TIDMNTEA
RNS Number : 7540F
Northern Electric PLC
29 April 2014
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 2013.
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 2013 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/downloads/financialinfo/reportsaccounts.cfm
Enquiries:
John Elliott 0191 223 5103
STRATEGIC REPORT, REPORT OF THE DIRECTORS AND
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2013
FOR
NORTHERN ELECTRIC PLC
REGISTERED NUMBER: 02366942
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONTENTS OF THE REPORTS AND CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
Page
Company Information 1
Strategic Report 2
Report of the Directors 19
Responsibility Statement of the Directors 29
Directors' Biographies 30
Report of the Independent Auditor 32
Consolidated Statement of Profit or
Loss 33
Consolidated Statement of Profit or
Loss and Other Comprehensive Income 34
Consolidated Statement of Financial
Position 35
Company Statement of Financial Position 37
Consolidated Statement of Changes
in Equity 38
Company Statement of Changes in Equity 39
Consolidated Statement of Cash Flows 40
Company Statement of Cash Flows 41
Notes to the Consolidated Financial
Statements 42
Notice of Annual General Meeting 87
NORTHERN ELECTRIC PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2013
DIRECTORS: G E Abel
J A Andreasen
R Dixon
T E Fielden
J M France
P J Goodman
P A Jones
COMPANY SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 02366942 (England and Wales)
AUDITOR: Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
The directors present the annual reports and accounts of
Northern Electric plc (the "Company") and its subsidiary companies
(together the "Group") for the year ended 31 December 2013, which
includes the Strategic Report, the Report of the Directors and the
audited financial statements for that year. Pages 2 to 18 inclusive
of this annual report comprise the Strategic Report and pages 19 to
28 comprise the Report of the Directors, which have 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 Group 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
BUSINESS MODEL
The Company is part of the Northern Powergrid Holdings Company
group of companies (the "Northern Powergrid Group") and acts as a
holding company of Northern Powergrid (Northeast) Limited
("Northern Powergrid") and Integrated Utility Services Limited
("IUS"). Northern Powergrid is a distribution network operator
("DNO"), which distributes electricity to approximately 1.6 million
customers connected to its electricity distribution network at
voltages of up to 132kV, and IUS provides engineering contracting
services.
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 Profitability, cash flow
of the Group's financial and maintenance of investment
resources, investing in grade credit ratings.
assets and focusing on
long-term opportunities,
which contribute to the
Group's future strength.
Customer service Delivering reliability, Improving network resilience
dependability, fair prices and performance, measured
and exceptional service. by: customer minutes
lost, customer interruptions
and customer satisfaction.
Operational excellence Setting high standards Effective asset management,
for the Group's operations, managing commercial risk
system investment and and improving network
maintenance. resilience and performance.
Employee commitment Equipping employees with Leading safety performance,
the resources and support engaging employees and
they need to operate successfully effective leadership.
and in a safe and rewarding
work environment.
Environmental respect Using natural resources Reducing environmental
wisely and protecting impact and promoting
the environment, where and pursuing long-term
it is impacted by the sustainability.
Group's operations.
Regulatory integrity Adhering to a policy of Strong internal controls,
strict compliance with regulatory engagement
applicable laws, regulations, and industry influence.
standards and policies.
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)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
REVIEW OF THE YEAR
The Group delivered a satisfactory financial performance for the
year, which benefited from a further change to the rate of taxation
and continued effective cost control. However, that performance
fell slightly short of plan due to a rebate of GBP15.5 million,
which Northern Powergrid made to the electricity suppliers as part
of the Government-led initiative to assist domestic customers with
their energy bills and will be recovered by Northern Powergrid in
future years.
Ofgem finalised its price control policies early in 2013 in
respect of the next regulatory period, which will run from 1 April
2015 to 31 March 2023 and is known as ED1. One of the main
priorities for Northern Powergrid in 2013, therefore, was the
preparation of its well-justified business plan, which was
submitted for Ofgem's consideration on 28 June 2013. Ofgem
announced on 22 November 2013 that it had decided that Northern
Powergrid's plan was not to proceed on the "fast track" and, while
recognising that Northern Powergrid had submitted a strong plan,
had certain reservations about the future cost efficiency and asset
replacement elements. Although that decision was disappointing,
most if not all of the commitments made in Northern Powergrid's
plan will stand and, in order to deliver on those commitments, work
has already begun to change the way Northern Powergrid operates.
Following Ofgem's decision, Northern Powergrid revisited its plan
and provided Ofgem with a revised version including further
justification of the associated costs on 17 March 2014.
Having delivered its largest ever capital expenditure programme
to date in 2012, Northern Powergrid continued with its policy to
invest efficiently in its electricity distribution network. During
the year, Northern Powergrid invested GBP200.8 million in its
distribution network such that it improved on its performance in
2012 and remains well-placed in respect of the outputs it intends
to deliver by the end of the current Distribution Price Control
period to 31 March 2015 ("DPCR5").
Northern Powergrid continued to design and deliver initiatives
to improve the quality of service provided to its customers and,
while recognising that improvements still have to be made in order
to meet its targets, Northern Powergrid maintained the upward trend
in its customer service performance.
Northern Powergrid introduced an online application process in
April 2013, which allows customers to apply for certain types of
new connection quickly, easily and conveniently. Work also began on
developing an online self-quotation service for high volume
connections customers which, when launched, will deliver a
significant reduction in the overall time to serve those customers.
When taken with other services such as 'ask our expert', an
indicative pricing tool and a small scale embedded generation
single connection notification process, Northern Powergrid was the
first DNO to offer customers such a wide variety of connection
services online. Northern Powergrid again beat Ofgem's targets for
the quality of the electricity supply provided to its customers and
continued to focus on reducing the average times taken to restore
supplies following a power cut.
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 the performance delivered in 2013 maintains the strong basis
for a successful conclusion to DPCR5 developed over the preceding
three years.
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 2012. Less oil was lost to the ground
during the year than in 2012 despite the on-going issue of
interference with Northern Powergrid's assets by third parties
intent on metal theft. Given the impact on the environment of such
events, Northern Powergrid included a commitment to reducing losses
from fluid-filled cables in its well-justified business plan by
replacing a significant number of those assets on a phased and
prioritised basis over ED1 and increasing the use of
perfluorocarbon tracers to improve the efficiency of oil leak
identification.
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.
Preventable vehicle accident performance achieved target and showed
a slight improvement on that recorded in 2012. The same number of
lost time accidents occurred in 2013 as in the previous year but
one of those lost time accidents was an electrical contact
incident, which had the potential to be more serious than the
ultimate outcome. In addition, an employee of a contractor to
Northern Powergrid tragically died while working on the network.
That incident was subject to an investigation by the Health and
Safety Executive, which concluded with the Health and Safety
Executive not taking any further action against Northern
Powergrid.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
REVIEW OF THE YEAR - continued
Activity levels in the UK Contracting area of IUS' business in
the North of England increased in comparison to 2012 and IUS
successfully secured contracts in its Rail activities that
significantly increased its revenue in 2013. IUS also saw an
increase in the number of orders across all areas of its business
with the improved forward order book in place at the end of 2013
for delivery in 2014 creating a solid foundation for achieving
anticipated future growth.
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.
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 GBP350.9 million was GBP19.3 million
higher than the prior year mainly due to additional allowances
arising from the settlement in respect of DPCR5 and increased
contracting revenues, partly offset by the rebate to the
electricity suppliers noted on page 4.
Operating profit and position at the year end
The Group's operating profit at GBP180.8 million was GBP0.5
million lower than the previous year, with higher costs such as
grid connection charges, depreciation and amortisation being
partially offset by the increased distribution revenues and
contracting gross margin. The consolidated statement of financial
position on pages 35 and 36 shows that, as at 31 December 2013, the
Group had total equity of GBP756.0 million. The directors consider
the Group to have a strong statement of financial position which,
when coupled with the preference of its parent company, MidAmerican
Energy Holdings Company ("MidAmerican"), for leaving equity in the
business, creates a stable base for continued strong performance
into ED1 by Northern Powergrid.
Finance costs and investments
Finance costs net of investment income at GBP33.9 million were
GBP1.0 million lower than 2012 reflecting changes in the profile of
borrowings during the year.
Taxation
The effective tax rate in the current year is 10% (2012: 10%).
The effective tax rate before adjusting for the impact of the
changes in tax rates introduced by the Finance Act 2013 and amounts
allocated to other comprehensive income would be 23%. Details are
provided in Note 7 to the accounts.
Results and dividends
The Group made a profit after tax for the year of GBP132.4
million (2012: GBP131.3 million). An interim dividend of GBP30.0
million was paid during the year (2012: GBP30.0 million) and the
directors recommend that no final dividend be paid in respect of
the year. Other comprehensive income for the year, net of income
tax, was a loss of GBP13.0 million (2012: loss of GBP49.7
million).
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Financial strength - continued
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 Group.
Movements in cash flows were as follows:
Operating activities: Cash flow from operating activities at
GBP130.9 million was GBP24.5 million higher than the previous year,
mainly due to favourable working capital movements.
Investing activities: Net cash used in investing activities at
GBP174.6 million was GBP43.6 million higher than the previous year,
reflecting higher net capital expenditure.
Financing activities: The net cash used in financing activities
at GBP0.5 million represents a GBP54.5 million favourable variance
compared to the previous year, reflecting net movements in
borrowings in the year.
Liquidity risk
Northern Powergrid has access to GBP75 million under a five year
committed revolving credit facility provided by Lloyds Bank plc,
The Royal Bank of Scotland plc and Abbey National Treasury Services
plc, which 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 to a GBP22 million
overdraft facility provided by Lloyds Bank plc, which is reviewed
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 2013, 100% of the Group's long-term
borrowings were at fixed rates and the average maturity for these
borrowings was 15 years.
Currency risk
No material currency risks are faced by the Group.
Pensions
The Company is the principal employer of 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 25 to the accounts.
The Group 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
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 Powergrid 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.
Consequently, as part of the process of drafting its well-justified
business plan for submission to Ofgem for consideration in respect
of ED1, Northern Powergrid consulted with a wide range of
stakeholders regarding its services. That consultation included
formal presentations to large groups, web-based communications and
some high quality input from three expert panels, which looked at
social issues, low carbon networks and customer service.
Taking account of the views of its stakeholders that were
received as part of the consultation process, Northern Powergrid
took forward its programme to modernise and redesign the
customer-facing elements of its business in support of the goal of
improving customer satisfaction with the service provided. The
various initiatives in that programme included:
- The transformation of the connections business so that it is
led by and tailored to meet the requirements of customers in
different market segments;
- Extending the means by which Northern Powergrid undertakes its
stakeholder engagement, which will involve building on the
experience gained from the process of drafting the well-justified
business plan and by increasing joint initiatives with other
utility companies;
- Encouraging uptake of Northern Powergrid's online community to
facilitate discussion among stakeholders regarding Northern
Powergrid's services and use of the dedicated web area where
stakeholders can provide feedback to influence Northern Powergrid's
policies and priorities and be in continuing contact with Northern
Powergrid;
- Further developing customer relationship management
information technology, 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;
- Developing and implementing self-service quotation facilities
for customers seeking low voltage connections in order to extend
Northern Powergrid's online transactional capabilities;
- Improving the reliability of under-performing parts of the
distribution network by continuing to identify "hot spots" of
particularly poor network performance and taking specific action to
address the issues in those areas;
- Refreshing and promoting the priority services register so
enabling Northern Powergrid to be aware of vulnerable customers 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;
- Operating customer service vehicles wherever they can assist
with the welfare of Northern Powergrid's customers and provide
support during power cuts; and
- Continuing a substantial training programme to provide
employees from across the Northern Powergrid Group with enhanced
customer service awareness training and the tools and skills needed
to handle power cut calls during periods of peak call demand.
The performance of the 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Customer service - continued
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 both planned and unplanned power cuts that last for
three minutes or longer. CI measures the average number of supply
interruptions for every 100 connected customers due to planned and
unplanned power cuts 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 2013 (the "Regulatory Year")
was as follows:
Year to 31 March 2013 Year to 31 March 2012
Actual Target Actual Target
CML 70.2 70.9 68.5 71.1
CI 64.9 68.2 67.9 68.2
Performance in the Regulatory Year was better than Ofgem's
target for both CML and CI, showed improvement in the CI category
in comparison with the prior year and contributed to the Northern
Powergrid's improved customer service performance in the year.
The Regulatory Year was the third year in which the Ofgem
discretionary reward for stakeholder engagement had been in
operation and the first year that a financial incentive had been
available. Building on the good performance in its stakeholder
engagement over the Regulatory Year, Northern Powergrid put forward
a submission for consideration by Ofgem's panel, which achieved a
score of 78.5%. As a result, Northern Powergrid, together with its
affiliate Northern Powergrid (Yorkshire) plc, was ranked as the
third placed DNO group and secured a reward, which could total up
to GBP0.9 million for the Northern Powergrid Group.
Under the Broad Measure of Customer Service, an independent
market research company, Accent, carries out telephone surveys with
Northern Powergrid's customers to find out how satisfied they are
with the services provided. During the Regulatory Year, Accent
surveyed a number of customers who had contacted Northern Powergrid
regarding an unplanned or a planned power cut, had requested a
price quotation and a subsequent connection or had a general
enquiry where a service had been provided or a job completed.
