid investments with a maturity of
three months or less, which are subject to an insignificant risk of
changes in value.
3. SEGMENTAL REPORTING
The tables below represent the internal information provided to
the President and Chief Executive Officer of the Northern Powergrid
Group, for the purposes of resource allocation and segmental
performance appraisal.
The Group operates in the principal area of activity of the
distribution of electricity in the United Kingdom.
Group revenue, Group profit before tax and Group net assets are
analysed below:
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
3. SEGMENTAL REPORTING - continued
Consolidation
Distribution Other Adjustments Total
2012 2012 2012 2012
GBPm GBPm GBPm GBPm
REVENUE
External sales 301.8 29.8 - 331.6
Inter-segment sales 0.5 8.4 (8.9) -
Total revenue 302.3 38.2 (8.9) 331.6
SEGMENT RESULTS
Operating profit 147.4 0.5 38.1 186.0
Other gains 0.3
Finance costs (36.9)
Finance income 1.9
Profit before tax 151.3
OTHER INFORMATION
Capital additions 188.0 0.1 - 188.1
Depreciation and
amortisation 54.2 - - 54.2
Amortisation of
deferred revenue (15.3) - - (15.3)
BALANCE SHEET
Segment assets 1,771.7 265.2 (53.3) 1,983.6
Unallocated corporate
assets 150.1
Total assets 2,133.7
Segment liabilities (587.7) (15.1) 3.0 (599.8)
Unallocated corporate
liabilities (651.9)
Total liabilities (1,251.7)
Net assets/(liabilities) 1,184.0 250.1 (50.3)
by segment 1,383.8
Unallocated net
corporate liabilities (501.8)
Total net assets 882.0
"Other" comprises Engineering Contracting and business support
units.
Sales and purchases between the different segments are made at
commercial prices.
Segment assets in "Other" include investments in the
Distribution and Engineering Contracting activities totalling
GBP203.1m, which are eliminated in Consolidation Adjustments.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
3. SEGMENTAL REPORTING - continued
Consolidation Adjustments also include a GBP44.0m credit to
operating profit, the recognition of the GBP241.2m retirement
benefit asset and a GBP31.4m reduction in cumulative capitalised
costs as a consequence of all segments accounting for retirement
benefits on a cash accrued basis.
Unallocated corporate assets and liabilities include cash and
cash equivalents, borrowings and taxation.
External sales to RWE Npower plc in 2012 of GBP81.6m are
included within the Distribution segment.
Consolidation
Distribution Other Adjustments Total
2011 2011 2011 2011
GBPm GBPm GBPm GBPm
REVENUE
External sales 277.1 24.3 - 301.4
Inter-segment sales 0.5 6.6 (7.1) -
Total revenue 277.6 30.9 (7.1) 301.4
SEGMENT RESULTS
Operating profit 129.0 4.2 38.0 171.2
Other gains 0.4
Finance costs (37.6)
Finance income 1.9
Profit before tax 135.9
OTHER INFORMATION
Capital additions 128.2 0.2 - 128.4
Depreciation and
amortisation 51.5 0.2 - 51.7
Amortisation of
deferred revenue (13.3) - - (13.3)
BALANCE SHEET
Segment assets 1,623.7 224.8 (51.2) 1,797.3
Unallocated corporate
assets 229.6
Total assets 2,026.9
Segment liabilities (546.2) (8.4) (4.3) (558.9)
Unallocated corporate
liabilities (691.5)
Total liabilities (1,250.3)
Net assets/(liabilities) 1,077.5 216.4 (55.5)
by segment 1,238.4
Unallocated net
corporate liabilities (461.8)
Total net assets 776.6
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
3. SEGMENTAL REPORTING - continued
"Other" comprises Engineering Contracting and business support
units.
Sales and purchases between the different segments are made at
commercial prices.
Segment assets in "Other" include investments in the
Distribution and Engineering Contracting activities totalling
GBP203.1m, which are eliminated in Consolidation Adjustments.
Consolidation Adjustments also include a GBP41.6m credit to
operating profit, the recognition of the GBP201.8m retirement
benefit asset and a GBP25.8m reduction in cumulative capitalised
costs as a consequence of all segments accounting for retirement
benefits on a cash accrued basis.
Unallocated corporate assets and liabilities include cash and
cash equivalents, borrowings and taxation.
External sales to RWE Npower plc in 2011 of GBP77.6m are
included within the Distribution segment.
4. EMPLOYEES AND DIRECTORS
2012 2011
GBP'000 GBP'000
Salaries 52,182 48,065
Social security costs 5,356 4,728
Defined benefit pension costs (11,263) (11,852)
Defined contribution pension costs 575 352
46,850 41,293
Less charged as capital expenditure (32,995) (28,676)
13,855 12,617
The majority of the Company's employees are members of the
Northern Powergrid Group of the ESPS, details of which are given in
the pension note.
The average monthly number of employees during the year was:
2012 2011
No. No.
Distribution 994 967
Engineering Contracting 155 130
Other 56 60
1,205 1,157
DIRECTORS' REMUNERATION
2012 2011
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 144 152
Post-employment benefits 24 19
Other long-term benefits 248 180
416 351
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
4. EMPLOYEES AND DIRECTORS - continued
2012 2011
GBP'000 GBP'000
Total:
Short-term employee benefits 329 335
Post-employment benefits 47 59
Other long-term benefits 439 325
815 719
Directors who are members of the defined benefit
scheme 33
Accrued pension benefit relating to highest --
paid director
OTHER KEY PERSONNEL REMUNERATION
2012 2011
Total: GBP'000 GBP'000
Short-term employee benefits 343 341
Post-employment benefits 99 96
Other long-term benefits 234 193
676 630
Other key personnel includes a number of senior functional
managers who, whilst not board directors, have authority and
responsibility for planning, directing and controlling the
activities of the Company and the Group.
The directors and key personnel are remunerated for their
services to the Northern Powergrid Group, of which the Company is a
subsidiary. The figures above represent the share of the costs
borne by the Company.
