TIDMNTEA
RNS Number : 2697M
Northern Electric PLC
26 April 2018
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 2017.
Pursuant to LR 14.3.6, the document has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
www.hemscott.com/nsm.do
The 2017 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Enquiries:
Jenny Riley 01977 605155
REGISTERED NUMBER: 02366942 (England and Wales)
GROUP STRATEGIC REPORT, REPORT OF THE DIRECTORS AND
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER
2017
FOR
NORTHERN ELECTRIC PLC
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2017
Page
Company Information 1
Group Strategic Report 2
Report of the Directors 13
Report of the Independent
Auditor 18
Consolidated Statement of
Profit or Loss 26
Consolidated Statement of
Profit or Loss and Other
Comprehensive Income 27
Consolidated Statement of
Financial Position 28
Company Statement of Financial
Position 29
Consolidated Statement of
Changes in Equity 30
Company Statement of Changes
in Equity 31
Consolidated Statement of
Cash Flows 32
Company Statement of Cash
Flows 33
Notes to the Consolidated
Financial Statements 34
NORTHERN ELECTRIC PLC GROUP
COMPANY INFORMATION
FOR THE YEARED 31 DECEMBER 2017
DIRECTORS: T E Fielden
T H France
P J Goodman
P A Jones
J N Reynolds
COMPANY SECRETARY: J C Riley
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 02366942 (England and Wales)
AUDITOR: Deloitte LLP
Statutory Auditor
Newcastle upon Tyne
United Kingdom
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
The directors present the annual reports and financial
statements for the year ended 31 December 2017of Northern Electric
plc (the "Company")which have been drawn up and are presented in
accordance with the Companies Act 2006.
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"), Integrated Utility Services Limited ("IUS")
and Northern Powergrid Metering Limited ("NPg Metering"),
collectively, (the "Group"). Northern Powergrid is an authorised
distributor under the Electricity Act 1989 and holds an electricity
distribution licence granted by the Secretary of State. As a
distribution network operator ("DNO"), Northern Powergrid
distributes electricity, at voltages of up to 132 kilovolts ("kV"),
to approximately 1.6 million customers connected to its electricity
distribution network within its distribution services area in the
northeast of England. IUS provides engineering contracting services
and NPg Metering rents meters to energy suppliers.
In common with the Northern Powergrid Group, the Group operates
a business model and strategy based on six core principles (the
"Core Principles"), which are:
Core Principle Strategic Key Performance Indicators
objective ("KPI")
----------------- ---------------------- ---------------------------------------
Financial Strong finances × Profitability
strength that enable × Maintenance of investment
improvement grade credit ratings
and growth. × Cash flow
--------------- ---------------------- ---------------------------------------
Customer Delivering × Broad measure of customer
service exceptional satisfaction
customer × Stakeholder Engagement
service. and Customer Vulnerability
rank
--------------- ---------------------- ---------------------------------------
Operational High-quality, × Customer Minutes Lost
excellence efficient × Customer Interruptions
operators × Network investment
running × High voltage restoration
a smart time
reliable × Customers with Power
energy system. Cuts over 12 hours
--------------- ---------------------- ---------------------------------------
Employee High-performing × Occupational Safety
commitment people doing and Health Administration
rewarding Rate
jobs in × Preventable Vehicle
a safe and Accidents
secure workplace. × Lost time accidents
× Restricted duty accidents
× Medical treatment
accidents
× Operational incidents
× Absence rate
--------------- ---------------------- ---------------------------------------
Environmental Leaders × Total Oil/Fluid Lost
respect in environmental × SF6 Gas discharges
respect × Environmental Incidents
and low × Carbon Footprint
carbon technologies.
--------------- ---------------------- ---------------------------------------
Regulatory Trustworthy, × Quarterly certification
integrity fair and process
balanced,
creating
win-win
outcomes.
--------------- ---------------------- ---------------------------------------
Each of the core principles defined above has a strategic
objective which is achieved through the delivery of a strategic
focus, as set out in the Strategic Report. The level of success in
achieving the strategic focus and therefore the delivery of each
strategic objective is measured using KPI's.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR
FINANCIAL STRENGTH
-------------------- ----------------------------------------------------
Strategic objective KPI 2016/17 2015/16
-------------------- -------------------------- ----------- -----------
Strong finances Operating Profit GBP180.2 GBP181.2
that enable million million
improvement
and growth
-------------------- -------------------------- ----------- -----------
Credit Rating (Standard A A
& Poor's)
-------------------- -------------------------- ----------- -----------
Cash Operating GBP159.6 GBP168.9
Flow activities million million
-------- ---------------- ----------- -----------
Investing GBP(279.9) GBP(214.8)
activities million million
-------------------- -------- ---------------- ----------- -----------
Strategic focus: To provide the financial resources to support
long-term corporate stability.
Performance during the year: The Group continued to maintain
good control in respect of both its capital and operating costs by
effectively managing the financial risks that could have had an
adverse impact on its business.
Revenue: The Group's revenue at GBP403.4 million was GBP18.5
million higher than the prior year due to higher smart meter rental
income and engineering contracting revenue.
Operating profit and position at the year-end: The Group's
operating profit of GBP180.2 million was GBP1.0 million lower than
the previous year, primarily reflecting higher depreciation
charges, increased business rates and pension costs, partially
offset by higher metering profits. The statement of financial
position on page 27 and 28 shows that, as at 31 December 2017, the
Group had total equity of GBP1,111.8 million. The directors
consider the Group to have a strong financial position which, when
coupled with the preference of its parent company, Berkshire
Hathaway Energy Company ("Berkshire Hathaway Energy"), for
operating with lower levels of debt than equivalent companies in
the sector, creates a stable base for continued strong performance
during the ED1 period.
Finance costs and investments: Finance costs net of investment
income at GBP40.3 million were GBP1.2 million higher than the prior
year due to the impact of a full year of 2016 financing and lower
investment income.
Taxation: The effective tax rate in the year was 20.5%.