Northern Powergrid recorded an overall satisfaction score of 77.9%
for the Regulatory Year and expects that its customer service
improvement plan, including the range of initiatives noted on page
7, will improve the services provided to customers and so increase
the satisfaction rating year-on-year.
Connections to the network
During the year, Northern Powergrid continued to improve the
connections services provided to its customers, while also actively
facilitating the development of competition from independent
connections providers ("ICPs"), so providing increased choice to
customers in the region. Northern Powergrid continued to engage
regularly with its connections customers in groups and
individually, holding monthly customer surgeries, twice yearly
customer events and contributing to national stakeholder forums and
events. Taking account of feedback from such events, Northern
Powergrid introduced an online application process in April 2013,
which allows customers to apply for certain types of new connection
quickly, easily and conveniently. Work also began on developing an
online self-quotation service for high volume connections customers
which, when launched, will deliver a significant reduction in the
time to serve those customers. Other online services include 'ask
our expert', an indicative pricing tool and a small scale embedded
generation single connection notification process. Northern
Powergrid was the first DNO to offer customers such a wide variety
of connection services online.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Customer service - continued
Connections to the network - continued
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 and, in line with
Ofgem's deadline for submission, Northern Powergrid put forward a
case to prove that competition exists in eight market segments.
This is in addition to the high voltage segment, in respect of
which Northern Powergrid passed Ofgem's test in October 2012. It is
expected that Ofgem will make a determination in respect of
Northern Powergrid's submission by the end of April 2014.
Although there was a substantial reduction in volumes of housing
and new development works due to the recession, connection requests
for low carbon generation have remained very buoyant with the area
covered by the Northern Powergrid Group being one of the busiest
for such developments in the UK. Interest in the development of
solar farms has begun to increase more recently and, as the new
housing market starts to recover, Northern Powergrid is seeing an
increase in the number of requests for connections of new housing
to the network.
Northern Powergrid continues to seek feedback from its customers
on a regular basis in order to assist with developing further
improvements to its services and, in that respect, its connections
customers have been instrumental in shaping Northern Powergrid's
strategy regarding the structure required of its connections
business in preparation for ED1. The services provided in future
will be tailored to the requirements of customers in the different
market segments so that Northern Powergrid provides a faster and
more flexible service.
Corporate responsibility
Northern Powergrid 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 its customers,
their time and property, to do a really good job, to be there when
needed and to care for the local environment.
Northern Powergrid maintained its 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. Northern Powergrid responded well to a number of
major weather-related incidents during the year, which impacted on
its assets, including the highest tidal surges on the Northeast
coast for a number of years in early December.
As well as redeploying staff from planned works to help restore
power as quickly as possible when major incidents occur, Northern
Powergrid has a number of customer service vehicles, which are
dispatched to the 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 utilised its 'customer
ambassadors' to address customers' concerns and resolve their
complaints and worked with the Red Cross in order to pay particular
attention to the welfare of 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. Having
begun work to improve the quality of the information held on the
priority services register, Northern Powergrid is promoting the
benefits of being on that register more widely and has revised the
criteria for registration so that customers with short-term health
or welfare issues are now able to benefit.
The Group has in place a small donation programme, which is
focused on its 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.
Safety remains the Group's first priority and underpins every
aspect of its operations. During the year, Northern Powergrid
continued to participate, 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. Northern Powergrid's school safety programme included
Crucial Crew events, school visits, participation in safety days
and the "prison me - no way" campaign and is delivered by two
dedicated safety presenters who promote the safety messages through
an interactive presentation. The programme is also supported
through an interactive website and mobile phone game.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Operational excellence
The Group's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP200.8 million was
invested in the improvement of the distribution network, an 9.0%
increase on the GBP184.2 million recorded in 2012. Northern
Powergrid's continued and substantial investment in its
distribution network has seen reliability increase throughout
DPCR5. During that period, an electricity supply has been available
to Northern Powergrid's customers for approximately 99.98% of the
time and Northern Powergrid has generally outperformed the targets
set by Ofgem in respect of CI and CML. Northern Powergrid's
inspection and maintenance regimes have ensured that the underlying
health of the network assets has been sustained and none of the
leading indicators used by Northern Powergrid suggest any
diminishing performance in this respect in the future.
Operational activity
Northern Powergrid continues to implement an investment
strategy, which is designed to deliver improvements in an efficient
and cost-effective manner in order to improve the network's
resilience. In its well-justified business plan, Northern Powergrid
committed to enhancing the reliability of the network such that
fewer power cuts affect customers and, when power cuts do happen,
they are shorter in duration.
Northern Powergrid's Field Operations structure is currently
based on six individual business units. Those business units are
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. As a new guaranteed
standard for the restoration of supply within 12 hours of a power
cut occurring will apply from 1 April 2015, Northern Powergrid
began a review of its operational structure in order to provide a
more localised focus and, therefore, improved response times in the
event of a power cut. If Northern Powergrid fails to meet that 12
hour standard, it will make an automatic payment to customers,
whenever it is aware of such a failure, rather than customers
having to make a claim.
Northern Powergrid's priorities during the year included
delivering a similar, significant level of capital expenditure on
the network as in 2012, a further reduction in the average level of
fault repair work in progress, a robust approach to the control of
operations on the low voltage network and continued focus on the
restoration times associated with both high and low voltage power
cuts with high voltage restoration performance averaging some 64
minutes during the year, after allowing for the impact of severe
weather incidents.
The major projects undertaken in support of those targets and as
part of the investment strategy included:
- Completion of works to replace a 66kV transformer at Linton,
the 66kV circuit breakers at Cramlington and Grangetown, the 11kV
switchgear at Hartmoor substation and the 33kV transformers at
Mount Road substation in Sunderland. In addition, major
refurbishment works were completed on the transformers at
Darlington West and Tynemouth Central substations;
- Continuation of works to reinforce the 33kV network in the
Harrogate area, to replace the 66kV circuit breakers at Coalburns
substation in Gateshead, to replace the 66kV transformer at
Maddison Street, to replace the 66/11kV transformers and 20kV
switchgear at Sunderland substation and to replace the 11kV
switchgear at Northallerton and Catterick Camp substations;
- Commencement of works to replace the 132kV transformers, the
66kV transformers, the 20kV and the 11kV switchgear at Potterhouse
substation in Durham in order to reinforce the network in the
Durham area;
- Commencement of major works to install new 33kV transformers
and a new 33kV cable circuit to Foss Island substation to reinforce
the network in the York area;
- Commencement of works to replace the 132kV transformers in
substations at Harraton and Barrack Road in Newcastle city centre
and to replace the 66kV assets in substations at Bowesfield, North
Tees, Fossway in York and Spencerbeck in Middlesbrough;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Operational excellence - continued
Operational activity - continued
- The completion of refurbishment or rebuilding works on 22km of
33kV and 66kV overhead line, 120km of 132kV overhead line and the
refurbishment or rebuilding of 401km of high voltage overhead line
and 120km of low voltage overhead line;
- Completion of a number of projects across Northern Powergrid's
distribution services area that replaced 12km of 33kV fluid-filled
cables and 3km of 132kV fluid filled cable;
- Replacement of 52 units of high voltage outdoor switchgear, 56
high voltage distribution substations and 247 units of high voltage
indoor switchgear;
- The upgrade and reinforcement of 28 sites to address the
quality of supply performance issues relating to those circuits;
and
- The installation and commissioning of 447 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.
The Group's safety record over a number of years suggests that
it is one of the safest in the electricity distribution and
engineering contracting sectors and it will strive to maintain that
position over the coming years. Having identified issues that may
pose an increased safety risk such as metal theft and the impending
roll-out of smart meters, Northern Powergrid intends to implement
various measures through its safety and health improvement plan
that will build incrementally on the existing strong safety record
and ensure that safety considerations are always a part of the
investment decision-making and appraisal process.
The Group uses several key performance indicators to monitor
safety performance, with the goal of achieving performance that is
below the target number. The main key performance indicators are as
follows:
2013 2012
Target Actual Target Actual
Lost time accidents 1 3 2 3
Restricted duty accidents 1 0 1 1
Medical treatment accidents 2 0 3 3
Operational incidents 4 9 4 6
Preventable vehicle
accidents 13 13 13 15
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Employee commitment - continued
Health and safety - continued
In common with the MidAmerican group, the Northern Powergrid
Group measures its safety performance in terms of the Occupational
Safety and Health Administration ("OSHA") rate, which is a measure
used in the United States to capture safety incidents down to minor
levels of medical treatment, such as a stitch or the use of
prescription pain killers. As part of its plan to reduce the OSHA
rate across the group, MidAmerican issues daily e-mail updates in
respect of performance against its overall OSHA rate and
preventable vehicle accident targets, which include information on
incidents that have occurred.
The Northern Powergrid Group's safety and health improvement
plan targets continuous improvement and delivery of the various
initiatives contained in that plan contributed to the Northern
Powergrid Group achieving an OSHA rate of 0.43 against a target of
0.4, which represented its best ever performance.
Although the number of lost time accidents experienced by the
Group was the same as in 2012 and the Group only slightly missed
its internal target, overall safety performance was disappointing.
One of those lost time accidents was an electrical contact
incident, which had the potential to be more serious than the
ultimate outcome, and an employee of a contractor to Northern
Powergrid tragically died while working on the network. The
Northern Powergrid Group worked with the Health and Safety
Executive as part of its investigation into that incident, which
concluded with the Health and Safety Executive not taking any
further action against Northern Powergrid. As at 31 December 2013,
IUS had worked 1.6 million man hours without incurring a lost time
accident.
Performance in respect of preventable vehicle accidents achieved
the target for 2013 and represented a slight improvement on 2012.
None of those incidents gave rise to any significant safety-related
risks.
As part of the safety and health improvement plan and in order
to reinforce the operational safety values, the Group continued to
implement its cross-business operational assurance audit programme
and introduced a field engagement programme designed to link up the
leadership of the Northern Powergrid Group with its employees in
the field for the purposes of improving two-way communication on
safety and other key business issues. The Group continued to
implement a robust road risk management plan, which involved
electronic driving licence checking, delivering road risk awareness
workshops to new employees and using risk reduction tools such as
online driver assessment and training 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.
Following a detailed research and design project, the Northern
Powergrid Group issued innovative protective work wear to its
employees during the first quarter of the year, which provides
protection against the effects of events such as electrical
flashovers. The Group invested a substantial amount in this new
clothing, believes that it is unique in the industry and that it
will be a significant factor in reducing the risk to its employees.
The Group also delivered operational seminars and stand down
briefings and issued regular safety newsflashes to staff in order
to cascade information on safety trends, issues and incidents.
During the year, Northern Powergrid received a President's Award
from the Royal Society for the Prevention of Accidents for
achieving 12 consecutive Gold Awards and IUS received its fifth
consecutive Gold Medal, which entitled it to receive a President's
Award. Those awards were presented in recognition of achievements
in 2012 and for continued or improving standards of health and
safety over a sustained period. Northern Powergrid 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.
The sickness absence rate across the Northern Powergrid Group
for 2013 was 2.22% (2012: 2.55%), which was an improvement on 2012
and does not give rise to any particular cause for concern.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Employee commitment - continued
Management structure
Operational management of Northern Powergrid's business and that
of its affiliate, Northern Powergrid (Yorkshire) plc, is undertaken
by a single senior management team, with specific functional
responsibilities. Those functional responsibilities are in respect
of field operations, health, safety and environment, asset
management (including procurement), commercial (including customer
operations and information technology), regulation and strategy,
human resources, organisation development and finance. Certain of
those functions also provide services across the Northern Powergrid
Group. IUS has its own, separate 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. In
that respect, the Group has long-term pay agreements in place with
the various employment groups such that the relevant terms and
conditions are consistent 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 throughout DPCR5. 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 227 members of
staff in 2013, including 92 trainees under its workforce renewal
programme. A total of 52 trainees recruited under that programme in
previous years graduated from their training programmes during 2013
and commenced work as part of the Northern Powergrid Group's
operations. The plan remains in place to have recruited a total of
275 graduate trainees, technical trainees and craft apprentices by
the end of DPCR5.
The Group is committed to proper business conduct and, in common
with MidAmerican, 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 1,303 staff at the end of December 2013
(2012: 1,224).
Environmental respect
The 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Environmental respect - continued
The most recent visit was a six-monthly surveillance assessment
carried out by Lloyd's Register Quality Assurance in September
2013. The assessment report drew management attention to only one
minor non-conformance to be addressed by agreed proposed actions.
The report also noted that significant improvements had been made
to the environmental management system over the past three years.
Procedures and processes have been reviewed and developed to
improve the effectiveness of the aspects register, legal register
and internal audits. Operational controls at depots were also seen
to have significantly improved over the past three years which
correlated to a reducing number of minor non-conformances raised at
surveillance visits. There were no major non-conformances noted and
continued certification was recommended and subsequently
confirmed.
Improvements in support of the 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
using gas tracer technology to locate cable fluid leaks quicker,
where it was practicable to do so. In addition, Northern Powergrid
provided environmental awareness training for new personnel and
contractors and periodic refresher training for all staff.