5. NET FINANCE COSTS
2012 2011
GBP'000 GBP'000
Finance income:
Interest in joint venture 334 392
Interest receivable on loans
to Group undertakings 1,578 1,536
1,912 1,928
2012 2011
GBP'000 GBP'000
Finance costs:
Interest payable on other loans 22,595 22,230
Interest payable on loans
from Group undertakings 5,286 6,386
Preference dividends payable 9,001 9,001
36,882 37,617
Net finance costs 34,970 35,689
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2012 2011
GBP'000 GBP'000
Depreciation - owned assets 53,548 49,167
Profit on disposal of fixed assets (285) (358)
Software development costs amortisation 736 2,501
Research costs 8,066 4,075
Amortisation of deferred revenue (15,324) (13,282)
Impairment loss on trade and other receivables 233 193
Analysis of auditor's remuneration is as follows:
2012 2011
GBP'000 GBP'000
Fees payable to the Company's auditor for the
audit of the Company's annual accounts 25 25
Fees payable to the Company's auditor for the
audit of the Company's subsidiaries pursuant
to legislation 161 161
Total audit fees 186 186
Other assurance services 209 74
Total auditor's remuneration 395 260
2012 2011
GBP'000 GBP'000
Fees payable to the Company's auditor and their
associates in respect of the audit of associated
pension schemes 5 5
7. INCOME TAX
Analysis of tax expense
2012 2011
GBP'000 GBP'000
Current tax:
Tax 24,781 25,561
Deferred tax (8,910) (5,813)
Total tax expense in consolidated income statement 15,871 19,748
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
7. INCOME TAX - continued
Factors affecting the tax expense
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2012 2011
GBP'000 GBP'000
Profit on ordinary activities before income
tax 151,278 135,877
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 24.5% (2011 - 26.5%) 37,063 36,007
Effects of:
Dividends on non-equity preference shares 2,205 2,520
Tax effect of result of joint venture (82) (104)
Adjustment to prior years (9,002) (1,088)
Change in tax rates (14,166) (13,607)
Settlement of prior period capital gains
claims - (3,361)
Tax free income (147) (6)
Permanent disallowances - (613)
Tax expense 15,871 19,748
2012 2011
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the year 24,054 23,649
Payment for use of group losses 4,568 1,799
Under provision for prior years (3,841) 113
-------- -------
Total current tax charge 24,781 25,561
Deferred tax:
Deferred tax expenses relating to the origination
and reversal of temporary differences 5,256 6,042
Effect of changes in tax rates (14,166) (11,855)
Total deferred tax charge (8,910) (5,813)
Tax on profit before tax 15,871 19,748
The Finance Act 2012 included a provision that the standard rate
of corporation tax in the United Kingdom would reduce from 24% to
23% from April 2013. Accordingly, this rate has been applied when
calculating deferred tax assets and liabilities throughout the
Northern Powergrid Group as at 31 December 2012. The Government has
announced that the standard rate of corporation tax will reduce
further to 21% from April 2014.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
8. PROFIT OF PARENT COMPANY
As permitted by Section 408 of the Companies Act 2006, the
income statement of the parent company is not presented as part of
these financial statements. The parent company's profit for the
financial year was GBP24,011,000 (2011 - GBP29,632,000).
9. DIVIDENDS
2012 2011
GBP'000 GBP'000
Interim dividend at 24p per share (2011:
24p) 30,000 30,000
10. ADMINISTRATIVE EXPENSES
Administrative expenses comprise:
2012 2011
GBP'000 GBP'000
Distribution costs 84,056 77,553
Administrative expenses 31,321 28,621
115,377 106,174
11. OPERATING LEASE COMMITMENTS
Group
2012 2011
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 6,209 6,194
At the balance sheet date, the Group had outstanding commitments
for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
2012 2011
GBP'000 GBP'000
Within one year 4,987 4,673
In the second to fifth year 15,473 14,495
After five years 8,807 9,236
29,267 28,404
Company
2012 2011
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 172 172
At the balance sheet date, the Company had outstanding
commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
2012 2011
GBP'000 GBP'000
Within one year 172 172
In the second to fifth year 688 688
After five years 344 516
1,204 1,376
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
12. INTANGIBLE ASSETS
Group
Software
development
costs
GBP'000
COST
At 1 January 2012 31,221
Additions 3,960
At 31 December 2012 35,181
AMORTISATION
At 1 January 2012 27,057
Amortisation for year 736
At 31 December 2012 27,793
NET BOOK VALUE
At 31 December 2012 7,388
Software
development
costs
GBP'000
COST
At 1 January 2011 28,567
Additions 2,654
At 31 December 2011 31,221
AMORTISATION
At 1 January 2011 24,556
Amortisation for year 2,501
At 31 December 2011 27,057
NET BOOK VALUE
At 31 December 2011 4,164
The Company had no intangible assets at 31 December 2012 (2011:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
13. PROPERTY, PLANT AND EQUIPMENT
Group
Non-
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2012 6,404 2,190,620 55,110 2,252,134
Additions - 182,867 1,299 184,166
Disposals - (6,655) (239) (6,894)
At 31 December 2012 6,404 2,366,832 56,170 2,429,406
DEPRECIATION
At 1 January 2012 4,540 681,640 50,058 736,238
Charge for year 140 51,480 1,928 53,548
Eliminated on disposal - (6,655) (239) (6,894)
At 31 December 2012 4,680 726,465 51,747 782,892
NET BOOK VALUE
At 31 December 2012 1,724 1,640,367 4,423 1,646,514
Non-
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2011 6,736 2,073,492 52,698 2,132,926
Additions 208 122,710 2,747 125,665
Disposals (540) (5,582) (335) (6,457)
At 31 December 2011 6,404 2,190,620 55,110 2,252,134
DEPRECIATION
At 1 January 2011 4,526 639,690 48,857 693,073
Charge for year 120 47,511 1,536 49,167
Eliminated on disposal (106) (5,561) (335) (6,002)
At 31 December 2011 4,540 681,640 50,058 736,238
NET BOOK VALUE
At 31 December 2011 1,864 1,508,980 5,052 1,515,896
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
13. PROPERTY, PLANT AND EQUIPMENT - continued
Group
Assets in the course of construction included above:
Fixtures
Distribution and
system fittings Totals
GBP'000 GBP'000 GBP'000
At 1 January 2012 75,547 - 75,547
Additions 190,276 1,557 191,832
Available for use (127,728) (1,557) (129,284)
At 31 December 2012 138,095 - 138,095
The Group has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP29,100,000 (2011: GBP19,790,000).