Corporation tax of GBP21.3 million was paid in the year which was
higher than the prior year of GBP8.6 million due to the conclusion
of a tax claim with HM Revenue & Customs in 2016. Details of
the income tax expense are provided in Note 7 to the financial
statements.
Share capital: There were no changes to the Company's share
capital during the year.
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
GBP159.6 million was GBP9.3 million lower than the previous year,
mainly due to higher tax paid partially offset by higher operating
profit before depreciation.
- Investing activities: Net cash used in investing activities at
GBP279.9 million was GBP65.1 million higher than the prior year
reflecting higher purchase of property, plant and equipment partly
offset by higher customer contributions.
- Financing activities: The net cash from in financing
activities at GBP136.4 million was GBP98.8 million higher than
prior year reflecting smart meter financing in 2017partially offset
by a larger dividend payment in 2016 than in 2017.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
FINANCIAL STRENGTH - continued
Pensions: The Company is the principal employer of the Northern
Powergrid Group of the Electricity Supply Pension Scheme (the "DB
Scheme"), a defined benefit scheme. Full details of the Company's
commitments to the DB Scheme and the associated deficit repair
payments are provided in Note 27 to the accounts. Companies in the
Group also participate 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 insurance policies which
cover risks associated with employees, third party motor 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 are extremely important, given the
contribution they make to the elimination or reduction of exposure
to such risks.
CUSTOMER SERVICE
--------------------- ------------------------------------------
Strategic KPI 2017 2016
objective
--------------------- -------------------------- ------ ------
Delivering
exceptional
customer service.. BMCS 87.2% 86.3%
--------------------- -------------------------- ------ ------
BMCS Rank 9 8
------------------------------------------------ ------ ------
BMCS Power Cuts 88.2% 87.5%
------------------------------------------------ ------ ------
BMCS General Enquiries 90.7% 90.1%
------------------------------------------------ ------ ------
BMCS Connections 85.1% 84.1%
------------------------------------------------ ------ ------
SECV rank (combined
with Northern Powergrid
(Yorkshire) plc) 3 5
------------------------------------------------ ------ ------
Strategic focus: To improve the service delivered to customers.
Performance during the year: Under the broad measure of customer
satisfaction ("BMCS"), an independent market research company
carried out telephone surveys with Northern Powergrid's customers
to find out how satisfied they were with services related to
unplanned or planned power cuts, quotations and subsequent
connections, and general enquiries. Northern Powergrid recorded an
overall satisfaction score of 87.2%, which was comparable to the
prior year (86.3%). The BMCS rank in 2017 of 9 showed a decline in
comparison to the prior year (2016: 8). The change was attributed
to a reduction in BMCS Connections performance which contributed
towards half of the overall score. To further enhance the service
provided to customers, a number of initiatives from the Northern
Powergrid's customer experience improvement plan were implemented
during the year. This included the continued development of the
customer relationship management system and enhancing the
self-service offerings available to customers.
Throughout the year, further improvements were made to the way
in which the Contact Centre operates. The Quality Management
Framework that was launched in 2016 to define the standards
required of Contact Centre colleagues to deliver exceptional
customer service was extended to incorporate the connections
business. In addition, the Contact Centre was restructured to
introduce a metering defect customer support team, designed to
effectively support customers during the government's smart meter
roll-out programme.
In May 2017, Northern Powergrid, together with its affiliate
Northern Powergrid (Yorkshire) plc, put forward its SECV submission
to the Office for Gas and Electricity Markets ("Ofgem") in respect
of its work during the year. The submission provided an overview of
initiatives including an increased focus on data quality which had
resulted in cleansing Northern Powergrid's Priority Services
Register ("PSR") and strengthening relationships with partners who
deliver key services to customers. Following the submission to
Ofgem's panel, the position of Northern Powergrid in the context of
the wider DNO group increased from fifth place to third. The
improvement demonstrated the effectiveness of the revised
stakeholder engagement strategy launched in 2016.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
CUSTOMER SERVICE - continued
Connections to the network
Strategic focus: To further implement customer service
improvements in support of the commitment to reduce routine, small
works end-to-end connections lead times by 30% during the ED1
period, actively facilitate the development of competition from
independent connections providers ("ICPs") and deliver the major
works service improvement plan as part of the Ofgem Incentive on
Connections Engagement ("ICE").
Performance during the year: Within connections services, work
continued on the transformation of the small works connections
business to improve customer service. A new process was implemented
during January 2017 which introduced a single point of customer
contact for the delivery of small works connections. In parallel
the online service alterations process was overhauled to offer
customers more choice in the way they receive a quotation.
Northern Powergrid continued to comply with the processes
introduced by the Competition in Connections Code of Practice. This
included the provision of dual quotations, enabling ICPs to
self-determine and approve points of connection to the network and
simplifying the authorisation process for ICPs' operational
staff.
During the year, Northern Powergrid began the delivery of 22
actions included in the major works service improvement plan as
part of the ICE. Working proactively with customers and obtaining
their feedback, Northern Powergrid formally increased the number of
improvement actions to 31 during the mid-year return to Ofgem. All
actions were completed and Ofgem determined that Northern Powergrid
had met the assessment criteria for developing and delivering the
ICE service improvement plan.
Corporate responsibility
Strategic focus: To build effective relationships with customers
and other stakeholders whilst maximising the value of contact with
customers, especially those who are vulnerable and hard to
reach.
Performance during the year: Northern Powergrid worked closely
with key partners such as the Environment Agency, local authorities
and local resilience forums, particularly during periods of severe
weather. Collaboration with stakeholders in the wider energy
industry included the continued promotion of the national '105'
number and preparation for the January 2018 overhead line safety
campaign, an Energy Networks Association initiative, supported by
DNOs.
With the assistance of the Social Issues Expert Group (which
includes external experts and advisers) Northern Powergrid further
developed the services provided to vulnerable customers including
those on the PSR. To improve the accessibility and knowledge of the
services available to vulnerable customers, a network of partners
was established with community and third sector organisations.