The Group's commitment to the Environmental RESPECT policy and
its overall performance shows that it can be relied on to keep its
impact on the environment to a minimum. In preparing its
well-justified business plan, Northern Powergrid engaged directly
with the Environment Agency in respect of a number of issues and
will continue to maintain strong and open relationships with its
various environmental stakeholders, particularly in respect of the
network's visual impact. The main environmental elements of the
well-justified business plan included significant programmes to
replace fluid-filled cables and place overhead lines underground in
national parks, reduce electrical losses and implement further
improvements to the network that take account of protected
structures, features, areas, wildlife and habitat. 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's activities have an important part to play in the
United Kingdom's transition to a low carbon economy, both in its
capacity as a major participant in the United Kingdom energy
industry and in terms of its own carbon footprint. As the country
takes action to make significant reductions in its carbon
emissions, the way electricity is produced and used is expected to
have a significant impact on the electricity network over time.
Northern Powergrid is taking actions to be able to demonstrate that
its network will be ready to handle the energy flows its customers
need when required and by working with customers to assist in
solving issues raised by the installation of low-carbon generation
and technologies. Northern Powergrid is also actively involved in
working with the industry and other interested parties in order to
develop national policies and strategies to assist the low-carbon
transition.
The Northern Powergrid Group measures and publishes details of
its own carbon footprint and, between 2009 and 2013, reduced its
carbon footprint by 13%. The Northern Powergrid Group has set a
target to reduce its carbon footprint by a further 10% over the
next 10 years and, in line with Ofgem's requirements, Northern
Powergrid has contributed to the sustainability agenda through
public reporting on its carbon footprint. During the year, Northern
Powergrid gained re-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 the year. The greater diversity of
demands being placed on the network arising from the
decarbonisation of the energy market means that Northern Powergrid
needs to develop smart solutions that avoid the need for expensive
reinforcement of the network. In that respect, the Northern
Powergrid Group's Customer-Led Network Revolution project aims to
learn how novel network technology and changes in customers' energy
usage habits may lead to the speedier and lower cost connection of
low-carbon technologies to the network. By the end of 2013, more
than 10,000 customers were participating in the trials and
installation of the related equipment had been largely completed,
with over 500 customers having taken part in a feedback survey and
230 interviews having taken place. Six electrical storage devices
have been commissioned, as planned, and the initial results from
the monitoring of customers' load profiles, including the impact of
time-of-use tariffs, and from industrial and commercial trials of
demand side management have been published and presented at over 50
events attended by various interested parties.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
CORE PRINCIPLES - continued
Environmental respect - continued
Sustainability - continued
The well-justified business plan presented Northern Powergrid's
proposition for a sustainable network over ED1 including the need
for investment in enabling technology, reinforcement of the network
to alleviate the constraints associated with low carbon
technologies and supporting the roll-out of smart meters. Northern
Powergrid believes that its plan will not only create some
immediate benefits for customers during ED1 but also pave the way
for much greater benefits after 2023.
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
identified non-compliances or perceived risks to the compliance
process, which are then addressed. The Regulation Manager reports
to the board of Northern Powergrid 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 2013, 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. Ofgem has removed the DPCR5
losses incentive and, on 21 March 2014, published its decision on
the restatement of the 2009/2010 data and closing out the
Distribution Price Control Review 4 period losses incentive,
together with details of the final sums to be returned by Northern
Powergrid during ED1. 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. Ofgem triggered the ED1 review process in the first
quarter of 2012 and finalised its price control policies early in
2013, following which Northern Powergrid submitted its
well-justified business plan for Ofgem's consideration on 28 June
2013. Ofgem announced on 22 November 2013 that it had decided that
Northern Powergrid's plan was not to proceed on the "fast track"
and, while recognising that Northern Powergrid had submitted a
strong plan, had certain reservations about the future cost
efficiency and asset replacement elements. Following Ofgem's
decision, Northern Powergrid revisited its plan and provided Ofgem
with a revised version including further justification of the
associated costs on 17 March 2014. Ofgem will now consider the
revised plan and discuss the details further with Northern
Powergrid during the remainder of 2014. A final decision is
expected by December 2014 and, on conclusion of the process,
Northern Powergrid's' revenues will be set for the period from 2015
to 2023.
During the year, Northern Powergrid continued its voluntary
involvement with the other DNOs in developing and trialling more
formalised arrangements for assuring the accuracy of the
information returns submitted to Ofgem. This exercise has involved
the development of risk-assessment matrices and the preparation and
submission to Ofgem of a risk-based data-assurance plan, followed
by the submission of a report detailing the assurance work actually
carried out and the findings of that work. The DNOs have been
joined in the trial by transmission and gas distribution licensees
and the new regime will continue to be developed in the light of
experience during the year. The finalised arrangements will be
incorporated into the licences of all the DNOs in April 2015.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
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 a
licensee can appeal to the Competition and Markets Authority
against a decision made by GEMA to proceed with such a
modification. Certain other interested parties have the same right.
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.
During the term of the current price control, the rate of
inflation as measured by the Retail Prices Index ("RPI") is taken
into account in setting Northern Powergrid's allowed income in
respect of each regulatory year. Consequently, one of the risks
faced by Northern Powergrid is that its costs may increase by more
than RPI. Any 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 DPCR5.
The other financial risks facing the Group are outlined on page
6 of this Strategic Report and on page 20 of the Report of the
Directors.
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.
Those risk mitigation actions were supported by a change in the law
which prohibited scrap metal dealers from paying for scrap metal in
cash.
Northern Powergrid recognises that there are uncertainties
around the future take-up of low carbon technologies and the
resulting capacity requirements for the network and from the
fitting of smart meters throughout Northern Powergrid's
distribution services area, which is expected to result in a
requirement to address a substantial number of reported defects.
Northern Powergrid believes that it can effectively manage these
issues through its usual risk management practices.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Commercial risk
Managing commercial risk 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.
Northern Powergrid operates its business utilising a mix of
direct labour and contracted resource (including affiliates) 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. Northern Powergrid 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 its
overall risk management policy and, in DPCR5 and previous price
control periods, has accepted and successfully managed substantial
cost and delivery risks by developing a culture of cost and risk
management over that period of time. 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.
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 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2013
PRINCIPAL RISKS AND UNCERTAINTIES - continued
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 and, while no
significant areas of weakness have been identified, any recommended
improvements are implemented.
In addition, the Northern Powergrid 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 or via the
international, anonymous help line mentioned in the employee
section.
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.
ON BEHALF OF THE BOARD:
P A Jones
Director
16 April 2014
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
DIVIDENDS
During the year, an interim dividend of GBP30.0 million (24p per
ordinary share) was paid (2012: GBP30.0 million). The directors
recommend that no final dividend be paid in respect of the
year.
RESEARCH AND DEVELOPMENT
During the year, Northern Powergrid continued working on behalf
of the Northern Powergrid Group and in partnership with British
Gas, Durham University and EA Technology, on its major project
under Ofgem's Low Carbon Networks Fund, known as the Customer-Led
Network Revolution. This remains the largest project supported by
Ofgem in the four years of the fund and Northern Powergrid will
incur expenditure of GBP31.0 million over the life of the project.
Of that expenditure, 90% is funded by electricity customers in
Great Britain. Successful delivery of the project over the period
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. 2013 saw
further, and increasingly mature, trialling of equipment and
operational techniques to allow the efficient application of low
carbon technologies on the network. The scale of the project's
output is such that additional time has been sought from Ofgem,
extending the project to four years, to ensure that the quality of
learning delivered is relevant, timely and provides value-for-money
for all stakeholders.
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. New activities in voltage
stabilisation, real-time rating of assets to increase current
carrying capacity and improved ultrasonic integrity assessment of
overhead line assets have been commissioned. Other work completed
during 2013, included the further application of network risk
methodologies to a range of business processes, allowing better
planning and operational execution, and research to better
understand the environmental variation within network substations
and its impact on the condition and service lifetime of the
Northern Powergrid's assets.
During the year, the Group invested GBP8.2 million (2012: GBP8.1
million) (Note 6 to the accounts) in its research and development
activities.
FUTURE DEVELOPMENTS
The financial position of the Group, as at 31 December 2013, is
shown in the Consolidated Statement of Financial Position on pages
35 and 36. There have been no significant events since the year
end.
During the year, Northern Powergrid published its well-justified
business plan for the future of its electricity distribution
business and submitted that plan to Ofgem for consideration as part
of the ED1 price control review process. That plan set out Northern
Powergrid's priorities for and the challenges it expects to see
during ED1, which will last for the eight years until March 2023.
Northern Powergrid plans to provide its customers with more for
less by improving performance in respect of all of the outputs
expected of it, reducing prices in the first year of ED1 and then
maintaining those prices at a relatively consistent level over the
remainder of the period, delivering 20% shorter power cuts and
providing a connections service that is 30% faster, together with a
range of new and improved services. Having resubmitted the
well-justified business plan for Ofgem's consideration on 17 March
2014, Northern Powergrid intends to continue to develop its
business with the goal of out-performing the allowances in the
price control, while efficiently investing in the network and
improving the quality of supply and service provided to its
customers.
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2013 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
FINANCIAL RISK MANAGEMENT
Liquidity risk
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.
Trading risk
Throughout the year under review, the Group's policy was that no
trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2013 and during the year it was the Group's
policy not to hold any derivative financial instruments.
POLITICAL DONATIONS
During the year, no contributions were made to political
organisations (2012: GBPnil).
EMPLOYEES
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 increased use of the Company's
intranet to improve communication and engagement with the
workforce.
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
and posted weekly blogs on the Northern Powergrid Group's intranet
in order to provide updates on key elements of performance during
the preceding week.
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 Company would work to
retrain and/or redeploy that member of staff, wherever
possible.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
CORPORATE GOVERNANCE STATEMENT
In September 2012, the Financial Reporting Council made
available on its website a revised version of the UK Corporate
Governance Code (the "Code"). 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 Strategic
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, C3, 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 is based on the "comply or explain" approach and the
directors are of the opinion that, in the instances noted above
where the Company does not comply with the Code, this approach is
justifiable, given that the Company is a wholly-owned subsidiary of
MidAmerican and the governance framework in place throughout the
Northern Powergrid Group is agreed with MidAmerican.
Section A: Leadership
Main Principle The Role of the Board
A1:
The directors have agreed a schedule of board meetings at which
they review performance, strategy and operational and risk-related
issues. In addition, the President and Chief Executive Officer
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 Northern Powergrid Group are
discussed.
The Chairman of MidAmerican also receives weekly, monthly,
quarterly and ad hoc reports on the Northern Powergrid Group's
performance from the 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 Northern
Powergrid Group's Finance Director and General Counsel present
their respective weekly reports.
The board meets as required to consider relevant issues and met
on five occasions in total during the year, with the attendance of
the directors being as follows:
G E Abel Chairman 0
J A Andreasen General Counsel 3
R Dixon Non-Executive Director 5
T E Fielden Finance Director 5
J M France Regulation Director 5
Executive Vice-President and Chief Financial
P J Goodman Officer, MidAmerican Energy Holdings Company 0
P A Jones President and Chief Executive Officer 3
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle The Role of the Board - continued
A1:
Operational management of the Group's distribution 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 Strategic 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. The
assessments undertaken during the year did not identify any
significant weaknesses in the process but resulted in the
implementation of various recommended improvements. The key
features of the Group's internal control system and the issues
addressed by the Group during the year can be found in the
Strategic Report.
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 and 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, Group policy. As part of the
approved terms of reference, certain of those committees report
regularly to the board on their activities and 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:
J P Barnett Commercial Director
G M Earl Director of Safety, Health and Environment
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
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 policy due to changes in appropriate legislation,
codes of practice or guidance or due to recommendations arising
from significant incidents.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle The Role of the Board - continued
A1:
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies, which are outlined in the Strategic Report and in the
Report of the Directors, and comprises:
G E Abel Chairman, MidAmerican
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Executive Vice President and Chief Financial Officer,
MidAmerican
S Gormally Corporate Accountant and Secretary to the Committee
P A Jones President and Chief Executive Officer
S J Lockwood Group Financial Controller
O Sutherland Investor Reporting Manager
Pensions Committee
The Pensions Committee oversees the Northern Powergrid Group's
approach to the pension schemes to which it contributes and
comprises:
N Dawson Pensions Manager
T E Fielden Finance Director
J M France Regulation Director
L Hutchinson Director of Human Resources
S J Lockwood Group Financial Controller
K Mawson Head of Finance Development and Systems
L Tweedie Head of Field Change
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 companies in the Northern Powergrid Group 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:
D Anderson Head of Internal Audit
J P Barnett Commercial Director
R Dixon Non-Executive Director
M Drye Director of Asset Management
G Earl Director 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
L Hutchinson Director of Human Resources
A J Maclennan Managing Director, Integrated Utility Services Limited
O Sutherland Investor Reporting Manager
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle The Role of the Board - continued
A1:
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 Strategic 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 Division of Responsibilities
A2:
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 The Chairman
A3:
Dr Jones chairs board meetings and is responsible for the
operation and management of both the Group and the Northern
Powergrid Group and reports directly to Mr Abel.