The net book value of the Group's non-operational land and
buildings comprises:
2012 2011
GBP'000 GBP'000
Freehold 1,256 1,396
Long leasehold 368 368
Short leasehold 100 100
1,724 1,864
Company
Non-Operational Distribution Fixtures Totals
Land & system and fittings
Buildings
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2012 296 1,259 3,558 5,113
Additions - - 73 73
--------- --- ------------ ------
At 31 December 2012 296 1,259 3,631 5,186
--------- -------- ------------ -------
DEPRECIATION
At 1 January 2012 - - 3,311 3,311
Charge for year 9 - 29 38
--------- -------- ------------ ------
At 31 December 2012 9 - 3,340 3,349
--------- -------- ------------ ------
NET BOOK VALUE
At 31 December 2012 287 1,259 291 1,837
========= ============ ============ ======
At 31 December 2011 296 1,259 247 1,802
========= ============ ============ ======
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
13. PROPERTY, PLANT AND EQUIPMENT - continued
Company
Non-Operational Distribution Fixtures Totals
Land & system and fittings
Buildings
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2011 - 1,259 3,558 4,817
Additions 296 - - 296
--------- --- ------------ ------
At 31 December 2011 296 1,259 3,558 5,113
--------- -------- ------------ -------
DEPRECIATION
At 1 January 2011 - - 3,282 3,282
Charge for year - - 29 29
--------- -------- ------------ ------
At 31 December 2011 - - 3,311 3,311
--------- -------- ------------ ------
NET BOOK VALUE
At 31 December 2011 296 1,259 247 1,802
========= ============ ============ ======
14. INVESTMENTS
Group Company
Share of Shares in Shares in Shares in
joint other subsidiary other
venture's undertakings Total undertakings undertakings Total
net assets
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December
2011 3,325 21 3,346 327,099 971 328,070
Movement (21) - (21) - - -
At 31 December
2012 3,304 21 3,325 327,099 971 328,070
Details of the principal investments of the Group at 31 December
2012 are listed below:
Proportion
of voting
Name of company Holding of rights and Nature of business
shares shares held
Principal subsidiary undertakings
Held by Company:
Engineering contracting
Integrated Utility Services 3,103,000 100% services
Limited at GBP1
Distribution
Northern Powergrid (Northeast) 200,000,100 100% of electricity
Limited at GBP1
Property holding
Northern Electric Properties 32,207,100 100% and management
Limited at GBP1 company
Northern Transport Finance 7,00,000 at 100% Car finance company
Limited GBP1
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
14. INVESTMENTS - continued
Proportion
of voting
Name of company Holding of rights and Nature of business
shares shares held
Held by the Company's subsidiaries:
Northern Electric Finance 50,000 at 100% Finance company
plc GBP1
Joint venture held by the Company:
Vehicle Lease and Service 950,000 at 50% Transport services
Limited GBP1
All the above companies are registered in England and Wales.
Interest in Joint venture
Summarised financial information in respect of the Group's joint
venture is set out below:
2012 2011
GBP'000 GBP'000
Long-term assets 18,067 16,842
Current assets 14,562 16,547
Long-term liabilities (9,917) (14,640)
Current liabilities (16,104) (12,099)
Net assets 6,608 6,650
Group's share of joint venture's net
assets 3,304 3,325
Revenue 15,219 14,807
Profit for the year 668 784
Group's share of joint venture's profit
for the year 334 392
15. INVENTORIES
Group
2012 2011
GBP'000 GBP'000
Stocks 10,456 9,418
Work-in-progress 4,442 3,545
Assets held for sale 456 420
15,354 13,383
The Company had no inventories at 31 December 2012 (2011:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
15. INVENTORIES - continued
Group construction contracts
Contracts in progress at balance sheet date:
2012 2011
GBP'000 GBP'000
Amounts due from customers included in
inventories 4,442 3,545
Contract costs incurred plus recognised
profits less recognised losses to date 30,100 23,800
Less: progress billings (25,658) (20,255)
4,442 3,545
At 31 December 2012, retentions held by customers for contract
work amounted to GBP365,000 (2011: GBP359,000).
Advances received from customers for contract work amounted to
GBPnil (2011: GBPnil)
The Company had no construction contracts at 31 December 2012
(2011: GBPnil).
16. TRADE AND OTHER RECEIVABLES
Group Company
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Distribution use of system
receivables 47,396 38,037 - -
Construction contract customers 4,467 3,441 - -
Amounts receivable in respect
of finance leases 3,544 3,766 - -
Other debtors 270 584 330 584
Amounts receivable for sale
of goods and services 1,819 4,459 - -
Prepayments and accrued income 4,407 4,595 236 216
61,903 54,882 566 800
Group Company
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Non-current:
Amounts receivable in respect
of finance leases 4,658 3,780 - -
Aggregate amounts 66,561 58,662 566 800
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
16. TRADE AND OTHER RECEIVABLES - continued
The directors consider that the carrying amount of trade and
other receivables approximates their fair value calculated by
discounting the future cash flows at the market rate at the balance
sheet date. The maximum exposure to risk to the Group is the book
value of these receivables less any provisions for impairment.
Finance lease receivables
Minimum lease Present value
payments
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable
under finance leases:
Within one year 3,918 3,757 3,544 3,766
In the second to
fifth years inclusive 4,949 4,368 4,658 3,780
8,867 8,125 8,202 7,546
Less: unearned finance
income (665) (579) - -
8,202 7,546 8,202 7,546
Northern Transport Finance Limited ("NTFL"), a wholly owned
subsidiary, enters into credit finance arrangements for motor
vehicles with employees in the Northern Powergrid Group. All
agreements are denominated in sterling. The term of the finance
agreements is predominantly three years.
The interest rate inherent in the agreements is fixed at the
contract date for all of the term of the agreement. The average
effective interest rate contracted is approximately 6.5% (2011:
6.5%) per annum. None of these debts are past due and there are no
indicators of impairment. The directors consider the carrying value
of finance lease receivables approximates their fair value. The
maximum risk exposure is the book value of these receivables, less
the residual value of the leased vehicles.
Distribution use of system receivables
The customers served by the Group's distribution network are
supplied predominantly by a small number of electricity supply
businesses with RWE NPower plc accounting for approximately 27% of
distribution revenues in 2012 (2011: 28%). Ofgem has determined a
framework which sets credit limits for each supply business based
on its credit rating or payment history and requires them to
provide credit cover if their value at risk (measured as being
equivalent to 45 days usage) exceeds the credit limit. Acceptable
credit typically is provided in the form of a parent company
guarantee, letter of credit or an escrow account. Included within
other payables are customer deposits of GBP32,000 as at 31 December
2012 (2011: GBP1,532,000).
Ofgem has indicated that, provided the Group has implemented
credit control, billing and collection processes in line with best
practice guidelines and can demonstrate compliance with the
guidelines or is able to satisfactorily explain departure from the
guidelines, any bad debt losses arising from supplier default will
be recovered through an increase in future allowed income. Losses
incurred to date have not been material. Included in the Group's
use of system ("UoS") receivables are debtors with a carrying value
of GBPnil, which have been placed into administration.
Consequently, no provision was required at the year-end (2011:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
16. TRADE AND OTHER RECEIVABLES - continued
Amounts receivable from sale of goods and services
Sales of goods and services comprise all income streams which
are not classified as UoS income. Examples of non-UoS income
streams would be service alterations/disconnections and recovery of
amounts for damage caused by third parties to the distribution
system.
The average credit period on sales of goods and services is 30
days. Interest is not generally charged on the trade receivables
paid after the due date. An allowance for doubtful debts is made
for debts past their due date based on estimated irrecoverable
amounts from the sale of goods and services, determined by
reference to past default experience.
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP753,000
(2011: GBP779,000) which are past due at the reporting date and for
which the Group has provided an irrecoverable amount of GBP469,000
(2011: GBP320,000) based on past experience. The Group does not
hold any collateral over these balances. The average age of these
receivables is 554 days (2011: 344 days).
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP510,000
(2011: GBP695,000). These amounts are past due at the reporting
date and the Group has not provided for any amounts as not being
recoverable, because there has not been a significant change in
credit quality and the amounts are still considered recoverable.