Safety remains the Northern Powergrid Group's first priority and
underpins all operations. Accordingly, the Northern Powergrid Group
has maintained its support to charitable organisations and
continued to sponsor the "Safety Champions" initiative, which is
aimed at enhancing safety performance. Throughout the year, the
Northern Powergrid Group engaged with thousands of school children
through its series of safety events, and in addition, became the
sponsor of the Cub Home Safety Activity Badge which has been
designed to teach Cub Scouts about safety in and around the
home.
Supporting customers through the use of tailored education
programmes continued throughout 2017. Activity included Make the
Grade in Energy, an education, skills and employability programme,
Energy Heroes, targeted at primary school pupils to promote
awareness of energy costs and ways of saving energy, and attendance
at The Big Bang Fair which encourages young people to pursue
science, technology, engineering and maths subjects.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
OPERATIONAL EXCELLENCE
----------------- --------------------------------------------------------------
Strategic KPI 2016/17 2015/16
objective
----------------- -------------------------- ---------------- ----------------
Actual Target Actual Target
----------------- -------------------------- ------- ------- ------- -------
High-quality,
efficient
operators
running a
smart reliable Customer Minutes
energy system. Lost 45.0 <64.1 50.1 <65.9
----------------- -------------------------- ------- ------- ------- -------
Customer Interruptions 53.3 <62.7 58.3 <63.8
-------------------------------------------- ------- ------- ------- -------
KPI 2017 2016
-------------------------------------------- ---------------- ----------------
Actual Actual
-------------------------------------------- ---------------- ----------------
Network investment GBP186.4 GBP181.3
million million
-------------------------------------------- ---------------- ----------------
High voltage restoration 55.8 minutes 60.0 minutes
time
-------------------------------------------- ---------------- ----------------
Strategic focus: To provide, maintain and invest in an efficient
distribution network that delivers electricity effectively.
Enhancing the reliability of the network in support of the
commitment to achieve 8% fewer unplanned power cuts and reduce the
average length of unplanned power cuts by 20% during the ED1
period.
Performance during the year: Customer minutes lost ("CML") and
customer interruptions ("CI") are the key performance indicators
set by Ofgem and used by Northern Powergrid to measure the quality
of supply and system performance. Both CML and CI are measured on a
regulatory year basis which commences on 1 April of any given year
and concludes on 31 March of the subsequent year. 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 per 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.
Northern Powergrid's performance during the most recent regulatory
year was better than Ofgem's target for both CML and CI.
Northern Powergrid invested GBP186.4 million during the year
through its approved network investment strategy (2016: GBP181.3
million), which has been designed to deliver improvements and
increase the network's resilience. Various major projects were
undertaken to reinforce the primary network, replace plant,
refurbish transformers, rebuild overhead lines, remove and replace
oil-filled cables, change deteriorated poles, replace switchgear
and install and commission new remote control points.
Enhancements to the network continued through investment into
the use of technology including the expansion of the automated
power restoration system ("APRS"). In the event of a high-voltage
fault, APRS analyses the information presented by intelligent
assets installed on the network and, from that information,
determines where the fault is located and executes switching to
restore power to the 'healthy' network in a safe manner in under
three minutes. It is planned to enable APRS at 306 primary
substations across the Northern Powergrid Group by the end of the
ED1 period. Northern Powergrid's high-voltage restoration
performance during the calendar year 2017 averaged some 55.8
minutes (2016: 60.0 minutes), after allowing for severe weather
incidents and other exemptions.
Northern Powergrid aims to respond effectively to the needs of
customers and local communities and to achieve the guaranteed
standard for the restoration of supply: restoration within 12 hours
of a power cut occurring under normal weather conditions. Northern
Powergrid's major incident management procedure is utilised during
severe weather events that affect the network. In the year, one
such event occurred in January 2017, where high winds interrupted
supplies to 42,000 customers across Northern Powergrid's network,
95% of whom had power restored within 12 hours.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
EMPLOYEE COMMITMENT
-------------------- ----------------------------------------------------------------------
Strategic KPI 2017 2016
objective
-------------------- ---------------------------------- ---------------- ----------------
Actual Target Actual Target
-------------------- ---------------------------------- ------- ------- ------- -------
High-performing
people doing
rewarding
jobs in Occupational Safety and Health
a safe and Administration Rate Northern
secure workplace. Powergrid Group 0.44 0.26 0.30 0.30
-------------------- ---------------------------------- ------- ------- ------- -------
Preventable Vehicle Accidents 12 13 11 10
------------------------------------------------------- ------- ------- ------- -------
Lost time accidents 2 1 1 1
------------------------------------------------------- ------- ------- ------- -------
Restricted duty accidents 1 0 0 1
------------------------------------------------------- ------- ------- ------- -------
Medical treatment accidents 0 1 1 1
------------------------------------------------------- ------- ------- ------- -------
Operational incidents 2 5 3 5
------------------------------------------------------- ------- ------- ------- -------
Absence rate (Northern Powergrid
Group) 2.9% 2.9%
------------------------------------------------------- ------- ------- ------- -------
Health and Safety
Strategic focus: To deliver a comprehensive safety and health
improvement plan ("SHIP") resulting in world class safety
performance and achieve Northern Powergrid's commitment of halving
its accident rate during the ED1 period.
Performance during the year: In common with the Berkshire
Hathaway Energy 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. The Northern Powergrid Group missed its target OSHA rate
of 0.26 (the equivalent of six recordable incidents) having
reported ten recordable incidents. Whilst performance against the
target was disappointing, Northern Powergrid's long term safety
record suggests that it is one of the safest in its sector. This
has been recognised in the form of a Gold President's Award from
the Royal Society for the Prevention of Accidents for the
achievement of 13 consecutive Gold Awards.
Improving safety performance remains a priority and the way in
which this is achieved is set out in Northern Powergrid's SHIP. The
SHIP focuses on leadership engagement, improving two-way
communication on safety issues, supervisory oversight, ensuring
managers and supervisors fulfil their safety inspection programmes
and provide regular coaching and instruction to work teams, and
workplace risk management, to develop competence in identification
and risk mitigation methods.. These three areas are supported by
driver training, operational safety seminars, stand-down briefings
and regular safety reports and newsflashes.