Main Principle Non-Executive Directors
A4:
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 The composition of the board
B1:
During the year, the board comprised 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 was the sole non-executive director, so the board did 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 Appointments to the board
B2:
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 Commitment
B3:
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 Development
B4:
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
CORPORATE GOVERNANCE STATEMENT - continued
Main Principle Information and support
B5:
Directors receive monthly reports outlining progress against the
Northern Powergrid 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 external legal advice should they feel it
necessary. Interim briefings are provided to the non-executive
director, as appropriate.
Main Principle Evaluation
B6:
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 Re-election
B7:
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 Financial and business reporting
C1:
The board believes that the Strategic Report and the Report of
the Directors provide a balanced and understandable assessment of
the Group's position and prospects. The directors explain, at page
3 of the Strategic Report, the Core Principles behind the Group's
strategy and, at page 27, their responsibility for preparing the
Strategic Report, the Report of the Directors and the accounts,
have reported, at page 27 in the Report of the Directors, that the
Company and the Group are going concerns and have included the
Report of the Independent Auditor to the Company at page 32 of
these accounts.
Main Principle Risk management and internal control
C2:
Details of the principal risks and uncertainties facing the
Group and its internal control system, together with details of the
issues addressed by the Group during the year, can be found at
pages 16 to 18 of the Strategic 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;
- 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;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
CORPORATE GOVERNANCE STATEMENT - continued
Main Principle Risk management and internal control - continued
C2:
- 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 Audit committee and auditor
C3:
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 comprises one member who is independent and
one member who has competence in accounting and 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
Details of the fees paid by the Group to Deloitte LLP in
relation to non-audit services during the year are provided in Note
6 to the accounts.
The employee section on page 13 of the Strategic Report contains
details of the Group's "speaking up" policy.
Section D: Remuneration
Main Principle The level and components of remuneration
D1:
The Company does not have a remuneration committee. Annual
remuneration awards for the 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 Procedure
D2:
As noted under main principle D1, the Company does not have a
remuneration committee. Annual remuneration awards for the 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. No director is involved in deciding his
own remuneration.
Section E: Remuneration
Main Principle Dialogue with Shareholders
E1:
As a wholly-owned subsidiary of a privately held group of
companies, the board is in continuing dialogue with
MidAmerican.
Main Principle Constructive use of the AGM
E2:
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 equity shareholders.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic
Report, 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 (IFRS) 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, International
Accounting Standard 1 requires the directors 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 and the Group'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
A review of the Group's business activities during the year,
together with details regarding its future development, performance
and position, its objectives, policies and processes for managing
its capital, its financial risk management objectives and details
of its exposures to trading risk, credit risk and liquidity risk
are set out in the Strategic Report, the Report of the Directors
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:
- 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;
- The Group is profitable with strong underlying cash flows; and
- The Group is financed by long-term borrowings with an average
maturity of 15 years and has access to borrowing facilities
provided by Lloyds Bank plc, Royal Bank of Scotland plc and Abbey
National Treasury Services plc.
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 annual report and accounts.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2013
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 re-appoint Deloitte LLP as the Company's auditor
and authorise the directors to determine their remuneration will be
proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
P A Jones
Director
16 April 2014
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORTS AND ACCOUNTS
Each of the directors as at the date of the Annual Report, whose
names and functions are set out on page 20 in the Report of the
Directors 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 Management Report (which is comprised of the Strategic
Report and 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 16 April 2014 and signed on its behalf by:
P A Jones
Director
16 April 2014
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
DIRECTORS' BIOGRAPHIES
GREGORY E ABEL
Appointed in January 1997, Mr Abel, 51 is chairman, president
and chief executive officer of MidAmerican Energy Holdings Company,
based in Des Moines, Iowa. Through its energy-related businesses,
MidAmerican provides electric and natural gas service to more than
8.4 million customers worldwide. These businesses are Pacific
Power, Rocky Mountain Power and PacifiCorp Energy, MidAmerican
Energy Company, NV Energy, Northern Natural Gas Company and Kern
River Gas Transmission Company, Northern Powergrid Holdings
Company, MidAmerican Renewables, MidAmerican Transmission,
CalEnergy and HomeServices of America, Inc., which is the
second-largest residential real estate brokerage firm in the U.S.
Mr Abel serves as chairman and CEO of PacifiCorp, as chairman of
Northern Powergrid and as a director of MidAmerican Energy Holdings
Company, Kern River, Northern Natural Gas and HomeServices. Mr Abel
serves on the board and executive committee of the Edison Electric
Institute and the Greater Des Moines Partnership. He also serves on
the H.J. Heinz Company board of directors, the Nuclear Electric
Insurance Limited board of directors, the Kum & Go, L.C. board
of directors, the executive board of the Mid-Iowa Council Boy
Scouts of America, the American Football Coaches Foundation board
of directors and is a past member of the Drake University board of
trustees.
JON A ANDREASEN
Appointed in March 2010, Mr Andreasen, 50, 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, 76, 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, 56, 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
Appointed in October 2009, Mr Fielden joined the Northern
Powergrid Group in July 2009 and became Finance Director on 12
October 2009. Mr Fielden, 43, 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, 47, is Executive Vice
President and Chief Financial Officer of MidAmerican Energy
Holdings Company and is responsible for managing all aspects of
MidAmerican's financial operations. Mr Goodman serves as a director
of PacifiCorp, Northern Powergrid, Kern River Gas Transmission
Company and Northern Natural Gas Company. Mr Goodman supports the
evaluation, negotiation and closing of MidAmerican's domestic and
international financings, acquisitions and project developments. Mr
Goodman has been the chief financial officer since 1999 and has
served in various financial positions, including chief accounting
officer since joining MidAmerican in 1995. Mr Goodman has more than
20 years of experience in public accounting and management and is a
certified public accountant. He received his accounting degree from
the University of Nebraska at Omaha.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
DIRECTORS' BIOGRAPHIES
PHILIP A JONES
Appointed in April 2007, Dr Jones, 45, 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 2013, which
comprise the Consolidated Statement of Profit or Loss, the
Consolidated Statement of Profit or Loss and Other 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
the related notes 1 to 29. 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.
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 Auditor 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 auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page twenty seven, 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 circumstances of the Company and the Group 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 Strategic Report and the Report of the Directors
to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. 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 Company's and
the Group's affairs as at 31 December 2013 and of the Group's
profit for the year then ended;
- have been properly prepared in accordance with the
requirements of the Companies Act 2006 and in accordance with IFRSs
as adopted by the European Union;
- in respect of the Company 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
- in respect of the Group Financial Statements, have been
properly prepared in accordance with Article 4 of the IAS
Regulations.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and
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 Company, or
- returns adequate for our audit have not been received from branches not visited by us; or
- the financial statements of the Company or the Group are not
in agreement with the accounting records and returns; or
- 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.
Christopher Powell FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Newcastle upon Tyne
Date: 28 April 2014.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2013
2013 2012
as restated
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 350,919 331,614
Cost of sales (42,162) (30,274)
GROSS PROFIT 308,757 301,340
Operating expenses 11 (127,930) (119,977)
OPERATING PROFIT 180,827 181,363
Other gains 444 285
Finance costs 5 (35,895) (36,882)
Finance income 5 1,963 1,912
PROFIT BEFORE INCOME TAX 6 147,339 146,678
Income tax 7 (14,971) (15,370)
PROFIT FOR THE YEAR 132,368 131,308
Profit attributable to:
Owners of the parent 132,368 131,308
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013
2013 2012
as restated
GBP'000 GBP'000
PROFIT FOR THE YEAR 132,368 131,308
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to profit or
loss:
Employee benefit obligation (8,700) (59,700)
Income tax relating to item of other comprehensive
income (4,275) 9,980
OTHER COMPREHENSIVE INCOME
FOR THE YEAR, NET OF INCOME
TAX (12,975) (49,720)
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 119,393 81,588
Total comprehensive income attributable to:
Owners of the parent 119,393 81,588
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2013
2013 2012
as restated
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 13 14,762 7,388
Property, plant and equipment 14 1,790,233 1,647,814
Investments 15 3,392 3,325
Trade and other receivables 17 6,081 4,658
1,814,468 1,663,185
CURRENT ASSETS
Inventories 16 10,399 11,009
Trade and other receivables 17 50,192 66,248
Cash and cash equivalents 18 105,897 150,071
166,488 227,328
TOTAL ASSETS 1,980,956 1,890,513
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 19 72,173 72,173
Share premium 20 158,748 158,748
Other reserves 20 6,185 6,185
Retained earnings 20 518,891 429,498
TOTAL EQUITY 755,997 666,604
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - continued
31 DECEMBER 2013
2013 2012
as restated
Notes GBP'000 GBP'000
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 21 484,500 473,421
Borrowings 22 466,759 470,086
Pension liability 25 10,600 36,500
Deferred tax 24 93,164 98,879
Provisions 23 2,063 2,196
1,057,086 1,081,082
CURRENT LIABILITIES
Trade and other payables 21 119,743 122,800
Borrowings 22 44,536 11,425
Tax payable 2,017 7,218
Provisions 23 1,577 1,384
167,873 142,827
TOTAL LIABILITIES 1,224,959 1,223,909
TOTAL EQUITY AND LIABILITIES 1,980,956 1,890,513
The financial statements were approved by the Board of Directors
on 16 April 2014 and were signed on its behalf by:
P A Jones
Director
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2013
2013 2012
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 14 1,788 1,837
Investments 15 328,070 328,070
329,858 329,907
CURRENT ASSETS
Trade and other receivables 17 338 566
Tax receivable 7,067 4,518
Cash and cash equivalents 18 33,187 46,271
40,592 51,355
TOTAL ASSETS 370,450 381,262
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 19 72,173 72,173
Share premium 20 158,748 158,748
Other reserves 20 6,185 6,185
Retained earnings 20 119,293 124,872
TOTAL EQUITY 356,399 361,978
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings 22 1,117 1,117
Deferred tax 24 6,140 7,051
Provisions 23 1,725 1,743
8,982 9,911
CURRENT LIABILITIES
Trade and other payables 21 2,796 7,100
Borrowings 22 2,273 2,273
5,069 9,373
TOTAL LIABILITIES 14,051 19,284
TOTAL EQUITY AND LIABILITIES 370,450 381,262
The financial statements were approved by the Board of Directors
on 16 April 2014 and were signed on its behalf by:
P A Jones
Director
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
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 2012
(as previously reported) 72,173 539,460 158,748 6,185
776,566
Prior year adjustment - (161,550) - - (161,550)
Balance at 1 January 2012
(as restated) 72,173 377,910 158,748 6,185 615,016
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income
(as previously reported) - 135,407 - - 81,588
Total comprehensive income
(prior year adjustment) - (53,819) - - (53,819)
Balance at 31 December 2012
(as restated) 72,173 429,498 158,748 6,185 666,604
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 119,393 - - 119,393
Balance at 31 December 2013 72,173 518,891 158,748 6,185
755,997
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
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 2012 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
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 24,421 - - 24,421
Balance at 31 December 2013 72,173 119,293 158,748 6,185
356,399
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2013
2013 2012
as restated
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 27 198,035 171,882
Finance costs paid (38,005) (36,970)
Interest received 1,017 1,912
Group relief paid - (4,568)
Tax paid (30,162) (25,902)
Net cash from operating activities 130,885 106,354
Cash flows from investing activities
Purchase of intangible fixed assets (8,776) (3,960)
Purchase of tangible fixed assets (199,392) (169,658)
Sale of tangible fixed assets 444 285
Customer contributions 32,670 42,071
Dividends received 492 334
Net cash used in investing activities (174,562) (130,928)
Cash flows from financing activities
Movement in external loans 30,341 (22,000)
Movement in loans from Group (838) (2,987)
Equity dividends paid (30,000) (30,000)
Net cash used in financing activities (497) (54,987)
Decrease in cash and cash equivalents (44,174) (82,161)
Cash and cash equivalents
at beginning of year 150,071 229,632
Cash and cash equivalents
at end of year 105,897 150,071
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2013
2013 2012
Notes GBP'000 GBP'000
Cash from operating activities
Cash generated from operations 27 (2,511) 520
Finance costs paid (9,401) (9,605)
Interest received 660 951
Dividends received 30,405 30,351
Tax paid (2,234) (3,247)
Net cash from operating activities 16,919 18,970
Cash flows from investing activities
Purchase of tangible fixed assets (3) (56)
Net cash used in investing activities (3) (56)
Cash flows from financing activities
Equity dividends paid (30,000) (30,000)
Net cash used in financing activities (30,000) (30,000)
Decrease in cash and cash equivalents (13,084) (11,086)
Cash and cash equivalents
at beginning of year 46,271 57,357
Cash and cash equivalents
at end of year 33,187 46,271
The notes on pages 42 to 86 form part of these financial
statements
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
1. GENERAL INFORMATION
Northern Electric plc (the "Company") is a company originally
incorporated in England and Wales under the Companies Act 1985 and
is part of the Northern Powergrid Holdings Company group of
companies (the "Northern Powergrid Group"). The address of the
registered office is Lloyds Court, 78 Grey Street,
Newcastle-upon-Tyne, NE1 6AF.
The nature of the Group's business model, strategic objectives,
operations and activities are set out in the Strategic Report.
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 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 statement of profit or loss for the 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 Report of the Directors on page
27.