The Group does not hold any collateral over these balances. The
average age of these receivables is 61 days (2011: 56 days).
Ageing of past due but not impaired receivables:
2012 2011
GBP'000 GBP'000
30-60 days 374 569
60-120 days 108 102
120-210 days 28 24
Total 510 695
Construction contract customers
The average credit period on construction contracts is 30 days.
Interest is not generally charged on construction contracts paid
after the due date. The Group has provided fully for all
receivables over one year for UK Contracting debts and all
receivables over six months for Multi-Utility debts. Trade
receivables between 30 days and these predetermined provision dates
are provided for based on estimated irrecoverable amounts,
determined by reference to past default experience.
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBP1,486,000 (2011:
GBP1,358,000), which are past due at the reporting date for which
the Group has provided for an irrecoverable amount of GBP27,000
(2011: GBP104,000) based on past experience. The Group does not
hold any collateral over these balances. The average age of these
receivables is 227 days (2011: 126 days).
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBPnil (2011: GBP49,000) which
are past due at the reporting date for which the Group has not
provided as there has not been a significant change in credit
quality and the amounts are still considered recoverable. The Group
does not hold any collateral over these balances. The average age
of these receivables in the prior year was 45 days.
Ageing of past due but not impaired receivables:
2012 2011
GBP'000 GBP'000
30-90 days - 49
Total - 49
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
16. TRADE AND OTHER RECEIVABLES - continued
Movement in the allowance for doubtful debts
2012 2011
GBP'000 GBP'000
At 1 January 424 550
Amounts utilised/written off in the year (160) (345)
Amounts recognised in income statement 233 219
At 31 December 497 424
In determining the recoverability of the trade and other
receivables, the Company considers any change in the credit quality
of the trade and other receivable from the date credit was
initially granted up to the reporting date. The concentration of
credit risk, other than in relation to UoS receivables, is limited
due to the customer base being large and unrelated. Accordingly,
the directors believe that there is no further credit provision
required in excess of the allowance for doubtful debts.
Included in the allowance for doubtful debts are specific trade
receivables, with a balance of GBP312,000 (2011: GBP205,000 which
have been placed in administration. The impairment represents the
difference between the carrying amount of the specific trade
receivable and the present value of the expected liquidation
dividend.
Categories of financial assets
2012 2011
Group: GBP'000 GBP'000
Cash and bank balances 150,071 229,632
Loans and receivables at amortised cost 57,496 50,287
Total financial assets 207,567 279,919
Non-current assets 1,906,385 1,728,986
Inventories 15,354 13,383
Prepayments and accrued income 4,407 4,595
Total non-financial assets 1,926,146 1,746,964
Total assets 2,133,713 2,026,883
2012 2011
Company: GBP'000 GBP'000
Cash and bank balances 46,271 57,357
Loans and receivables at amortised cost 330 584
Total financial assets 46,601 57,941
Non-current assets 329,907 329,872
Income tax receivables 4,518 78
Prepayments and accrued income 236 216
Total non-financial assets 334,661 330,166
Total assets 381,262 388,107
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
17. CASH AND CASH EQUIVALENTS
Group Company
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by Group
undertakings 150,071 229,632 46,271 57,357
150,071 229,632 46,271 57,357
Cash and cash equivalents have a maturity of less than three
months, are readily convertible to cash and are subject to an
insignificant risk of changes in value. The carrying amount of
these assets approximates their fair value.
Amounts owed by Group undertakings represent surplus cash
remitted to Yorkshire Electricity Group plc ("YEG"), a fellow
company in the Northern Powergrid Group, and invested to generate a
market rate of return for the Group. This is repayable on demand
from YEG.
18. CALLED UP SHARE CAPITAL
2012 2011
No. No.
Ordinary shares at 56 12/23p each
Allotted, called up and fully paid 127,689,809 127,689,809
2012 2011
GBP'000 GBP'000
Ordinary shares at 56 12/13p each
Allotted, called up and fully paid 72,173 72,173
The Company has one class of ordinary shares which carries no
right to fixed income.
Details of the cumulative non-equity preference shares are
contained in the borrowings note.
19. RESERVES
Group
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2012 539,460 158,748 6,185 704,393
Profit for the year 135,407 - - 135,407
Dividends (30,000) - - (30,000)
At 31 December 2012 644,867 158,748 6,185 809,800
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
19. RESERVES - continued
Group - continued
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 453,321 158,748 6,185 618,254
Profit for the year 116,139 - - 116,139
Dividends (30,000) - - (30,000)
At 31 December 2011 539,460 158,748 6,185 704,393
Company
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2012 130,861 158,748 6,185 295,794
Profit for the year 24,011 - - 24,011
Dividends (30,000) - - (30,000)
At 31 December 2012 124,872 158,748 6,185 289,805
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 131,229 158,748 6,185 296,162
Profit for the year 29,632 - - 29,632
Dividends (30,000) - - (30,000)
At 31 December 2011 130,861 158,748 6,185 295,794
20. TRADE AND OTHER PAYABLES
Group Company
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Payments on account 32,249 43,166 - -
Trade creditors 5,348 5,575 578 1,295
Amounts owed to related
parties 603 490 - -
Social security and other
taxes 7,232 11,048 4,913 5,126
Other creditors 14,818 13,090 1,071 663
Deferred revenue 18,933 15,755 - -
Accrued expenses 43,617 24,464 538 386
122,800 113,588 7,100 7,470
Non-current:
Deferred revenue 473,421 441,679 - -
473,421 441,679 - -
Aggregate amounts 596,221 555,267 7,100 7,470
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
20. TRADE AND OTHER PAYABLES - continued
The directors consider that the carrying amount of other
financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the balance sheet
date. Trade creditors and accruals principally comprise amounts
outstanding for trade purchases and on-going costs. Invoices are
paid at the end of the month following the date of the invoice. The
Group has financial risk management policies in place to ensure
that all payables are paid within the credit timeframe.
The following tables detail the remaining contractual maturities
for non-derivative financial liabilities. The tables have been
drawn up based on the discounted cash flows of financial
liabilities based on the earliest possible date on which the Group
can be required to pay. The tables include both interest and
principal cash flows.