Northern Powergrid's OHSAS 18001 health and safety management
systems successfully retained certification.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
EMPLOYEE COMMITMENT - continued
Employees
Strategic focus: To effectively manage headcount whilst
emphasising the importance of leadership and high standards of
performance by engaging with employees and their trade union
representatives.
Performance during the year: The Northern Powergrid Group has
adopted the Berkshire Hathaway Energy code of business conduct,
which details the commitment to ethics and compliance with the law,
provides reporting mechanisms for known or suspected ethical or
legal violations, and establishes minimum standards of behaviour
expected of all employees. In support of this, a "speaking up"
process is in place enabling all staff to raise concerns of
unethical acts, malpractice or impropriety (including bribery or
corruption), and an anonymous help line operated by an independent
company is also available.
In order to support the well-being of its employees, the
Northern Powergrid Group provides an independent employee
assistance service to all staff. The programme is a confidential,
self-referral counselling and information service to assist with
personal or work-related problems that may be affecting health,
wellbeing or performance and is available 24 hours a day, 365 days
a year. Working with its occupational health provider, the Northern
Powergrid Group is delivering a long-term programme aimed at
improving the health of its staff.
During the year, 68 new recruits joined the Northern Powergrid
Group workforce renewal programme, including for the first time,
two Cyber Apprentices. In addition, 19 trainees graduated from
their training programmes.
At 31 December 2017, the Group employed 1,112 staff (2016:
1,066).
ENVIRONMENTAL RESPECT
---------------- ---------------------------------------------------------------
Strategic KPI 2017 2016
objective
---------------- ------------------------- ----------------- -----------------
Actual Target Actual Target
---------------- ------------------------- ------- -------- ------- --------
Leaders in
environmental
respect and
low carbon Total Oil/Fluid Lost
technologies. (litres) 14,066 <12,600 17,044 <17,142
---------------- ------------------------- ------- -------- ------- --------
SF6 Gas discharges
(kg) 33.33 34.00 14.17 28.00
------------------------------------------ ------- -------- ------- --------
Environmental Incidents 1 <5 5 <7
------------------------------------------ ------- -------- ------- --------
Carbon Footprint
(tonnes) 33,007 33,552
------------------------------------------ ------- -------- ------- --------
Strategic focus: Deliver Environmental "RESPECT"
(Responsibility, Efficiency, Stewardship, Performance, Evaluation,
Communication and Training) and in doing so achieve our commitment
to reduce oil and fluid loss by 15% and reduce our business carbon
footprint by 10% during the ED1 period.
Performance during the year: Northern Powergrid has operated a
United Kingdom Accreditation Service scheme for environmental
management since the late 1990s and is certified to the
environmental management systems standard ISO 14001: 2015. The ISO
14001 standard is designed to enhance environmental performance,
fulfil compliance obligations and achieve environmental objectives,
all of which contribute to the achievement of the Group's KPIs. A
full recertification assessment was carried out in March 2017 and a
surveillance audit conducted in September 2017. Continued
certification was confirmed following each audit.
Northern Powergrid's carbon footprint reporting framework is
certified under the Certified Emissions Measurement and Reduction
Scheme for compliance with ISO 14064-1:2006. The last full audit
was undertaken in October 2017 where continued certification was
confirmed. Initiatives including the implementation of telematics
in fleet vehicles facilitated a further improvement in reducing
Northern Powergrid's carbon footprint during the year to 33,007
tonnes (2016: 33,552 tonnes) In support of the target to further
reduce oil and fluid loss, the 2017 annual environmental
improvement plan included replacing fluid-filled cables and
locating cable fluid leaks more quickly which resulted in a total
fluid loss of 14,066 litres (2016: 17,044).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
ENVIRONMENTAL RESPECT - continued
Northern Powergrid missed the total oil fluid loss target by
approximately 12% due to a number of leaks from underground cables.
Northern Powergrid continues to take steps and implement innovation
solutions to minimise oil and fluid loss across the network.
Additional activity to minimise the Northern Powergrid's impact on
the environment included placing overhead lines underground in
National Parks and Areas of Outstanding Natural Beauty and
protecting wildlife and habitat.
Sustainability
Strategic focus: To help facilitate the United Kingdom's
transition to a low-carbon economy in Northern Powergrid's capacity
as a major participant in the United Kingdom energy industry and in
terms of its own carbon footprint.
Performance during the year: As the country takes action to make
significant reductions in its carbon emissions, the way in which
electricity is produced and used is expected to have a substantial
impact on the electricity network over time. This has already been
seen through the number of low-carbon technology installations such
as photovoltaic solar panels, electric vehicles and heat pumps. The
volume and total capacity of decentralised energy generation has
also been growing steadily and, given the greater range of load and
generation technologies now connected to the network, Northern
Powergrid is taking action to develop innovative solutions that
will reduce the need for traditional and potentially expensive
reinforcement of the network.
From an innovation perspective, Northern Powergrid is running a
portfolio of projects in the priority areas of smart grids, smart
meters, digital-enabled customer service and affordability.
A partnership with Nissan is supporting new electric vehicle
projects for the trialling of 'vehicle to grid' technology to
enable car users to supply power to the electricity network. In
addition, a new project was launched in the year to develop hybrid
battery technology to expedite the restoration of the electricity
supply following a power cut. Collaboration with Northern Gas
Networks at the Integrel demonstrator site continues to assess the
potential future benefits of integrating both gas and electricity
energy systems. Northern Powergrid is also scoping the role of
distribution system operator ("DSO") with a new project to explore
the value of the transition for customers and to understand the
business changes that are required to realise those benefits.
The Northern Powergrid Group climate change adaptation strategy
recognises the impact that climate change is anticipated to have on
the business, the risks this poses and the proposed actions to
mitigate these risks including vegetation management, network
specifications for changing temperatures and improved weather
prediction. The installation of flood defences is one such key
activity that is already underway and the delivery of the committed
programme in the ED1 period remains on track.