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;
- 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. The accounting
policies have been applied consistently throughout the year and the
preceding year.
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
2. ACCOUNTING POLICIES - continued
Adoption of new or revised standards
The Group has applied IAS 19 Employee Benefits (as revised in
2011) and the related consequential amendments for the first time
in 2013.
IAS 19 (as revised in 2011) changes the accounting for defined
benefit plans and termination benefits. The most significant change
relates to the accounting for changes in defined benefit
obligations and plan assets. The amendments require the recognition
of changes in defined benefit obligations and in the fair value of
plan assets when they occur and hence eliminate the 'corridor
approach' permitted under the previous version of IAS 19 and
accelerate the recognition of past service costs. All actuarial
gains and losses are recognised immediately through other
comprehensive income in order for the net pension asset or
liability recognised in the consolidated statement of financial
position to reflect the full value of the plan deficit or surplus.
Furthermore, the interest cost and expected return on plan assets
used in the previous version of IAS 19 are replaced with a 'net
interest' amount under IAS 19 (as revised in 2011), which is
calculated by applying the discount rate to the net defined benefit
liability or asset. These changes have had an impact on the amounts
recognised in the statement of profit or loss and other
comprehensive income in prior years (see the tables below for
details). In addition, IAS 19 (as revised in 2011) introduces
certain changes in the presentation of the defined benefit cost
including extensive disclosures.
Specific transitional provisions are applicable to the
first-time application of IAS 19 (as revised in 2011). The Group
has applied the relevant transitional provisions and has restated
the comparative amounts on a retrospective basis (see the tables
below for details).
Impact on profit/(loss) for the year of the application of IAS
19 (as revised in 2011):
2012
as restated
GBPm
Increase in administrative expenses (4.6)
Decrease in income tax charge 0.5
Decrease in profit for the year (4.1)
Impact on other comprehensive income for the year of the
application of IAS 19 (as revised in 2011):
2013 2012
as restated
GBPm GBPm
Increase in re-measurement of defined
benefit obligation 8.7 59.7
Increase/(decrease) in income tax relating 4.3
to items of other comprehensive income (10.0)
Decrease in other comprehensive income
for the year 13.0 49.7
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
2. ACCOUNTING POLICIES - continued
Impact on assets, liabilities and equity as at 1 January 2012 of
the application of IAS 19 (as revised in 2011):
1 January
2012
(as previously IAS 19 adjustments 1 January
reported) 2012
(as restated)
GBPm GBPm GBPm
Assets
Pension asset 201.8 (201.8) -
Equity
Retained earnings 539.4 (161.5) 377.9
Liabilities
Pension liability 1.4 13.6 15.0
Deferred tax 172.1 (53.9) (118.2)
Impact on assets, liabilities and equity as at 31 December 2012
of the application of IAS 19 (as revised in 2011):
31 December
2012 (as
previously
reported)
IAS 19 adjustments 31 December
2012
(as restated)
GBPm GBPm GBPm
Assets
Property, plant and
equipment 1,646.5 1.3 1,647.8
Pension asset 244.5 (244.5) -
Equity
Retained earnings 644.9 (215.4) 429.5
Liabilities
Pension liability 1.7 36.5 38.2
Deferred tax 163.2 (64.3) 98.9
IFRS 11 replaces IAS 31 - Interests in Joint Ventures. IFRS 11
deals with how a joint arrangement, in respect of which two or more
parties have joint control, should be classified and accounted for.
Under IFRS 11, there are only two types of joint arrangements -
joint operations and joint ventures. Previously IAS 31 contemplated
three types of joint arrangements - jointly controlled entities,
jointly controlled operations and jointly controlled assets. The
classification of joint arrangements under IAS 31 was primarily
determined based on the legal form of the arrangement. Under IFRS
11, classification is determined based on the rights and
obligations of the parties to the joint arrangement.
The directors reviewed and assessed the classification of the
Group's investments in joint arrangements in accordance with the
requirements of IFRS 11. The directors concluded that the Group's
investment in Vehicle Lease and Service Limited, which was
classified as a jointly controlled entity under IAS 31 and was
accounted for using the equity method, should be classified as a
joint venture under IFRS 11 and continue to be accounted for using
the equity method. Consequently, no change in accounting is
required.
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
2. ACCOUNTING POLICIES - continued
Revenue - continued
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 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 statement
of profit or loss 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 statement of
financial position 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.
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 statement
of financial position 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
statement of financial position 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
2. ACCOUNTING POLICIES - continued
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 5 years
assets
Information technology equipment included in distribution up to 10 years
system assets
Non-operational assets:
Buildings - freehold up to 60 years
Buildings - leasehold lower of lease
period or up
to 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 Group'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.
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
statement of financial position 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 statement of financial position 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
2. ACCOUNTING POLICIES - continued
Financial instruments - continued
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
statement of financial position.
Fair value measurements
For financial reporting purposes, fair value measurements are
categorised into Level 1, 2 or 3 based on the degree to which the
inputs to the fair value measurements are observable and the
significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the entity can access
at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
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 or the Group 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 is valued at 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 disposal.
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
statement of profit or loss 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 statement of
financial position 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
statement of financial position 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 2013
2. ACCOUNTING POLICIES - continued
Taxation - 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
statement of financial position date and reduced to the extent that
that it is no longer probable that sufficient taxable profits will
be available to allow all or part of the asset to be recovered.
To the extent that gains or losses are recognised in other
comprehensive income, tax related to those gains or losses are
recognised in other comprehensive income.
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 statement of
profit or loss, 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
statement of profit or loss 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 statement
of profit or loss 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 statement of financial position date. Actuarial gains and
losses arising from experience adjustments and changes in actuarial
assumptions are recognised in other comprehensive income.
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 statement of financial
position 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 2013
2. ACCOUNTING POLICIES - continued
Pensions - 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 25.
The Group also participates in a defined contribution scheme.
Contributions payable to the defined contribution scheme are
charged to the statement of profit or loss in the year or
capitalised as appropriate. Differences between contributions
payable in the year and contributions actually paid are shown as
either accruals or prepayments in the statement of financial
position.
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 statement of financial
position 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 statement of profit or loss when there is
objective evidence that the asset is impaired.
Amounts due from customers for contract work is valued based on
the cost of direct materials and labour plus attributable overheads
based on the normal level of activity less progress payments.
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 statement of profit or loss 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. Borrowing costs that are
directly attributable to the acquisition, construction or
production of a qualifying asset are capitalised as part of the
cost of that asset.
Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class
of assets on the face of the statement of financial position)
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 2013
3. SEGMENTAL REPORTING - continued
Consolidation
Distribution Other Adjustments Total
2013 2013 2013 2013
GBPm GBPm GBPm GBPm
REVENUE
External sales 310.3 40.6 - 350.9
Inter-segment sales 0.6 6.4 (7.0) -
Total revenue 310.9 47.0 (7.0) 350.9
SEGMENT RESULTS
Operating profit 140.6 2.7 37.5 180.8
Other gains 0.4
Finance costs (35.9)
Finance income 2.0
Profit before tax 147.3
OTHER INFORMATION
Capital additions 210.2 0.1 0.7 210.9
Depreciation and
amortisation 62.6 0.1 (1.5) 61.2
Amortisation of
deferred revenue (18.2) - - (18.2)
STATEMENT OF FINANCIAL
POSITION
Segment assets 1,903.0 27.5 (58.9) 1,871.6
Unallocated corporate
assets 109.4
Total assets 1,981.0
Segment liabilities (597.6) (12.1) (8.8) (618.5)
Unallocated corporate
liabilities (606.5)
Total liabilities (1,225.0)
Net assets/(liabilities) 1,305.4 (67.7)
by segment 15.4 1,253.1
Unallocated net
corporate liabilities (497.1)
Total net assets 756.0
"Other" comprises Engineering Contacting and business support
units.
Sales and purchases between the different segments are made at
commercial prices.
Consolidation Adjustments include the recognition of the
GBP10.6m retirement benefit liability.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
3. SEGMENTAL REPORTING - continued
Unallocated corporate assets and liabilities include cash and
cash equivalents (GBP105.9m), borrowings (GBP511.3m) and taxation
(GBP95.2m).
External sales to RWE Npower plc in 2013 of GBP86.6m are
included within the Distribution segment.
Consolidation
Distribution Other Adjustments Total
2012 2012 2012 2012
as restated as restated
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 33.5 181.4
Other gains 0.3
Finance costs (36.9)
Finance income 1.9
Profit before tax 146.7
OTHER INFORMATION
Capital additions 188.0 0.1 1.3 189.4
Depreciation and
amortisation 54.2 - - 54.2
Amortisation of
deferred revenue (15.3) - - (15.3)
STATEMENT OF FINANCIAL
POSITION
Segment assets 1,771.7 265.2 (299.8) 1,737.1
Unallocated corporate
assets 153.4
Total assets 1,890.5
Segment liabilities (587.7) (15.1) (33.4) (636.2)
Unallocated corporate
liabilities (587.7)
Total liabilities (1,223.9)
Net assets/(liabilities) 1,184.0 250.1 (333.2)
by segment 1,100.9
Unallocated net
corporate liabilities (434.3)
Total net assets 666.6
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
3. SEGMENTAL REPORTING - continued
"Other" comprises Engineering Contracting and business support
units.
Sales and purchases between the different segments are made at
commercial prices.
Consolidation Adjustments include the recognition of the
GBP36.5m retirement benefit liability.
Unallocated corporate assets and liabilities include cash and
cash equivalents (GBP150.1m), borrowings (GBP481.5m) and taxation
(GBP106.1m).
External sales to RWE Npower plc in 2012 of GBP81.6m are
included within the Distribution segment.
4. EMPLOYEES AND DIRECTORS
2013 2012
as restated
GBP'000 GBP'000
Salaries 54,097 52,182
Social security costs 6,154 5,356
Defined benefit pension costs (2,600) (5,663)
Defined contribution pension costs 953 575
58,604, 52,750
Less charged as capital expenditure (37,089) (34,295)
21,515 18,455
The majority of the Group's employees are members of the
Northern Powergrid Group of the ESPS, details of which are given in
the Employee Benefit Obligations note.
The average monthly number of employees during the year was:
2013 2012
No. No.
Distribution 1,020 994
Engineering Contracting 170 155
Other 44 56
1,234 1,205
DIRECTORS' REMUNERATION
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 208 144
Post-employment benefits 23 24
Other long-term benefits 272 248
503 416
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION - continued
2013 2012
Total:
Short-term employee benefits 398 329
Post-employment benefits 39 47
Other long-term benefits 485 439
922 815
Directors who are a member of the defined benefit
scheme 33
Accrued pension benefit relating to highest --
paid director
OTHER KEY PERSONNEL REMUNERATION
2013 2012
Total: GBP'000 GBP'000
Short-term employee benefits 294 343
Post-employment benefits 87 99
Other long-term benefits 271 234
652 676
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 Group.
5. NET FINANCE COSTS
2013 2012
GBP'000 GBP'000
Finance income:
Interest in joint venture 472 334
Dividends received 87 -
Interest receivable on loans
to Group undertakings 1,404 1,578
1,963 1,912
2013 2012
GBP'000 GBP'000
Finance costs:
Interest payable on external loans 22,205 22,595
Interest payable on loans
from Group undertakings 4,689 5,286
Preference dividends payable 9,001 9,001
35,895 36,882
Net finance costs 33,932 34,970
During the year ended 31 December 2013, GBP2,780,000 of
borrowing costs were capitalised (2012: GBP1,115,000).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2013 2012
GBP'000 GBP'000
Depreciation - owned assets 59,753 53,548
Profit on disposal of fixed assets (444) (285)
Software development costs amortisation 1,402 736
Research costs 8,158 8,066
Amortisation of deferred revenue (18,218) (15,324)
Impairment loss on trade and other receivables 281 233
Analysis of auditor's remuneration is as follows:
2013 2012
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 167 161
Total audit fees 192 186
Other services 159 209
Total auditor's remuneration 351 395
2013 2012
GBP'000 GBP'000
Fees payable to the Company's auditor and its
associates in respect of the audit of associated
pension schemes 6 5
7. INCOME TAX
Analysis of tax expense
2013 2012
as restated
GBP'000 GBP'000
Current tax 33,006 33,871
Deferred tax (18,035) (18,501)
Total tax expense in consolidated statement
of profit or loss 14,971 15,370
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
7. INCOME TAX - continued
Factors affecting the tax expense
The income tax charge for the year in the Statement of Profit or
Loss is lower than the standard rate of corporation tax in the UK.