Group
Less than 3 months
3 months to 1 year 1 to 5 5+ years Total
years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2012:
Non-interest bearing 71,618 - - - 71,618
Variable interest
rate liability - - - - -
Fixed interest
rate liability 5,031 22,463 109,975 862,295 999,764
76,649 22,463 109,975 862,295 1,071,382
2011:
Non-interest bearing 54,667 - - - 54,667
Variable interest
rate liability 22,022 - - - 22,022
Fixed interest
rate liability 5,031 22,463 109,975 889,789 1,027,258
81,720 22,463 109,975 889,789 1,103,947
Company
Less than 3 months
3 months to 1 year 1 to 5 5+ years Total
years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2012:
Non-interest bearing 7,100 - - - 7,100
Fixed interest
rate liability - 9,000 36,000 108,553 153,553
7,100 9,000 36,000 108,553 160,653
2011:
Non-interest bearing 7,470 - - - 7,470
Fixed interest
rate liability - 9,000 36,000 98,224 143,224
7,470 9,000 36,000 98,224 150,694
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
20. TRADE AND OTHER PAYABLES - continued
Categories of financial liabilities
2012 2011
Group: GBP'000 GBP'000
Loans and payables at amortised cost (502,280) (525,584)
Total financial liabilities (502,280) (525,584)
Payments received on account (32,249) (43,166)
Income tax liabilities (170,428) (185,027)
Other taxes and social security (7,232) (11,048)
Accruals (43,617) (24,464)
Deferred Revenue (492,354) (457,434)
Provisions (3,580) (3,594)
Total non-financial liabilities (749,460) (724,733)
Total liabilities (1,251,740) (1,250,317)
2012 2011
Company: GBP'000 GBP'000
Loans and payables at amortised cost (5,039) (5,348)
Total financial liabilities (5,039) (5,348)
Income tax liabilities (7,051) (7,680)
Other taxes and social security (4,913) (5,126)
Accruals (538) (386)
Provisions (1,743) (1,600)
Total non-financial liabilities (14,245) (14,792)
Total liabilities (19,284) (20,140)
Deferred Revenue
2012 2011
GBP'000 GBP'000
At 1 January (457,434) (430,935)
Additions (50,244) (39,781)
Amortisation 15,324 13,282
At 31 December (492,354) (457,434)
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the income statement over 15 - 45 years on a straight line
basis, in line with the useful economic life of the distribution
system assets.
The Company had no deferred revenue at 31 December 2012 (2011:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
21. FINANCIAL LIABILITIES - BORROWINGS
The Directors' consideration of liquidity, interest rate and
foreign currency risk are described in detail in the Report of the
Directors.
Group
Book Value Fair Value
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Loans 376,838 389,785 448,558 460,450
Cumulative preference
shares 3,368 3,368 153,553 143,224
Amounts owed to Group
undertakings 101,305 104,276 122,400 119,592
481,511 506,429 724,511 723,266
The borrowings are repayable
as follows:
On demand or within
one year 11,425 37,789 11,425 37,789
After five years 470,086 468,640 713,086 685,477
481,511 506,429 724,511 723,266
Analysis of borrowings:
Short-term treasury
loans 138 22,022 138 22,022
Short-term loans from
Group undertakings 1,289 4,276 1,289 4,276
2020 - 8.875% 100,697 100,598 141,327 140,817
2035 - 5.125% 152,679 152,856 170,085 161,544
2037 - 5.9% loan from
Group undertakings 100,016 100,000 121,111 115,316
Cumulative preference
shares 3,368 3,368 153,553 143,224
European Investment
Bank 2018 - 4.065%* 41,395 41,390 45,035 44,896
European Investment
Bank 2019 - 4.241%* 41,457 41,453 46,159 45,975
European Investment
Bank 2020 - 4.386%* 40,472 40,466 45,814 45,096
481,511 506,429 724,511 723,266
* The borrowings from the European Investment Bank were drawn
down in twelve tranches, repayable in 2018, 2019 and 2020. The
interest rates shown are average rates for those repayment dates.
The spread of interest rates is as follows:
2018: 3.901% - 4.283%
2019: 4.077% - 4.455%
2020: 4.227% - 4.586%
Company
GBP'000 GBP'000 GBP'000 GBP'000
The borrowings are repayable
as follows:
On demand or within one
year 2,273 2,273 2,273 2,273
After five years 1,117 1,117 151,302 140,973
3,390 3,390 153,575 143,246
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
21. FINANCIAL LIABILITIES - BORROWINGS - continued
Analysis of borrowings:
GBP'000 GBP'000 GBP'000 GBP'000
Short-term loans from
Group undertakings 22 22 22 22
Cumulative preference
shares 3,368 3,368 153,553 143,224
3,390 3,390 153,575 143,246
The fair value of quoted external borrowings is determined with
reference to quoted market prices. The directors' estimates of the
fair value of internal borrowings are determined in accordance with
generally accepted pricing models based on discounted cash flow
analysis using prices from observable current market transactions
or dealer quotes for similar instruments. The fair value of
short-term borrowings is equal to their book value. All loans are
non-secured and are denominated in sterling.
Interest on short-term loans from Group undertakings is charged
at a floating rate of interest at Base Rate minus 0.25%, thus
exposing the Group to cash flow interest rate risk. A 1% movement
in interest rates would not subject the Group to any material
change in interest costs. All other loans are at fixed interest
rates and expose the Group to fair value interest rate risk.
As at 31 December 2012 and 2011 111,662,378 of the Company's
non-equity cumulative preference shares of 1p each were allotted,
called up and fully paid.
The terms of the cumulative preference shares:
i) entitle holders, in priority to holders of all other classes
of shares, to a fixed cumulative preferential dividend of 8.061p
(net) per share per annum payable half-yearly in equal amounts on
31 March and 30 September;
ii) on a return of capital on a winding up, or otherwise, will
carry the right to repayment of capital together with a premium of
99p per share and a sum equal to any arrears or accruals of
dividend; this right is in priority to the rights of ordinary
shareholders;
iii) carry the right to attend a general meeting of the Company,
and vote if, at the date of the notice convening the meeting,
payment of the dividend to which they are entitled is six months or
more in arrears, or if a resolution is to be considered at the
meeting for winding-up the Company or abrogating, varying or
modifying any of the special rights attaching to them; and
iv) are redeemable in the event of the revocation by the
Secretary of State of the Company's Public Electricity Supply
Licence at the value given in (ii) above.
During the year ended 31 December 2001, under the terms of the
Company's transfer scheme, as approved by the Secretary of State in
accordance with the provisions of the Utilities Act 2000, the
Company's Public Electricity Supply Licence was converted into an
Electricity Distribution Licence and an Electricity Supply
Licence.
At 31 December 2012, the Group had available GBP82m (2011:
GBP60m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met.
No material market risks in relation to currency or interest
rates are faced by the Company. As at 31 December 2012, 100% (2011:
99%) of the Group's long-term borrowings were at fixed rates and
the average maturity for these borrowings was 16 years (2011: 17
years).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
22. PROVISIONS
Group Company
2012 2011 2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Other provisions 3,580 3,594 1,743 1,600
Analysed as follows:
Current 1,384 1,000 - -
Non-current 2,196 2,594 1,743 1,600
3,580 3,594 1,743 1,600
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2012 1,070 2,524 3,594
Utilised/paid in the year (1,040) (366) (1,406)
Charged to income statement 866 526 1,392
At 31 December 2012 896 2,684 3,580
Claims: Provision has been made to cover costs arising from
actual claims, which are not externally insured. Settlement is
expected substantially within 12 months.