REGULATORY INTEGRITY
-------------------- --------------------------------------------
Strategic objective KPI
-------------------- --------------------------------------------
Trustworthy, fair Completion of a quarterly regulatory
and balanced, compliance affirmation process which
creating win-win comprises compliance with 1,950 regulatory
outcomes. obligations.
-------------------- --------------------------------------------
Strategic focus: To manage the Group's business to the highest
behavioural standards and adhere to a policy of strict compliance
with all relevant standards, legislation and regulatory
conditions.
Performance during the year: Under the RIIO (revenue =
incentives + innovation + outputs) model for regulation, price
controls are set for eight years with provision for a mid-period
review if there are changes to the outputs that network companies
are required to deliver. The ED1 price control became effective on
1 April 2015 and is due to end on 31 March 2023. Northern
Powergrid's base allowed revenue (excluding the effects of
incentive schemes and any deferred revenues from the prior price
control) before inflation reduced by 1.0% for the regulatory year
ended 31 March 2017, relative to the previous regulatory year. Base
allowed revenues before inflation remain constant for each
subsequent regulatory year through to the 31 March 2023. Nominal
base allowed revenues will increase in line with inflation (as
measured by the United Kingdom's Retail Prices Index).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
REVIEW OF THE YEAR - continued
REGULATORY INTEGRITY - continued
In order to assure compliance with licence and other regulatory
obligations, Northern Powergrid operates a regulatory compliance
affirmation process, under which ownership of approximately 1,950
regulatory obligations are assigned to around 80 responsible
managers. Those responsible managers are required to review
compliance with the relevant obligations on a quarterly basis and
report on any identified non-compliances or perceived risks which
are then addressed by members of the executive team. To minimise
the risk of Northern Powergrid breaching its licence conditions and
other statutory requirements (which could lead to financial
penalties), the board of directors review the outcome of each
quarter's exercise.
Northern Powergrid submits a number of information returns to
Ofgem and is required, under the terms of Northern Powergrid's
licence, to assure the accuracy of those returns. These
arrangements involve the preparation and submission to Ofgem, by
the end of February in each year, of a risk-based data-assurance
plan for the regulatory year ahead, together with a report
detailing the assurance work actually carried out in the regulatory
year just ended and the findings of that work.
PRINCIPAL RISKS AND UNCERTAINTIES
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 support of its financial
reporting practices. A robust system is in place to facilitate the
identification of new risks, including those associated with the
achievement of the Northern Powergrid Group's strategic objectives
and Core Principles. Once identified, key risks and their
respective controls and mitigation plans are continually assessed
and formally reviewed by the Governance and Risk Management Group,
which reports to the Audit Committee.
Supported by the internal audit function, the risk management
programme includes regular reviews of the crisis management,
disaster recovery and major incident plans. To determine the level
of disaster preparedness and responsiveness against threats to
business continuity, risk management plans and processes are
periodically tested. This self-evaluation approach is reinforced by
that of the Berkshire Hathaway Energy group, which continue to
benchmark risk management activities across its business units and
share significant lessons learned.
Category Risk / Uncertainty Mitigation
---------- --------------------------------- ------------------------------
Financial The Gas and Electricity Appeal to the Competition
Markets Authority ("GEMA") and Markets Authority
resetting the price against a decision
control formula (which by GEMA to proceed
determines the maximum with such a modification.
permitted revenue for
each Regulatory Year)
set out in the electricity
distribution licence
without the consent
of the electricity distribution
licence holder.
---------- --------------------------------- ------------------------------
Financial The Company's costs The Company monitors
increase or change by performance against
more than RPI having regulatory allowances
a direct impact on the including forecasts
Company's financial for the remainder of
results. The rate of the price period and
inflation as measured takes appropriate corrective
by RPI is taken into action to ensure it
account in setting the lives within regulatory
Company's allowed income allowances.
in respect of each regulatory
year.
---------- --------------------------------- ------------------------------
Financial Changes in performance Performance against
under incentive schemes, incentives is routinely
such as those caused measured and management
as a result of a decline action taken to address
in customer service any performance issues.
performance, may lead
to adjustments to allowed
revenues.
---------- --------------------------------- ------------------------------
Financial Interest rate risk - The Group is financed
the exposure to uncertain by long-term borrowings
future interest rates. at fixed and floating
rates and has access
to short-term borrowing
facilities at floating
rates of interest.
As at 31 December 2017,
99% of the Group's
long-term borrowings
were at fixed rates
and the average maturity
for these borrowings
was 8 years. The Group
uses interest rate
swaps to mitigate exposure
to uncertain future
interest rates.
---------- --------------------------------- ------------------------------
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Category Risk / Uncertainty Mitigation
--------------- -------------------------------- -----------------------------
Financial Cost of the defined The cost of the defined
benefit pension schemes benefit pension scheme,
and the possible effect including deficit repair
on the current deficit payments, is managed
position. in triennial cycles
by negotiation with
the trustees of the
scheme. On-going and
repair costs form part
of the assessment of
cost made by Ofgem
in each price control,
and if judged efficient,
these costs are permitted
to be recovered through
revenues at a stable
level to provide certainty
for customers.
The Company works with
scheme trustees to
ensure that scheme
judgements reflect
this indirect obligation
to customers.
--------------- -------------------------------- -----------------------------
Financial The existing Data Protection A programme to identify
policies and procedures the impact of GDPR
are not sufficient to and the actions required
comply with the additional ahead of the regulation
requirements of the becoming effective
incoming General Data is well underway and
Protection Regulation under regular review.
("GDPR") resulting in
financial penalties
and reputational damage.
--------------- -------------------------------- -----------------------------
Financial Trading risk - investments The Company's policy
fail to deliver anticipated is that no trading
outcome. in financial instruments
should be undertaken.
--------------- -------------------------------- -----------------------------
Financial Major Incidents (including A number of major incident
/ Operational weather and terrorism and crisis management
attacks) causing network policies, plans and
disruption resulting governance arrangements
in customer service are in place to react
penalties and a reduction to and deal with such
in the number of units situations. In addition,
delivered on which income an industry mutual
is charged. aid agreement is in
place.