The difference is explained below:
2013 2012
as restated
GBP'000 GBP'000
Profit on ordinary activities before income
tax 147,339 146,678
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 23.25% (2012 - 24.5%) 34,256 35,936
Effects of:
Dividends on non-equity preference shares 2,093 2,205
Tax effect of result of joint venture (110) (82)
Adjustment to prior years (1,499) (9,002)
Change in tax rates (21,566) (14,166)
Tax free income - (147)
Pension contributions recognised in Other
Comprehensive Income ("OCI") 2,238 557
Other (441) 69
Tax expense 14,971 15,370
Tax effects relating to effects of other comprehensive
income
2013
Gross Tax Net
GBP'000 GBP'000 GBP'000
Employee benefit obligation (8,700) 1,508 (7,192)
Pension contributions paid - 2,238 2,238
Impact of change in tax rate - (8,021) (8,021)
(8,700) (4,275) (12,975)
2012 (as restated)
Gross Tax Net
GBP'000 GBP'000 GBP'000
Employee benefit obligation (59,700) 13,731 (45,969)
Pension contributions paid - 557 557
Impact of change in tax rate - (4,308) (4,308)
(59,700) 9,980 (49,720)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
7. INCOME TAX - continued
2013 2012
as restated
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the year 34,505 33,144
Payment for use of group losses - 4,568
Over provision for prior years (1,499) (3,841)
Total current tax charge 33,006 33,871
Deferred tax:
Deferred tax expenses relating to the origination
and reversal of temporary differences 3,531 4,335
Effect of changes in tax rates (21,566) (14,166)
Total deferred tax charge (18,035) (18,501)
Tax on profit before tax 14,971 15,370
The Finance Act 2013 includes a provision that the standard rate
of corporation tax in the United Kingdom will reduce from 23% to
21% from April 2014 and to 20% from April 2015. Accordingly, 20%
has been applied when calculating deferred tax assets and
liabilities throughout the Northern Powergrid Group as at 31
December 2013.
8. PROFIT OF PARENT COMPANY
As permitted by Section 408 of the Companies Act 2006, the
statement of profit or loss of the Company is not presented as part
of these financial statements. The Company's profit for the
financial year was GBP24.4m (2012: GBP24.0m).
9. DIVIDENDS
2013 2012
GBP'000 GBP'000
Interim dividend at 24p per share (2012:
24p) 30,000 30,000
10. PRIOR YEAR ADJUSTMENT
Amounts due from customers for contract work:
Integrated Utility Services Limited ("IUS") is part of the Group
and operates an engineering contracting business. Construction
contracts arising in the normal course of business are accounted
for under IAS 11 -Construction Contracts. The policy allows for
revenue and costs to be recognised by reference to the stage of
completion of the contract activity, when the outcome of the
contract can be measured reliably, at the statement of financial
position date. When contract costs incurred to date plus recognised
profit less recognised losses exceed progress billings, the surplus
is shown as amounts due from customers for contract work in the
statement of financial position.
In prior years this has been aggregated into the inventories
line in the statement of financial position and disclosed
separately as work in progress within the inventories note in the
notes to the financial statements. Amounts due from customers for
contract work should be included within trade and other receivables
rather than inventories on the face of the statement of financial
position.
The 2012 balance of GBP4,345,000 has been restated to be
included in trade and other receivables. The comparable 2013
balance is GBP4,364,000. Consequently, this impacts the movement in
working capital in the cash flow statement. There is no impact
elsewhere in the financial statements.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
11. OPERATING EXPENSES
Operating expenses comprise:
2013 2012
(as restated)
GBP'000 GBP'000
Distribution costs 90,324 84,056
Administrative expenses 37,606 35,921
127,930 119,977
12. OPERATING LEASE COMMITMENTS
Group
2013 2012
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 6,954 6,209
At the statement of financial position date, the Group had
outstanding commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
2013 2012
GBP'000 GBP'000
Within one year 5,438 4,987
In the second to fifth year 16,594 15,473
After five years 5,964 8,807
27,996 29,267
The lease commitments represent obligations in relation to
property and transport facilities. The transport facilities are
provided by Vehicle lease and Service Limited, a joint venture
company.
Company
2013 2012
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 172 172
At the statement of financial position date, the Company had
outstanding commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
2013 2012
GBP'000 GBP'000
Within one year 172 172
In the second to fifth year 687 688
After five years 172 344
1,031 1,204
The lease commitments represent obligations in relation to
property facilities.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
13. INTANGIBLE ASSETS
Group
Software
development
costs
GBP'000
COST
At 1 January 2013 35,181
Additions 8,776
At 31 December 2013 43,957
AMORTISATION
At 1 January 2013 27,793
Amortisation for year 1,402
At 31 December 2013 29,195
NET BOOK VALUE
At 31 December 2013 14,762
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
The Company had no intangible assets at 31 December 2013 (2012:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
14. 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 2013 6,404 2,368,132 56,170 2,430,706
Additions 146 200,806 1,220 202,172
Disposals - (8,695) (8) (8,703)
At 31 December 2013 6,550 2,560,243 57,382 2,624,175
DEPRECIATION
At 1 January 2013 4,680 726,465 51,747 782,892
Charge for year 982 57,423 1,348 59,753
Eliminated on disposal - (8,695) (8) (8,703)
At 31 December 2013 5,662 775,193 53,087 833,942
NET BOOK VALUE
At 31 December 2013 888 1,785,050 4,295 1,790,233
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 (as restated) - 184,167 1,299 185,466
Disposals - (6,655) (239) (6,894)
At 31 December 2012 (as restated) 6,404 2,368,132 56,170
2,430,706
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 (as restated) 1,724 1,641,667 4,423
1,647,814
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
14. PROPERTY, PLANT AND EQUIPMENT - continued
Group
Assets in the course of construction included above:
Distribution Fixtures
system and fittings Total
GBP'000 GBP'000 GBP'000
At 1 January 2013 138,095 - 138,095
Additions 199,789 1,643 201,432
Available for use (152,162) (1,643) (153,805)
At 31 December 2013 185,722 - 185,722
The Group has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP36.0m (2012: GBP29.1m).
The net book value of the Group's non-operational land and
buildings comprises:
2013 2012
GBP'000 GBP'000
Freehold 420 1,256
Long leasehold 368 368
Short leasehold 100 100
888 1,724
Company
Non-
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2013 296 1,259 3,631 5,186
Additions - - 3 3
At 31 December 2013 299 1,259 3,634 5,189
DEPRECIATION
At 1 January 2013 9 - 3,340 3,349
Charge for year 12 - 40 52
At 31 December 2013 21 - 3,380 3,401
NET BOOK VALUE
At 31 December 2013 275 1,259 254 1,788
At 31 December 2012 287 1,259 291 1,837
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
14. PROPERTY, PLANT AND EQUIPMENT - continued
Company
Non-
operational Fixtures
land and Distribution and
buildings system fittings Totals
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
All of Company's non-operational land and buildings are
freehold.
15. INVESTMENTS
Group Company
Share of Shares in Shares in Shares in
joint venture's other undertakings subsidiary other undertakings
net assets Total undertakings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
328,070
At 31 December
2012 3,304 21 3,325 327,099 971
Movement 67 - 67 - - -
328,070
At 31 December
2013 3,371 21 3,392 327,099 971
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
15. INVESTMENTS - continued
Details of the principal investments of the Group at 31 December
2013 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 management
Northern Electric Properties 32,207,100 100% company
Limited at GBP1
Northern Transport Finance 7,000,000 100% Car finance company
Limited at GBP1
Northern Electric & Gas 84,785,000 100% Non-trading company
Limited at GBP1
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:
2013 2012
GBP'000 GBP'000
Long-term assets 17,735 18,067
Current assets 15,425 14,562
Long-term liabilities (16,093) (16,104)
Current liabilities (10,325) (9,917)
Net assets 6,742 6,608
Group's share of joint venture's net
assets 3,371 3,304
Revenue 15,680 15,219
Profit for the year 944 668
Group's share of joint venture's profit
for the year 472 334
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
16. INVENTORIES
Group
2013 2012
as restated
GBP'000 GBP'000
Stocks 9,697 10,456
Work-in-progress 91 97
Assets held for sale 611 456
10,399 11,009
The Company had no inventories at 31 December 2013 (2012 -
GBPnil).
17. TRADE AND OTHER RECEIVABLES
Group Company
2013 2012 2013 2012
as restated
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Distribution use of system
receivables 30,181 47,396 --
Construction contract customers 6,557 4,467 --
Amounts due from customers for
contract work 4,364 4,345 - -
Amounts receivable in respect
of finance leases 3,683 3,544 - -
Other debtors 71 270 61 330
Amounts receivable for sale
of goods and services 955 1,819 - -
Social security and other taxes - - 81 -
Prepayments and accrued income 4,381 4,407 196 236
50,192 66,248 338 566
Non-current:
Amounts receivable in respect
of finance leases 6,081 4,658 - -
Aggregate amounts 56,273 70,906 338 566
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
statement of financial position date. The valuation is based on
Level 1 inputs. The maximum exposure to risk to the Group is the
book value of these receivables less any provisions for
impairment.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
17. TRADE AND OTHER RECEIVABLES - continued
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 2013 (2012: 27%). 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 GBP36,000 as at 31 December
2013 (2012: GBP32,000).
Ofgem has indicated that, provided Northern Powergrid
(Northeast) Limited 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 and have therefore been provided in
full at the year-end (2012: GBPnil).
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 6 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 GBP2,261,000 (2012:
GBP1,486,000), which are past due at the reporting date for which
the Group has provided for an irrecoverable amount of GBP155,000
(2012: GBP27,000) based on experience. The Group does not hold
collateral over these balances. The average age of these
receivables is 70 days (2012: 66 days).
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBPnil (2012: GBPnil) 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.
Amounts due from customers for contract work
Contracts in progress at statement of financial position
date:
2013 2012
GBP'000 GBP'000
Contract costs incurred plus recognised
profits less recognised losses to date 37,934 29,510
Less: progress billings (33,570) (25,165)
Amount due from customers 4,364 4,345
At 31 December 2013, retentions held by customers for contract
work amounted to GBP0.8m (2012: GBP0.4m).
Advances received from customers for contract work amounted to
GBPnil (2012: GBPnil).
The Company had no construction contracts at 31 December 2013
(2012: GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
17. TRADE AND OTHER RECEIVABLES - continued
Finance lease receivables
Minimum lease payments Present value
2013 2012 2013 2012
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable
under finance leases:
Within one year 4,218 3,918 3,683 3,544
In the second to
fifth years inclusive 6,520 4,949 6,081 4,658
10,738 8,867 9,764 8,202
Less: unearned finance
income (974) (665) - -
9,764 8,202 9,764 8,202
Northern Transport Finance Limited, 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% (2012:
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.
Amounts receivable from sale of goods and services
Sales of goods and services comprise all income streams which
are not classified as UoS income or contracting sales. 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 GBP740,000
(2012: GBP753,000) which are past due at the reporting date and for
which the Group has provided an irrecoverable amount of GBP506,000
(2012: GBP469,000) based on past experience. The Group does not
hold any collateral over these balances. The average age of these
receivables is 688 days (2012: 554 days).
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP548,000
(2012: GBP510,000). These amounts are past due at the reporting
date and the Company 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 Company does not hold any collateral over these balances. The
average age of these receivables is 65 days (2012: 61 days).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
17. TRADE AND OTHER RECEIVABLES - continued
Ageing of past due but not impaired receivables:
2013 2012
GBP'000 GBP'000
30-60 days 396 374
60-120 days 95 108
120-210 days 57 28
Total 548 510
Movement in the allowance for doubtful debts
2013 2012
GBP'000 GBP'000
At 1 January 497 424
Amounts utilised/written off in the year (117) (160)
Amounts recognised in statement of profit or
loss 281 233
At 31 December 661 497
In determining the recoverability of the trade and other
receivables, the Group 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 GBP287,000 (2012: GBP312,000) 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
2013 2012
Group: GBP'000 GBP'000
Cash and bank balances 105,897 150,071
Loans and receivables at amortised cost 51,892 66,499
Total financial assets 157,789 216,570
Non-current assets 1,808,387 1,658,527
Inventories 10,399 11,009
Prepayments and accrued income 4,381 4,407
Total non-financial assets 1,823,167 1,673,943
Total assets 1,980,956 1,890,513
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
17. TRADE AND OTHER RECEIVABLES - continued
2013 2012
Company: GBP'000 GBP'000
Cash and bank balances 33,187 46,271
Loans and receivables at amortised cost 61 330
Total financial assets 33,248 46,601
Non-current assets 329,858 329,907
Prepayments and accrued income 196 236
Social security and other taxes 81 -
Income tax receivables 7,067 4,518
Total non-financial assets 337,202 334,661
Total assets 370,450 381,262
18. CASH AND CASH EQUIVALENTS
Group Company
2013 2012 2013 2012
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by Group
undertakings 105,897 150,071 33,187 46,271
105,897 150,071 33,187 46,271
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.
19. CALLED UP SHARE CAPITAL
2013 2012
No. No.
Ordinary shares at 56 12/23p each
Allotted, called up and fully paid 127,689,809 127,689,809
2013 2012
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
20. RESERVES
Group
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 429,498 158,748 6,185 594,431
Profit for the year 132,368 --132,368
Dividends (30,000) - - (30,000)
Movements on pension reserve (12,975) - - (12,975)
At 31 December 2013 518,891 158,748 6,185 683,824
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2012 (as restated) 377,910 158,748 6,185
542,843
Profit for the year
(as restated) 131,308 --131,308
Dividends (30,000) - - (30,000)
Movements on pension reserve (as restated) (49,720) - -
(49,720)
At 31 December 2012 (as restated) 429,498 158,748 6,185
594,431
Company
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 124,872 158,748 6,185 289,805
Profit for the year 24,421 --24,421
Dividends (30,000) - - (30,000)
At 31 December 2013 119,293 158,748 6,185 284,226
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
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
21. TRADE AND OTHER PAYABLES
Group Company
2013 2012 2013 2012
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Payments on account 34,378 32,249 - -
Trade creditors 6,486 5,348 871 578
Amounts owed to related
parties 631 603 - -
Social security and other
taxes 614 7,232 641 4,913
Other creditors 10,579 14,818 598 1,071
Deferred revenue 22,701 18,933 - -
Accrued expenses 44,354 43,617 686 538
119,743 122,800 2,796 7,100
Non-current:
Deferred revenue 484,500 473,421 - -
484,500 473,421 - -
Aggregate amounts 604,243 596,221 2,796 7,100
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 statement of
financial position date. The valuation is based on Level 1 inputs.