Other: Primarily consists of a provision for future safe
disposal of transformers which contain oil contaminated with
Polychlorinated Biphenyls (PCBs) and for an amount to cover claims
made under section 74 of the New Road and Street Works Act 1991.
Costs are expected to be incurred over the next 20 years.
Also included in 'other' is a provision to cover the actuarial
assessment of the costs of unfunded pension arrangements in respect
of former employees. Further details can be found in the pension
note.
23. DEFERRED TAX
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover (obligations)/
relief assets Other Total
Group: GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2012 112,901 9,253 50,056 (90) 172,120
Charge to income statement (13,207) (708) 5,027 (22) (8,910)
At 31 December 2012 99,694 8,545 55,083 (112) 163,210
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover (obligations)/
relief assets Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 121,834 13,794 42,355 (50) 177,933
Charge to income statement (8,933) (4,541) 7,701 (40) (5,813)
At 31 December 2011 112,901 9,253 50,056 (90) 172,120
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
23. DEFERRED TAX - continued
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover (obligations)/
relief assets Total
Company: GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2012 (30) 8,104 (394) 7,680
Charge to income statement 8 (633) (4) (625)
At 31 December 2012 (22) 7,471 (398) 7,051
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover (obligations)/ Total
relief assets
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 (41) 12,559 (398) 12,120
Charge to income statement 11 (4,455) 4 (4,440)
At 31 December 2011 (30) 8,104 (394) 7,680
Other comprises provisions and employee expenses deductible for
tax on a paid basis and claims for hold over relief.
24. EMPLOYEE BENEFIT OBLIGATIONS
The Group has two retirement benefit schemes.
The Northern Powergrid Group of the ESPS is a defined benefit
scheme for directors and employees, which provides pension and
other related benefits based on final pensionable pay. The assets
of the Northern Powergrid Group of the ESPS, which was closed to
staff commencing employment on or after 23 July 1997, are held in a
separate trustee-administered fund. The Northern Powergrid Pension
Scheme was made available to new employees from that date.
The Northern Powergrid Group of the ESPS and the Northern
Powergrid Pension Scheme are operated by the Company on behalf of
the participating companies within the Northern Powergrid
Group.
The last triennial actuarial valuation of the Northern Powergrid
Group of the ESPS was carried out by the Group Trustees' actuarial
advisors, Aon Hewitt, as at 31 March 2010. The projected unit
method was used for the 2010 valuation. The principal actuarial
assumptions were that pre-retirement investment returns would
exceed salary increases by 1.8% per annum (inclusive of merit
awards) and post-retirement returns would exceed future pension
increases by 2.8% per annum.
The total market value of the assets of the Northern Powergrid
Group of the ESPS, at the date of the actuarial valuation, was
GBP983m.
For the Northern Powergrid Group of the ESPS, the actuarial
valuation showed that the value of the assets represented 78% of
the actuarial value of the accrued benefits. This represents a
shortfall of assets compared to the value of accrued benefits of
GBP276m. The accrued benefits include all benefits for pensioners
and other members, as well as benefits based on service completed
to date for active members, and allows for an estimate of future
salary increases.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
Agreement was reached during June 2011 with the Group Trustees
to repair this deficit over the 15 year period to 31 March 2025,
subject to the actuarial assumptions adopted for the triennial
valuation as at 31 March 2010 being borne out in practice. The
agreement includes cash payments of GBP29.9m per annum, made on a
monthly basis, for the first five years of the recovery plan
followed by an agreed profile of payments to be made over the
remaining ten years of the recovery plan.
At the Group's request the actuary has carried out a separate
formal review of the Group's future pension costs using the
assumptions set out below, which the actuary has confirmed
facilitate a reasonable best estimate of those costs. This review
has been based on the same membership and other data as at 31 March
2010. The board has accepted the advice of the actuary and formally
approved the use of these assumptions for the purpose of
calculating the Group's pension cost.
The contribution rates to the Northern Powergrid Group of the
ESPS, in addition to the deficit repair contributions mentioned
above, for 2011 were 41.9% for certain senior management and 23.5%
for other employees up to 30 June 2011 and 47.0% and 29.4%
respectively from 1 July 2011. These rates will remain in place
until a time as a new schedule of contributions is agreed between
the trustees of the Northern Powergrid Group of the ESPS and the
Company as part of the triennial valuation process.
The Northern Powergrid Pension Scheme is a money purchase scheme
and is accounted for as a defined contribution scheme.
Principal assumptions:
2012 2011
Valuation method Projected Projected
unit unit
Discount rate 4.40% 4.80%
Inflation rate 2.80% 2.80%
Increase to pensions 2.80% 2.80%
Increase to deferred benefits 2.80% 2.80%
Salary increase 2.80% 2.80%
The mortality assumptions are based on the recent actual
mortality experience of members within the Northern Powergrid Group
and the assumptions also allow for future mortality improvements.
The assumption is that a member currently aged 60 will live for a
further 30 years, if he is male, and for a further 30 years, if she
is female. Life expectancy at age 60 for non-pensioners (currently
aged 45) is assumed to be 30 years, if they are male, and 30 years,
if they are female.
For closed schemes, such as the Northern Powergrid Group of the
ESPS, under the projected unit method the current service cost will
increase as the members of the scheme approach retirement.
The amount recognised in the balance sheet in respect of the
Group's defined benefit scheme is as follows:
2012 2011
GBPm GBPm
Present value of funded defined benefit
obligations (1,259.3) (1,141.8)
Fair value of plan assets 1,222.8 1,128.2
(36.5) (13.6)
Unrecognised actuarial losses 281.0 215.4
Net surplus recognised on the balance
sheet 244.5 201.8
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
Amounts recognised in the income statement or in property, plant
and equipment in respect of the defined benefit plan are as
follows:
2012 2011
GBPm GBPm
Current service cost 12.2 11.0
Interest cost on obligations 53.9 57.5
Expected return on plan assets (67.1) (69.6)
Amortisation of actuarial loss 8.4 7.2
7.4 6.1
Charged to other Northern Powergrid Group
undertakings (18.7) (18.0)
(11.3) (11.9)
Allocated to income statement (7.3) (7.1)
Allocated to property, plant and equipment (4.0) (4.4)
The pension costs incurred are allocated between active members
and pensioner/deferred members. Of the total amount allocated to
the active members, 65% is capitalised in line with the work
carried out by those members (2011: 65%). All of the amounts
allocated to pensioner/deferred members are expensed.
The amount that relates to the active members is calculated as
the total current service cost plus a proportion of the other
elements, which is based on the allocation of liabilities to the
active members and is proportionate to the total liabilities of the
Northern Powergrid Group of the ESPS. That allocation is currently
assumed to be 33.6% and is as agreed for the deficit repair
payments (2011: 33.6%).
The amounts recovered from Group undertakings are credited to
the income statement.