--------------- -------------------------------- -----------------------------
Operational Health and Safety incident Health and Safety is
- The electricity distribution given the highest priority
business is inherently within the Northern
hazardous. Employees Powergrid Group and
work at height, in closed clear policies and
spaces, alone and with procedures are in place
live electricity, increasing both to ensure the
the risk of potential safety of the employees
safety incidents. and customers but also
ensure compliance with
relevant legislation.
Health and safety training
is provided to employees
on a continuous basis
through formal programmes,
regular briefings and
the sharing of best
practice and lessons
learnt between DNOs.
--------------- -------------------------------- -----------------------------
Operational Cyber-attack or cyber-security A robust cyber security
breach affecting hardware, risk mitigation programme
systems, customer data is in place including
or intellectual property. accreditation under
the ISO 27001 Information
Security (process security)
standard for certain
discrete business areas
and compliance with
the Centre for Internet
Security Critical Security
Controls. Further advances
are being continuously
implemented and managed.
--------------- -------------------------------- -----------------------------
Operational The take-up of low-carbon In addition to smart
technologies and the grid deployment activity,
resulting effect on Northern Powergrid
the networks capacity. has a range of innovation
projects to develop
and demonstrate future
technologies and commercial
practices. Northern
Powergrid is considering
how the transition
to a DSO role could
assist customers to
connect more low carbon
technologies.
--------------- -------------------------------- -----------------------------
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2017
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Category Risk / Uncertainty Mitigation
----------- ----------------------------- -------------------------------
Commercial The emergence of increased Northern Powergrid is
competition in the setting out the policy
electricity distribution position supporting the
market including the expanded role of DSO
emerging role of DSO. which is underpinned
by electricity distributors
being ideally placed
to deliver benefits to
customers from a DSO
role and to maintain
overall accountability
for the stability of
local networks.
----------- ----------------------------- -------------------------------
Commercial Credit control - protecting The Northern Powergrid
the Company from incurring Group requires strict
bad debt and maintaining adherence to credit checking,
strong cash flow. payment terms, payment
performance tracking
and debt management policies
----------- ----------------------------- -------------------------------
Commercial Credit-cover arrangements The relationship with
with electricity suppliers. energy suppliers, including
credit-cover arrangements,
is governed by a distribution
connection and use of
system agreement which
sets out how creditworthiness
will be determined and,
as a result, whether
the supplier needs to
provide collateral.
----------- ----------------------------- -------------------------------
Commercial Availability of resource Northern Powergrid uses
to deliver work programmes. a mix of direct labour
and contracted resource
to facilitate the delivery
of work programmes (including
the capital expenditure
programme).
----------- ----------------------------- -------------------------------
Internal Control
A rigorous internal control environment exists within the
Northern Powergrid Group to support the financial reporting
process, the key features of which include regular reporting, a
series of operational and financial policy statements,
investigations undertaken by internal audit and a stringent process
for ensuring the implementation of internal audit recommendations.
In addition, the Northern Powergrid Group utilises comprehensive
business planning procedures, regularly reviews key performance
indicators to assess progress towards its goals, and has a strong
internal audit function to provide independent scrutiny. Financial
controls include a centralised treasury operations and established
procedures for the planning, approving and monitoring of major
capital expenditure.
In accordance with Berkshire Hathaway Energy's requirements to
comply with the United States Sarbanes-Oxley Act, the Northern
Powergrid Group undertakes a quarterly risk control assessment
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 certain
senior managers are required to confirm that the system of internal
control in their area of the business is operating effectively.
Consequently, the directors believe that a robust system of risk
assessment and management is in place.
The Northern Powergrid Group does not have a specific human
rights policy. However, in accordance with the Core Principles, it
remains fully committed to operating ethically and responsibly and
with fairness and integrity. This is implemented through the
policies and procedures it has in place which are applicable to all
stakeholder groups and encompasses employees' health, safety and
welfare, dealings with customers, particularly those who are
vulnerable, the impact of the Northern Powergrid Group on the
environment and the contribution to sustainability.
The Northern Powergrid Group is committed to maintaining the
highest ethical standards in the conduct of its business and,
implements Berkshire Hathaway Energy's code of business conduct,
details of which can be found on page 8. The Northern Powergrid
Group has robust procedures in place to meet the requirements of
the Bribery Act 2010.
ON BEHALF OF THE BOARD:
P A Jones
Director
24 April 2018
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2017
The directors present their report together with the strategic
report, audited financial statements and the auditor's report of
the Group for the year ended 31 December 2017.
DIVIDS
During the year, an interim dividend of GBP22.7 million was paid
(2016: GBP100.0 million). The directors recommend that no final
dividend be paid in respect of the year.
The Group'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 Group 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 Group so as not to jeopardise its
investment grade issuer credit rating.
RESEARCH AND DEVELOPMENT AND FUTURE OUTLOOK
The Group 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 initiated
in the year included projects regarding the use of bi-directional
power flow to electric vehicles, an improved methodology to
determine the overall societal impact of network investment and
operations, a project to understand and test cross-vector energy
systems in collaboration with the regional gas distribution network
operator and a project to explore and understand the technical and
economic opportunities and implications of the DSO role.
During the year, the Group invested GBP1.3 million (2016: GBP0.8
million) (Note 6 to the accounts) in its research and development
activities.
FUTURE DEVELOPMENTS
The financial position of the Group, as at 31 December 2017, is
shown in the statement of financial position on pages 27 and
28.
There have been no significant events since the year end and the
directors intend that:
- Northern Powergrid will continue to implement well-justified
business plan and will develop its business by efficiently
investing in the network and improving the quality of supply and
service provided to customers.
- IUS will develop its business and in doing so concentrate on
its core skills of engineering contracting by delivering a high
standard of service to its existing and new clients.
- NPg Metering will retain its focus on pursuing opportunities
in the market for meter asset provision as the smart meter roll-out
programme develops.
There are no plans to change the existing business model of the
Company, or any of the companies within the Group.