Trade creditors and accruals principally comprise amounts
outstanding for trade purchases and ongoing 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
Company or the Group can be required to pay. The tables include
both interest and principal cash flows.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
21. TRADE AND OTHER PAYABLES - continued
Group
Less than 3 months
3 months to 1 year 1 to 5 years 5+ years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2013:
Non-interest bearing 62,664 - - - 62,703
Variable interest
rate liability 31,020 - - - 31,020
Fixed interest
rate liability 5,031 22,463 149,975 694,649 872,118
98,715 22,463 149,975 694,649 965,841
2012:
Non-interest bearing 71,618 - - - 71,618
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
Company
Less than 3 months
3 months to 1 year 1 to 5 years 5+ years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2013:
Non-interest bearing 2,797 - - - 2,797
Fixed interest
rate liability - 9,000 36,000 115,532 160,532
2,797 9,000 36,000 115,532 163,329
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
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
21. TRADE AND OTHER PAYABLES - continued
Categories of financial liabilities
2013 2012
Group: GBP'000 GBP'000
Loans and payables at amortised cost (528,991) (502,280)
Total financial liabilities (528,991) (502,280)
Payments received on account (34,378) (32,249)
Income tax liabilities (95,181) (106,097)
Other taxes and social security (614) (7,232)
Accruals (44,354) (43,617)
Deferred Revenue (507,201) (492,354)
Pension liability (10,600) (36,500)
Provisions (3,640) (3,580)
Total non-financial liabilities (695,968) (721,629)
Total liabilities (1,224,959) (1,223,909)
2013 2012
Company: GBP'000 GBP'000
Loans and payables at amortised cost (4,859) (5,039)
Total financial liabilities (4,859) (5,039)
Income tax liabilities (6,140) (7,051)
Other taxes and social security (641) (4,913)
Accruals (686) (538)
Provisions (1,725) (1,743)
Total non-financial liabilities (9,192) (14,245)
Total liabilities (14,051) (19,284)
Deferred Revenue
2013 2012
GBP'000 GBP'000
At 1 January (492,354) (457,434)
Additions (33,065) (50,244)
Amortisation 18,218 15,324
At 31 December (507,201) (492,354)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
21. TRADE AND OTHER PAYABLES - continued
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the statement of profit or loss 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 2013 (2012:
GBPnil).
22. FINANCIAL LIABILITIES - BORROWINGS
The directors' consideration of liquidity, interest rate and
foreign currency risk is described in the Strategic Report.
Group
Book Value Fair Value
2013 2012 2013 2012
GBP'000 GBP'000 GBP'000 GBP'000
Loans 407,441 376,838 457,831 448,558
Cumulative preference
shares 3,368 3,368 160,532 153,553
Amounts owed to Group
undertakings 100,486 101,305 117,143 122,400
511,295 481,511 735,506 724,511
The borrowings are repayable
as follows:
On demand or within
one year 44,536 11,425 44,536 11,425
After five years 466,759 470,086 690,970 713,086
511,295 481,511 735,506 724,511
Analysis of borrowings:
Short-term treasury
loans 30,550 138 30,550 138
Short-term loans from
Group undertakings 470 1,289 470 1,289
Bond 2020 - 8.875% 100,805 100,697 132,556 141,327
Bond 2035 - 5.125% 152,746 152,679 163,000 170,085
Yorkshire Electricity
Group plc 2037 - 5.9% 100,016 100,016 116,673 121,111
Cumulative preference
shares 3,368 3,368 160,532 153,553
European Investment
Bank 2018 - 4.065%* 41,400 41,395 43,901 45,035
European Investment
Bank 2019 - 4.241%* 41,462 41,457 44,286 46,159
European Investment
Bank 2020 - 4.386%* 40,478 40,472 43,538 45,814
511,295 481,511 735,506 724,511
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
22. FINANCIAL LIABILITIES - BORROWINGS - continued
Company
Book Value Fair Value
2013 2012 2013 2012
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 1,117 158,281 151,302
3,390 3,390 160,554 153,575
Analysis of borrowings:
Short-term loans from
Group undertakings 22 22 22 22
Cumulative preference
shares 3,368 3,368 160,532 153,553
3,390 3,390 160,554 153,575
The fair value of 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.
The valuation of liabilities set out above is based on Level 1
inputs.
* 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%
Interest on short-term loans and on inter-company short-term
loans is charged at a floating rate of interest LIBOR plus 1.25%,
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.
The Company had authorised 115,000,000 non-equity cumulative
preference shares of 1p each as at 31 December 2013 and 2012. As at
31 December 2013 and 2012 111,662,378 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;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
22. FINANCIAL LIABILITIES - BORROWINGS - continued
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 2013, the Group had available GBP67m (2012:
GBP82m) 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 Group. As at 31 December 2013, 100% (2012:
100%) of the Group's long-term borrowings were at fixed rates and
the average maturity for these borrowings was 15 years (2012: 16
years).
23. PROVISIONS
Group Company
2013 2012 2013 2012
GBP'000 GBP'000 GBP'000 GBP'000
Other provisions 3,640 3,580 1,725 1,743
Analysed as follows:
Current 1,577 1,385 - -
Non-current 2,063 2,196 1,725 1,743
3,640 3,580 1,725 1,743
Group
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2013 896 2,684 3,580
Utilised/paid in the year (495) (388) (883)
Charged to statement of profit or
loss 587 356 943
At 31 December 2013 988 2,652 3,640
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.
Company provisions (included in 'other') cover the actuarial
assessment of the costs of unfunded pension arrangements in respect
of former employees. Further details can be found in the Employee
Benefit Obligations note.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
24. DEFERRED TAX
Accelerated Retirement
tax depreciation Rollover/ benefit
holdover (obligations/
relief assets) Other Total
Group; GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 99,993 8,545 (9,547) (112) 98,879
Credit to the statement
of profit or loss (11,681) (1,054) (5,233) (67) (18,035)
Charge to other comprehensive
income - - 12,320 - 12,320
At 31 December 2013 88,312 7,491 (2,460) (179) 93,164
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 2012 (as
previously reported) 112,901 9,253 50,056 (90) 172,120
Prior year adjustment - - (53,850) - (53,850)
At 1 January 2012 (restated) 112,901 9,253 (3,794) (90) 118,270
(Credit)/charge to the
statement of profit or (8,910)
loss (as previously reported) (13,207) (708) 5,027 (22)
Charge/(credit) to the
statement of profit or (9,591)
loss (prior year adjustment) 299 - (9,890) -
Credit to other comprehensive
income (prior year adjustment) - - (890) - (890)
At 31 December 2012 (as
restated) 99,993 8,545 (9,547) (112) 98,879
Retirement
Rollover/ benefit (obligations/
Accelerated holdover assets)
tax depreciation relief Total
Company; GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 (22) 7,471 (398) 7,051
(Credit)/charge to income statement (16) (951) 56 (911)
At 31 December 2013 (38) 6,520 (342) 6,140
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover (obligations
relief / assets) Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2012 (30) 8,104 (394) 7,680
Charge/(credit) to statement
of profit or loss 8 (633) (4) (625)
At 31 December 2012 (22) 7,471 (398) 7,051
Other comprises provisions and employee expenses deductible for
tax on a paid basis.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS
Introduction
The Company operates two pension schemes on behalf of the
participating companies within the Northern Powergrid Group:
- The Northern Powergrid Group of the ESPS (the "DB Scheme");
and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new
employees from July 1997 and is a money purchase arrangement
accounted for as a defined contribution scheme.
The DB Scheme is a defined benefit scheme for directors and
employees, which provides pension and other related retirement
benefits based on final pensionable pay. The DB Scheme closed to
staff commencing employment with the Northern Powergrid Group on or
after 23 July 1997. Members who joined before this date, including
some Protected Persons under The Electricity (Protected Persons)
(England and Wales) Pension Regulations 1990, continue to build up
future pension benefits.
Under the DB Scheme, employees are typically entitled to annual
pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional
tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such
as withdrawing from active service.
The Group does not provide any other post-retirement benefits to
members of the DB Scheme.
Role of Trustees
The DB Scheme is administered by a board of Trustees which is
legally separate from the Company. The assets of the DB Scheme are
held in a separate trustee-administered fund. The board of Trustees
is made up of Trustees appointed by the Company, as the Principal
Employer of the DB Scheme, Trustees elected by the membership and
an independent trustee. The Trustees are required by law to act in
the interest of all relevant beneficiaries and are responsible in
particular for the asset investment policy plus the day-to-day
administration of the benefits payable. They also are responsible
for jointly agreeing with the Principal Employer the level of
contributions due to the DB Scheme.
Funding requirements
UK legislation requires that pension schemes are funded
prudently (i.e. to a level in excess of the current expected cost
of providing benefits). The last actuarial valuation of the DB
scheme was carried out by the Group Trustees' actuarial advisors,
Aon Hewitt, as at 31 March 2010. Such valuations are required by
law to take place at intervals of no more than three years and,
therefore, an actuarial valuation is currently ongoing with an
effective date of 31 March 2013. Following each valuation, the
Trustees and the Company must agree the contributions required (if
any) to ensure the DB Scheme is fully funded over time on the basis
of suitable, prudent assumptions. Contributions agreed in this
manner constitute a minimum funding requirement.
Agreement was reached during June 2011 with the Group Trustees
to repair the funding deficit of GBP276m as at 31 March 2010 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 over the period to 31 March 2015, made on a
monthly basis, followed by an agreed profile of payments to be made
over the remaining ten years of the recovery plan, as set out
below:
1 April 2015 to 31 March GBP24.5m p.a.
2016
1 April 2016 to 31 March GBP16.3m p.a.
2023
1 April 2023 to 31 March GBP17.4m p.a.
2025
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS - continued
Funding requirements - continued
All contributions set out above are in 2010/11 prices and
increase in line with increases in the Retail Prices Index (RPI)
over the period until they fall due. However, this recovery plan is
currently under review as part of the actuarial valuation as at 31
March 2013.
The contributions payable by the Company to the DB Scheme in
respect of future benefits, which are accruing, are 47.0% (for
certain senior management) and 29.4% (for other employees) of
pensionable pay. These contributions were determined as part of the
31 March 2010 actuarial valuation and are payable in addition to
the deficit repair contributions mentioned above. These rates will
remain in place until such a time as a new schedule of
contributions is agreed between the Trustees and the Company as
part of the 31 March 2013 valuation.
Under the rules of the DB Scheme, any future surplus in the DB
Scheme may, following consultation with the Group Trustees, be
allocated for the benefit of the members of the DB Scheme and/or
the Principal and Participating Employers.
Pensions' Regulation
The UK pensions market is regulated by the Pensions Regulator
whose key statutory objectives in relation to UK defined benefit
plans are to:
- protect the benefits of members;
- promote and to improve understanding of the good administration;
and
- reduce the risk of situations arising which may lead to compensation
being payable from the Pension Protection Fund (PPF).
The Pensions Regulator has various powers including the power
to:
- wind up a scheme where winding up is necessary to protect
members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions or the calculation
of the technical provisions where trustees and company fail
to agree on appropriate contributions; and
- impose a contribution where there has been a detrimental action
against the scheme.
Reporting at 31 December 2013
For the purposes of this disclosure, the current and future
pension costs of the Group have been assessed by Aon Hewitt, a
qualified independent actuary, using the assumptions set out below,
which the actuary has confirmed represent 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 of
Northern Powergrid Holdings Company has accepted the advice of the
actuary and formally approved the use of these assumptions for the
purpose of calculating the pension cost of the Group.
The results of the latest funding valuation at 31 March 2010
have been adjusted to 31 December 2013. Those adjustments take
account of experience over the period since 31 March 2010, changes
in market conditions, and differences in the financial and
demographic assumptions. The present value of the Defined Benefit
Obligation (the "DBO") and the related current service cost were
measured using the Projected Unit Credit Method.
For schemes closed to new members, such as the DB Scheme, the
current service cost calculated under the Projected Unit Credit
Method is expected to increase as the members of the scheme
approach retirement.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS - continued
Reporting at 31 December 2013 - continued
The principal assumptions used to calculate the liabilities
under IAS 19 are set out below:
Main financial assumptions 2013 2012
% p.a. % p.a.
RPI Inflation 3.15 2.80
Rate of general long-term increase in salaries 3.15 2.80
Pension increases 3.05 2.80
Discount rate for scheme liabilities 4.40 4.40
The financial assumptions reflect the nature and term of the DB
Scheme's liabilities.