The actual return on plan assets was GBP93.4m (2011:
GBP86.3m)
Changes in present value of the defined benefit obligation are
as follows:
2012 2011
GBPm GBPm
Opening defined benefit obligation 1,141.8 1,061.1
Current service costs 12.2 11.0
Interest cost 53.9 57.5
Contributions from employees 1.8 2.4
Actuarial losses 100.3 63.0
Benefits paid (50.7) (53.2)
Closing defined benefit obligation 1,259.3 1,141.8
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
2012 2011
GBPm GBPm
Changes in the fair value of the plan assets are as follows:
Opening fair value of plan assets 1,128.2 1,043.7
Expected returns 67.1 69.6
Actuarial gains 26.3 16.7
Contributions by employer 50.1 49.0
Contributions from employees 1.8 2.4
Benefit paid (50.7) (53.2)
Closing fair value of plan assets 1,222.8 1,128.2
The fair value of the plan assets at the balance sheet date is
analysed below:
Long term rates of
return expected at Value
2012 2011 2012 2011
% % GBPm GBPm
Equities 8.00 8.50 303.9 303.6
Gilts 3.50 3.70 750.3 714.6
Cash 3.00 3.00 5.8 9.8
Reinsurance 7.00 n/a 59.4 -
Property 7.00 7.50 103.4 100.2
Total fair value of scheme assets 1,222.8 1,128.2
The Northern Powergrid Group employs a building block approach
in determining the long-term rate of return on pension plan assets.
Historical markets are studied and assets with higher volatility
are assumed to generate higher returns consistent with widely
accepted capital market principles. The assumed long-term rates of
return on each asset class are set out within these disclosures.
The overall expected rate of return on assets is then derived by
aggregating the expected return for each asset class over the
actual asset allocation for the Northern Powergrid Group of the
ESPS. The history of the plan for the current and prior years is as
follows:
2012 2011 2010 2009 2008
Present value
of defined benefit (1,259.3) (1,141.8) (1,061.1) (1,021.9) (855.3)
obligation
Fair value of
plan assets 1,222.8 1,128.2 1,043.7 938.4 801.4
(Deficit)/surplus (36.5) (13.6) (17.4) (83.5) (53.9)
Experienced (losses)/gains
on plan liabilities:
Amount (GBPm) (100.0) (63.0) (12.5) (145.7) 87.3
percentage of
scheme liabilities
(%) (7.9) (5.5) (11.8) (14.3) 10.2
Experience of
gains/(losses)
on plan assets:
Amount (GBPm) 26.3 16.7 41.6 78.6 (231.4)
Percentage of
scheme assets
(%) 2.1 1.5 3.9 8.4 (28.9)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
A provision to cover the actuarial assessment of the costs of
unfunded pension arrangements in respect of former employees has
been made by the Group and Company as follows:
GBPm
At 1 January 2012 1.6
Utilised/paid in the year -
Transferred from income statement 0.1
At 31 December 2012 1.7
25. RELATED PARTY DISCLOSURES
Group
Details of transactions between the Group and other related
parties are disclosed below.
Loans
The Group has made loans repayable on demand to companies in the
Northern Powergrid Group. The total interest included in investment
income in the income statement for the year ended 31 December 2012
was GBP1,578,000 (2011: GBP1,536,000). Included within cash and
cash equivalents is GBP150,071,000 as at 31 December 2012 (2011:
GBP229,632,000) in respect of these loans.
The Group has received loans from other companies in the
Northern Powergrid Group. The total interest included in finance
costs in the income statement for the year ended 31 December 2012
was GBP5,286,000 (2011: GBP6,386,000). Included within borrowings
is GBP101,305,000 as at 31 December 2012 (2011:
GBP104,276,000).
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
Trading transactions
The Group entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
trading balances outstanding at the year-end were as follows:
Amounts
Sales Purchases owed
to related from related to related
parties parties parties
Related Party GBP'000 GBP'000 GBP'000
2012:
CE Insurance Services Limited - 476 -
Integrated Utility Services Limited
(registered in Eire) - 1,155 247
CE UK Gas Holdings Limited 37 - -
Northern Powergrid (Yorkshire) plc 16,880 6,121 -
Vehicle Lease and Service Limited - 3,890 356
2011:
CE Insurance Service Limited - 471 -
Integrated Utility Services Limited
(registered in Eire) - 907 78
CE UK Gas Holdings Limited 156 - -
Northern Powergrid (Yorkshire) plc 18,532 8,775 -
Vehicle Lease and Service Limited - 3,620 412
Sales and purchases from related parties were made at commercial
prices.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
25. RELATED PARTY DISCLOSURES - continued
During 2012, 3 directors (2011: 3) and 8 key personnel (2011: 8)
utilised the services provided by NTFL. The amounts included in
finance lease receivables owed by these directors and key personnel
total GBP112,000 (2011: GBP146,000) in respect of non-current and
GBP35,000 (2011: GBP32,000) in respect of current receivables.
Company
Details of transactions between the Company and other related
parties are disclosed below.
Loans
The Company has made loans repayable on demand to companies in
the Northern Powergrid Group. The total interest included in
investment income in the income statement for the year ended 31
December 2012 was GBP951,000 (2011: GBP1,010,000). Included within
cash and cash equivalents is GBP46,271,000 as at 31 December 2012
(2011: GBP57,357,000) in respect of these loans.
The Company has received loans from companies in the Northern
Powergrid Group. The total interest included in finance costs in
the income statement for the year ended 31 December 2012 was
GBP604,000 (2011: GBP617,000). Included within borrowings is
GBP22,000 as at 31 December 2012 (2011: GBP22,000) in respect of
these loans.
Interest on loans to/from Group companies is charged at a
commercial rate of interest.
Trading transactions
The Company entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
trading balances outstanding at the year-end were as follows:
Dividends
Sales Purchases received
to related from related from related
parties parties parties
GBP'000
Related Party GBP'000 GBP'000
2012:
CE UK Gas Holdings Limited 37 - -
Integrated Utility Services Limited 423 - -
Northern Powergrid (Northeast)
Limited 4,768 162 30,000
Northern Powergrid (Yorkshire)
plc 4,254 - -
Vehicle Lease and Service Limited - - 334
2011:
CE UK Gas Holdings Limited 157 - -
Integrated Utility Services Limited 544 - -
Northern Powergrid (Northeast)
Limited 3,742 162 30,000
Northern Powergrid (Yorkshire)
plc 3,193 - -
Vehicle Lease and Service Limited - - 392
Sales and purchases from related parties were made at commercial
prices.
There are no amounts outstanding to other members of the
Northern Powergrid Group.
An interim ordinary dividend of GBP30 million was paid during
the year (2011: GBP30 million).
The Company has received GBP4,568,000 (2011: GBP828,000) of
group relief from other companies in the Northern Powergrid Group.
Payment at the UK statutory rate of 24% (2011: 26%) will be made
for the use of these tax losses.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2012
26. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Electric plc is
Northern Powergrid Limited. The ultimate controlling party and
ultimate parent undertaking of Northern Powergrid Limited is
Berkshire Hathaway, Inc., a company incorporated in the United
States of America.