DIRECTORS
The directors who held office during the year under review and
to the date of signing this report were:
R Dixon Non-executive Director (retired 26 October
2017)
T E Fielden Finance Director
J M France Regulation Director (resigned 5 April 2018)
T H France General Counsel (appointed 28 March 2018)
P J Goodman Executive Vice-President and Chief Financial
Officer, Berkshire Hathaway Energy
P A Jones President and Chief Executive Officer
J N Reynolds Non-executive Director (appointed 26 October
2017)
During the year, no director was interested in any contract
which was significant in relation to the business of the Company or
the Group.
During the year and up to the date of approval of the Directors'
Report, an indemnity contained in the Company's Articles of
Association was in force for the benefit of the directors of the
Company and as directors of associated companies, which was a
qualifying third party indemnity provision for the purposes of the
Companies Act 2006.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2017
FINANCIAL RISK MANAGEMENT
Details of financial risks are included in the Principal Risks
and Uncertainties on pages 10, 11 and 12 of the Strategic Report
and note 21 to the financial statements.
FINANCIAL DERIVATIVES
As at 31 December 2017, the Group held one derivative financial
instrument (2016: nil) to mitigate the interest rate risk on a
floating interest rate loan. More details on derivative instruments
are available in Note 21 to the financial statements.
POLITICAL DONATIONS
No contributions were made to political organisations during the
year (2016: GBPnil).
EMPLOYEES
Employee consultation
A constitutional framework agreed with trade union
representatives exists in respect of employee consultation. The
management team keep employees and trade union representatives
informed of and involved as appropriate in developments that may
impact them now or in the future.
Employee engagement continues to show improvement with local
action plans augmented by routine communication channels including
regular staff briefings, meetings with staff and their
representatives, and utilising the Northern Powergrid Group's
intranet.
During the year, the President and Chief Executive Officer of
the Northern Powergrid Group continued to provide employees with
updates on the Northern Powergrid Group's financial,
organisational, safety and customer service performance through
regular electronic briefings.
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 Northern Powergrid
Group will make reasonable adjustments, wherever possible.
In accordance with Section 414c of the Companies Act 2006
disclosures concerning relations with employees and greenhouse gas
emissions can be found on page 8 of the Strategic Report.
VOTE HOLDER AND ISSUER NOTIFICATION
There have been no disclosures to the Company under Disclosure
and Transparency Rule 5 (Vote Holder and Issuer Notification
Rules).
DIRECTORS' BIOGRAPHIES
THOMAS E FIELDEN
Appointed in October 2009, Mr Fielden, 47, joined the Northern
Powergrid Group in July 2009 and became Finance Director on 12
October 2009. Mr Fielden 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.
THOMAS H FRANCE
Appointed in March 2018, Mr France 33, joined the Northern
Powergrid Group in November 2013 and he became General Counsel in
July 2015. He is a solicitor, having qualified with Herbert Smith
in their corporate energy and infrastructure team.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2017
DIRECTORS' BIOGRAPHIES
PATRICK J GOODMAN
Mr Goodman, 50, is executive vice president and chief financial
officer of Berkshire Hathaway Energy. Mr Goodman is responsible for
managing all aspects of Berkshire Hathaway Energy'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 Berkshire Hathaway Energy's domestic and international
financings, acquisitions and project developments. Additionally, he
manages all accounting, financial reporting, tax, budgeting,
long-range financial planning and internal audit functions for
Berkshire Hathaway Energy. Mr Goodman has been the chief financial
officer since 1999 and has served in various financial positions,
including chief accounting officer since joining the Company 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.
PHILIP A JONES
Appointed in April 2007, Dr Jones, 49, is President and Chief
Executive Officer of the Northern Powergrid Group, the UK platform
in the global portfolio of Berkshire Hathaway Energy. Prior to his
appointment as President and Chief Executive Officer, he was
Strategy and 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 and 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 is a director of the Energy Networks
Association, the trade association that represents the power
transmission and distribution companies.
JOHN N REYNOLDS
Appointed in October 2017, Mr Reynolds OBE, 51, is the Chief
Executive Officer of Castle Water. Mr Reynolds became a director of
Northern Powergrid Holding Company in January 2011 and was further
appointed to Chairman of the audit committee in October 2017. He
chairs the Market Operator Services Limited audit committee, is a
Fellow of the Institution of Engineering & Technology and was a
former commission member of the Water Industry Commission for
Scotland. Mr Reynolds chaired the Church of England Ethical
Investment Advisory Group and is the author of a number of books
and articles on business ethics.
CORPORATE GOVERNANCE STATEMENT
In accordance with Disclosure and Transparency Rule (DTR) 7.2.9,
the directors have elected to set out the information required by
DTR 7.2.1 to DTR 7.2.7 R in the group annual report and audited
consolidated financial statements of Northern Powergrid Holdings
Company, a copy of which can be found on Northern Powergrid's
corporate website.
DIVERSITY POLICY
The Northern Powergrid Group has adopted a number of policies
(including the policy on diversity at work and code of business
conduct) that collectively comprise the policy on diversity.
Diversity is actively supported.
AUDIT COMMITTEE
The board of Northern Powergrid Holdings Company has established
an audit committee for the Northern Powergrid Group under delegated
terms of reference which carries out the functions required by DTR
7.1.3 R.
Committee members:
J Reynolds Non-Executive Director (appointed as Chairman on 26 October 2017)
R Dixon Non-Executive Director (retired 26 October 2017)
T E Fielden Finance Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2017
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period.
In preparing these financial statements, International Accounting
Standard 1 requires that directors:
× 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 entity's financial position and financial
performance; and
× Make an assessment of the Group and the Company'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 Group and the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and the Company 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 Group, and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO DTR 4
Each of the directors as at the date of the Annual Reports and
Accounts, whose names and functions are set out on page 13 in the
Report of the Directors confirms that, to the best of their
knowledge.
a) the financial statements, 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
taken as a whole, together with a description of the principal
risks and uncertainties it faces.