Main financial assumptions 2013 2012
Life expectancy for a male currently aged
60 27.1 27.9
Life expectancy for a female currently aged
60 28.8 28.1
Life expectancy at 60 for a male currently
aged 45 28.8 29.6
Life expectancy at 60 for female currently
aged 45 30.6 29.8
Proportion of pension exchanged for additional
cash at retirement 10% 0%
The mortality assumptions are based on recent actual mortality
experience of DB Scheme members and allow for expected future
improvements in mortality rates.
The DB Scheme's assets are invested in the following assets:
Main financial assumptions 2013 2012
GBPm GBPm
Developed market equity 290.7 288.1
Emerging market equity 12.1 15.7
Property 112.2 103.4
Reinsurance 61.8 59.4
Listed infrastructure 66.8 0.0
Investment grade corporate bonds 331.2 330.7
Other debt 37.2 33.3
Fixed interest gilts 21.6 16.4
Index-linked gilts 358.7 357.9
Cash 18.4 17.9
Total 1,310.7 1,222.8
The fair values of the above equity and debt instruments are
determined based on quoted market prices in active markets whereas
the fair values of properties are not based on quoted prices in
active markets.
As at 31 December 2013, the fair value of the DB Scheme's
assets, which related to self-investment, amounted to GBPnil (2012:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS - continued
Reporting at 31 December 2013 - continued
The amounts recognised on the statement of financial position
are set out below:
Reconciliation of funded status to statement 2013 2012
of financial position as restated
GBPm GBPm
Fair value of DB Scheme assets 1,310.7 1,222.8
Present value of funded defined benefit obligations (1,321.3) (1,259.3)
Funded status (10.6 ) (36.5)
Present value of unfunded defined benefit
obligations (1.7) (1.7)
Liability recognised on the statement of financial
position (12.3) (38.2 )
The amounts recognised in comprehensive income or in property,
plant and equipment are set out below.
2013 2012
as restated
GBPm GBPm
Operating cost
Service costs:
Current service cost 13.9 12.2
Administration expenses 1.5 1.0
Financing cost
Interest on net defined benefit liability 0.8 (0.2)
Pension expense 16.2 13.0
Re-measurements in OCI:
Return on plan assets in excess of that recognised
in net interest (36.4) (40.3)
Actuarial losses due to changes in financial
assumptions 57.6 83.3
Actuarial gains due to changes in demographic
assumptions (23.2) -
Actuarial losses due to liability experience 10.7 17.0
Total amount recognised in OCI 8.7 60.0
Total 24.9 73.0
Pension expense 16.2 13.0
Charged to other Northern Powergrid Group
undertakings (18.8) (18.7)
(2.6) (5.7)
Allocated to the statement of profit or loss (5.5) (3.0)
Allocated to property, plant and equipment 2.9 (2.7)
Closing defined benefit obligation 1,321.3 1,259.3
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS - continued
Reporting at 31 December 2013 - continued
Changes to the present value of the defined 2013 2012
benefit obligation during the year as restated
GBPm GBPm
Opening defined benefit obligation 1,259.3 1,141.8
Current service cost 13.9 12.2
Interest expense on DBO 54.6 53.9
Contributions by DB Scheme participants 1.6 1.8
Actuarial gains on DB Scheme liabilities arising
from changes in demographic assumptions (23.2) -
Actuarial losses on DB Scheme liabilities
arising from changes in financial assumptions 57.6 83.3
Actuarial losses on DB Scheme liabilities
arising from experience 10.7 17.0
Net benefits paid out (53.2) (50.7)
Changes to the fair value of DB Scheme assets 2013 2012
during the year as restated
GBPm GBPm
Opening fair value of DB Scheme assets 1,222.8 1,128.2
Interest income on DB Scheme assets 53.8 54.1
Re-measurement gains on DB Scheme assets 36.4 40.3
Contributions by the employer 50.8 50.1
Contributions by DB Scheme participants 1.6 1.8
Net benefits paid out (53.2) (50.7)
Administration costs incurred (1.5) (1.0)
Closing fair value of scheme assets 1,310.7 1,222.8
Actual return on DB Scheme assets 2013 2012
as restated
GBPm GBPm
Interest income on DB Scheme assets 53.8 54.1
Re-measurement gains on DB Scheme assets 36.4 40.3
Closing fair value of scheme assets 90.2 94.4
Analysis of amounts recognised in OCI 2013 2012
as restated
GBPm GBPm
Total re-measurement losses (8.7) (60.0)
Total loss (8.7) (60.0)
Profile of the DB Scheme
The DBO includes benefits for current employees, former
employees and current pensioners. The overall duration of the DB
Scheme's obligation was assessed to be about 17 years based on the
provisional results of the 31 March 2013 actuarial valuation. This
is the weighted-average time over which benefit payments are
expected to be made.
Broadly, about 40% of the DBO is attributable to current
employees (duration about 23 years), 10% to former
employees (duration about 24 years) and 50% to current
pensioners (duration about 12 years).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS - continued
Risks associated with the DB Scheme
The DB Scheme exposes the Northern Powergrid Group to a number
of risks, the most significant of which are:
Risk Description Mitigation
Volatile asset The DBO is calculated using To avoid concentration risk,
returns a discount rate set with the allocation to UK equity
reference to corporate is restricted to approximately
bond yields. If assets 35% of the total equity
underperform this discount allocation. The allocation
rate, this will create to growth assets is monitored
an element of deficit. to ensure it remains appropriate
The DB Scheme holds a significant given the DB Scheme's long-term
proportion (29%) of its objectives. The Trustees
assets in growth assets regularly review the strategy
(such as equities) which, in respect of growth seeking
although expected to outperform assets and have recently
corporate bonds in the diversified some return-seeking
long-term, create volatility assets from equities into
and risk in the short-term. Reinsurance and Listed Infrastructure
to reduce overall risk.
Changes in A decrease in corporate The DB Scheme also holds
bond yields bond yields will increase a substantial proportion
the value placed on the of its assets (35%) as bonds,
DBO for accounting purposes, which provide a hedge against
although this will be partially movements in the DBO. There
offset by an increase in are some differences in
the value of the DB Scheme's the credit quality of bonds
bond holdings. held by the DB Scheme and
the bonds analysed to decide
the DBO discount rate, such
that there remains some
risk should yields on different
quality bond/swap assets
diverge.
Inflation A significant proportion The DB Scheme holds around
risk of the DBO is indexed in 30% in UK government index-linked
line with price inflation bonds which provide a hedge
(specifically in line with against higher than expected
RPI) and higher inflation inflation increases of the
will lead to higher liabilities DBO (rising inflation will
increase both the DBO and
the value of the index-linked
bond portfolio).
Currency risk To increase diversification, The DB Scheme hedges a proportion
the DB Scheme invests in of the overseas investments
overseas assets. This leads currency risk for those
to a risk that foreign overseas currencies that
currency movements negatively can be hedged efficiently.
impact the value of assets The DB Scheme's currency
in Sterling terms. hedging ratio is currently
50% in respect of overseas
developed market currencies.
Life expectancy The majority of the DB The DB Scheme regularly
Scheme's obligations are reviews actual experience
to provide benefits for of its membership against
the pensionable lifetime the actuarial assumptions
of the member, so increases underlying the future benefit
in life expectancy will projections and carries
result in an increase in out detailed analysis when
the liabilities. setting an appropriate scheme
specific mortality assumption.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
25. EMPLOYEE BENEFIT OBLIGATIONS - continued
Other risks
There are a number of other risks associated with the DB Scheme
including operational risks (such as paying out the wrong
benefits), legislative risks (such as the government increasing the
burden on pension schemes through new legislation) and other
demographic risks (such as a higher proportion members dying than
assumed with a dependant eligible to receive a survivor's pension
from the DB Scheme).
A particular legislative risk exists in relation to the
equalisation of Guaranteed Minimum Pension ("GMP"), a quasi-state
benefit accrued by many UK plans over the period 1978 to 1997 as a
result of a UK government programme allowing pension plans to
"contract out" of the State Second Pension. The UK Government has
announced its intention to ensure that these benefits, which
currently pay out at different levels for men and women, are
gender-equalised in accordance with sex-discrimination legislation.
This would increase the DBO but it is not possible to fully
quantify the impact of this change at this stage. However, it could
lead to an increase in the order of 2% to the DBO for a typical
scheme.
Sensitivity to key assumptions
The key assumptions used for IAS 19 are discount rate, inflation
and mortality. If different assumptions were used, this could have
a material effect on the results of the Group. The sensitivity of
the results to these assumptions is as follows.
Changes
in DBO Revised
DBO
Current Figures 1,321.3
Following a 10 bps decrease in the discount
rate 22.7 1,344.0
Following a 10 bps increase in the discount
rate (22.3) 1,299.0
Following a 10 bps increase in the inflation
assumption 14.4 1,335.7
Following a 10 bps decrease in the inflation
assumption (21.3) 1,300.0
Following a 1 year increase in life expectancy 40.4 1,361.7
Following a 1 year decrease in life expectancy (41.0) 1,280.3
The sensitivity information shown above has been prepared using
the same method as adopted when adjusting the results of the latest
funding valuation to the statement of financial position date. This
is the same approach as has been adopted in previous periods.
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 2013 1.7
Utilised/paid in the year (0.1)
Transferred from statement of profit or loss 0.1
At 31 December 2013 1.7
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
26. 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 statement of profit or loss for the year ended 31
December 2013 was GBP1,404,000 (2012: GBP1,578,000). Included
within cash and cash equivalents is GBP105,897,000 as at 31
December 2013 (2012: GBP150,071,000) 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 statement of profit or loss for the year ended 31
December 2013 was GBP4,689,000 (2012: GBP5,286,000). Included
within borrowings is GBP100,486,000 as at 31 December 2013 (2012:
GBP101,305,000).
Interest on loans to/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
2013:
CE Insurance Services Limited - 428 -
Integrated Utility Services Limited
(registered in Eire) - 1,428 232
CE UK Gas Holdings Limited 46 - -
Northern Powergrid (Yorkshire) plc 17,723 7,697 -
Vehicle Lease and Service Limited 169 4,155 399
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 163 3,890 356
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.
During the year, 2 directors (2012: 3) and 6 key personnel
(2012: 8) utilised the services provided by NTFL. The amounts
included in finance lease receivables owed by these directors and
key personnel total GBP30,000 (2012: GBP112,000) in respect of
non-current and GBP15,000 (2012: GBP35,000) in respect of current
receivables.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
26. RELATED PARTY DISCLOSURES - continued
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 statement of profit or loss for the year
ended 31 December 2013 was GBP660,000 (2012: GBP951,000). Included
within cash and cash equivalents is GBP33,187,000 as at 31 December
2013 (2012: GBP46,271,000) 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 statement of profit or loss for the year ended 31 December 2013
was GBP396,000 (2012: GBP604,000). Included within borrowings is
GBP22,000 as at 31 December 2013 (2012: 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
Related Party GBP'000 GBP'000 GBP'000
2013:
CE UK Gas Holdings Limited 46 - -
Integrated Utility Services Limited 423 - -
Northern Powergrid (Northeast)
Limited 4,452 162 30,000
Northern Powergrid (Yorkshire)
plc 3,891 - -
Vehicle Lease and Service Limited 169 - 405
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 163 - 334
Sales and purchases from related parties were made at commercial
prices.
There are no amounts outstanding to other members of the
Northern Powergrid Group.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
27. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM
OPERATIONS
Group
2013 2012
as restated
GBP'000 GBP'000
Profit before income tax 147,339 146,678
Depreciation charges 61,155 54,284
Profit on disposal of fixed assets (444) (285)
Amortisation of deferred revenue (18,218) (15,324)
Retirement benefit obligations (34,600) (30,871)
Movement in provisions 60 (14)
Finance costs 35,895 36,882
Finance income (1,963) (1,912)
189,224 189,438
Decrease in inventories 610 2,374
Decrease/(increase) in trade and other receivables 14,913
(15,016)
Decrease in trade and other payables (6,712) (4,914)
Cash generated from operations 198,035 171,882
Company
2013 2012
GBP'000 GBP'000
Profit before income tax 23,195 22,189
Depreciation charges 52 38
Decrease in provisions (18) -
Finance costs 9,015 9,605
Finance income (30,679) (31,302)
1,565 530
Decrease in trade and other receivables 228 234
Decrease in trade and other payables (4,304) (244)
Cash (used in)/generated from operations (2,511) 520
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
un-distributable reserve.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2013
29. 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
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 18 June 2014 at 10.00 am for the
following purposes:
The following resolutions will be proposed as ordinary
resolutions.
Resolution 1
To receive and consider the strategic, directors' and auditor's
reports and the Group accounts for the year ended 31 December
2013.
Resolution 2
To declare that no final dividend be paid for the year ended 31
December 2013.
Resolution 3
To re-elect Mr G E Abel as a director.
Resolution 4
To re-elect Mr T E Fielden as a director.
Resolution 5
To re-elect Dr J M France as a director.
Resolution 6
To re-elect Dr P A Jones as a director.
Resolution 7
To re-appoint Deloitte LLP as auditor until the conclusion of
the next general meeting at which accounts are laid 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
16 April 2014 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTICE OF ANNUAL GENERAL MEETING - continued
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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