Copies of the group accounts of Berkshire Hathaway, Inc. (the
parent undertaking of the largest group preparing group accounts)
which include Northern Electric plc and the group accounts of
Northern Powergrid Holdings Company, the largest parent undertaking
to prepare group accounts in the UK, can both be obtained from the
Company Secretary, Northern Powergrid Holdings Company, Lloyds
Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF.
27. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM
OPERATIONS
Group
2012 2011
GBP'000 GBP'000
Profit before income tax 151,278 135,887
Depreciation charges 54,284 51,668
Profit on disposal of fixed assets (285) (358)
Amortisation of deferred revenue (15,324) (13,282)
Retirement benefit obligations (35,471) (39,211)
Movement in provisions (14) (1,260)
Finance costs 36,882 37,617
Finance income (1,912) (1,928)
189,438 169,133
Increase in inventories (1,971) (3,042)
Increase in trade and other receivables (10,671) 87
(Decrease)/increase in trade and other payables (4,914)
16,854
Cash generated from operations 171,882 183,032
Company
2012 2011
GBP'000 GBP'000
Profit before income tax 22,189 24,086
Depreciation charges 38 29
Finance costs 9,605 9,618
Finance income (31,302) (31,563)
530 2,170
Decrease/(increase) in trade and other receivables 234 (119)
(Decrease)/increase in trade and other payables (244) 1,182
Cash generated from operations 520 3,233
28. OTHER RESERVES
At the Company's Annual General Meeting in August 1994, the
shareholders gave approval to on-market purchases of up to 10% of
its shares and this was given effect on 21 September 1994 when
12,370,400 shares were purchased. This transaction resulted in the
creation of a capital redemption reserve of GBP6.2m. Under section
831(4) of the Companies Act 2006 this reserve is treated as an
undistributable reserve.
NORTHERN ELECTRIC plc
REGISTERED NUMBER 2366942
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
Northern Electric plc will be held at Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF on 19 June 2013 at 10.00 am for the
following purposes:
Resolutions 1 to 7 and 9 will be proposed as ordinary
resolutions. Resolution 8 will be proposed as a special
resolution.
Resolution 1
To receive and consider the directors' and auditor's reports and
the Group accounts for the year ended 31 December 2012.
Resolution 2
To declare that no final dividend be paid for the year ended 31
December 2012.
Resolution 3
To re-elect Mr J A Andreasen as a director.
Resolution 4
To re-elect Mr R Dixon as a director.
Resolution 5
To re-elect Mr P J Goodman as a director.
Resolution 6
To re-elect Dr P A Jones as a director.
Resolution 7
(a) That the directors be and are hereby generally and
unconditionally authorised in accordance with section 551 of the
Companies Act 2006 (the "Act") to exercise all the powers of the
Company to allot shares in the Company, and to grant rights to
subscribe for, or to convert any security into, shares in the
Company:
(i) up to an aggregate nominal value of GBP27,827,000;
(ii) this authority shall expire on 19 June 2018 or, if earlier,
on the conclusion of the Company's annual general meeting in 2018,
unless previously revoked or varied by the Company;
(iii) the Company may before such expiry make an offer or
agreement which would or might require shares to be allotted or
rights to subscribe for, or convert securities into, shares to be
granted after the expiry of this authority and the directors may
allot shares or grant rights to subscribe for, or convert
securities into, shares under any such offer or agreement as if the
authority conferred hereby had not expired;
(b) That, subject to paragraph (c), all existing authorities
given to the directors pursuant to section 80 of the Companies Act
1985 or section 551 of the Act be revoked by this resolution;
and
(c) That paragraph (b) shall be without prejudice to the
continuing authority of the directors to allot shares, or grant
rights to subscribe for or convert any security into shares,
pursuant to an offer or agreement made by the Company before the
expiry of the authority pursuant to which such offer or agreement
was made.
NORTHERN ELECTRIC plc
REGISTERED NUMBER 2366942
NOTICE OF ANNUAL GENERAL MEETING
Resolution 8
That, subject to the passing of and pursuant to the general
authority conferred by resolution 7 in the notice convening this
meeting and in place of all existing powers, the directors are
generally empowered pursuant to section 570 of the Act to allot
equity securities (as defined in section 560 of the Act) for cash,
pursuant to the authority so conferred as if section 561 of the Act
did not apply to any such allotment. This power shall expire
(unless previously renewed, varied or revoked by the Company in
general meeting) on 19 June 2018 or, if earlier, on the conclusion
of the Company's annual general meeting in 2018, but the Company
may make an offer or agreement which would or might require equity
securities to be allotted after expiry of this power and the
directors may allot equity securities in pursuance of that offer or
agreement as if this power had not expired.
Resolution 9
To re-appoint Deloitte LLP as auditor and to authorise the
directors to determine their remuneration.
By order of the board Registered office:
John Elliott Lloyds Court, 78 Grey Street,
Secretary Newcastle upon Tyne, NE1 6AF
22 March 2013 Registered in England No 2366942
Note:
1. All the issued ordinary shares in the Company are held by or
on behalf of Northern Powergrid Limited.
2. Holders of preference shares have the right to receive notice
of, attend and speak at the Annual General Meeting but are only
entitled to vote if, at the date of the notice of the meeting,
payment of the dividend to which they are entitled is six months or
more in arrears or if a resolution is to be considered at the
meeting for the winding up of the Company or abrogating, varying or
modifying any of the special rights attaching to the preference
shares. As none of these circumstances apply to this Annual General
Meeting, preference shareholders should note that they do not have
the right to vote on any of the business to be considered.
3. Members are entitled to appoint a proxy to exercise all or
any of their rights on their behalf at the meeting. A shareholder
may appoint more than one proxy in relation to the Annual General
Meeting provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by the
shareholder. A proxy need not be a shareholder of the Company.
4. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a "Nominated Person") may, under an agreement
between him/her and the shareholder by whom he/she was nominated,
have a right to be appointed (or to have someone else appointed) as
a proxy for the Annual General Meeting. If a nominated person does
not have such a right or does not wish to exercise it, he/she may
have a right under such an agreement to give instructions to the
member as to the exercise of voting rights.
5. Any corporation which is a member can appoint one or more
corporate representatives who may exercise exercise on its behalf
all of its powers as a member provided that they do not do so in
relation to the same shares.
6. The current price of the Company's preference shares can be
obtained from the web site of the London Stock Exchange at
www.londonstockexchange.com.
Explanatory Notes
Resolution 7
The Companies Act 2006 provides that directors may only allot
shares if authorised to do so by the Company's articles of
association or by the shareholders in general meeting. This
resolution replaces the resolution passed by the shareholders on 9
July 2008.
Special Resolution 8
This special resolution empowers the directors for the duration
of the authority conferred by Resolution 7 to allot equity shares
for cash without regard to the pre-emption provisions to which the
ordinary shareholders would otherwise be entitled under section 561
of the Companies Act 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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