NON FINANCIAL INFORMATION STATEMENT
In accordance with Section 414CB(7) of the Companies Act 2006,
the directors have elected to set out the information required by
Section 414CB (1) to (6) in the group annual report and audited
consolidated financial statements of Northern Powergrid Holdings
Company, a copy of which can be found on Northern Powergrid's
corporate website.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2017
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 reports 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 9 years and has access
to short-term committed borrowing facilities of
GBP137m.
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 reports and accounts.
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 or she is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
b) he or she has taken all the steps he/she ought to have taken as a director in order to make himself/herself 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 Section 418 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
24 April 2018
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion on financial statements
In our opinion the financial statements:
- the financial statements give a true and fair
view of the state of the group's and of the parent
company's affairs as at 31 December 2017 and of
the group's profit for the year then ended;
- the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the
European Union and IFRSs as issued by the International
Accounting Standards Board (IASB);
- the parent company financial statements have been
properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in
accordance with the provisions of the Companies
Act 2006; and
- the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements of Northern Electric
plc (the 'parent company') and its subsidiaries (the 'group') 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 to the financial statements
1 to 33
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. We confirm that the non-audit services
prohibited by the FRC's Ethical Standard were not provided to the
group or the parent company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC - continued
Summary of audit approach
- Key audit The key audit matters that we identified
matter in the current year was percentage allocation
of overheads capitalised
- Materiality The materiality that we used in the current
year was GBP7.0m which was determined
on the basis of 5% of profit before tax
for the year.
- Scoping The focus of our audit work was on the
main regulated business, Northern Powergrid
(Northeast) Ltd and the significant sub-consolidations
in the group.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the
following matters where:
- the directors' use of the going concern basis
of accounting in preparation of the financial
statements is not appropriate; or
- the directors have not disclosed in the financial
statements any identified material uncertainties
that may cast significant doubt about the company's
ability to continue to adopt the going concern
basis of accounting for a period of at least twelve
months from the date when the financial statements
are authorised for issue.
We have nothing to report in respect of these matters.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Overhead allocation
Key audit matter Total additions in the year across Northern
description Powergrid (Northeast) were GBP192m,
which includes replacement of failed
assets and overheads. Due to the potential
for bias to be involved in making these
estimates, the nature of expenditure
capitalised by the distribution business
is a key audit matter. A portion of
overheads are capitalised to the extent
they are considered to relate to capital
additions that have taken place during
the year.
The calculation of capitalised overheads
remains an area at risk of potential
bias due to the level of subjectivity
in the percentages of overheads capitalised.
The key risk here being management's
judgement in the percentage amounts
capitalised are not reflective of the
capital spend.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC - continued
Overhead allocation - continued
How the scope We have reviewed the capital spend in
of the audit the year, the current policies in place
responded to and assessed their suitability in line
the key audit with IAS 16, along with reviewing of
matter the approach management takes towards
assessing capitalised overheads and
any changes introduced in the current
year.
We have obtained relevant industry benchmarks
for the proportions to capitalised,
using these benchmarks to challenge
management as to the appropriateness
of their judgement.
We have evaluated the design and implementation
of controls surrounding accounting for
capital spend.
We have reviewed the overhead allocation
model, including testing the underlying
overhead expenditure being apportioned.
We have performed a substantive analytical
review to consider whether the apportionment
between entities is consistent with
the prior year.
We have performed detailed testing of
the total overheads included within
the allocation model which are subsequently
capitalised based on management's assessment
of percentage allocation.
Key observations No material differences were identified
based upon the procedures above. We
have therefore concluded management's
overhead capitalisation judgement is
reasonable, with policies applied being
appropriate and consistent with prior
year and IFRS requirements.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP7.0m
Basis for determining 5% of profit before tax during the
materiality current year.
Rationale for the The company's primary activity is
benchmark applied to borrow funds to lend to other
group companies. Therefore the interest
income balance is considered to
be a key driver of company activity.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC - continued
Our application of materiality - continued
We agreed with the Board of Directors that we would report to
the Board all audit differences in excess of GBP0.25m (2016:
GBP0.30m), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report to
the Board of Directors on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the
Group and its environment, including internal controls, and
assessing the risks of material misstatement at the Group level.
The operations of the group are mainly focused in the United
Kingdom in the electricity distribution business, with some
overseas assets in the oil and gas industry.
The focus of our audit work was on the main regulated business,
Northern Powergrid (Northeast) ltd, with work performed at a
combination of the group's offices in the North East and Yorkshire
regions, and we have audited the significant subconsolidations in
the group. Other sizeable companies within the group include
Integrated Utility Services Ltd, which provides contracting and
maintenance services to the electricity, rail and water industries,
and Northern Powergrid Metering Ltd which leases smart meters to
energy providers.
At the Group level we have tested the consolidation process and
carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the
aggregated financial information of the remaining components not
subject to audit or audit of specified account balances.
.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC
An overview of the scope of our audit - continued
The majority of profit before tax not accounted for by our full
scope audit procedures relates to consolidation adjustments which
are tested in full as part of our audit procedures
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
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
an auditor's report 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.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
- the information given in the strategic report
and the directors' report for the financial year
for which the financial statements are prepared
is consistent with the financial statements; and
- the strategic report and the directors' report
have been prepared in accordance with applicable
legal requirements.
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report
or the directors' report.
Matters on which we are required to report by exception
Adequacy of explanations Under the Companies Act 2006 We have nothing
received and we are required to report to report in
accounting records to you if, in our opinion: respect of
* we have not received all the information and these matters.
explanations we require for our audit; or
* adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
* the financial statements are not in agreement with
the accounting records and returns.
Directors' remuneration Under the Companies Act 2006 We have nothing
we are also required to report to report in
if in our opinion certain respect of
disclosures of directors' these matters.
remuneration have not been
made.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF NORTHERN ELECTRIC
PLC
Other Matters
Auditor tenure Following the recommendation of the
audit committee, we were appointed by
the board of Northern Powergrid Holdings
Company in 1998 to audit the financial
statements for the year ending 31 December
1998 and subsequent financial periods.
The period of total uninterrupted engagement
including previous renewals and reappointments
of the firm is 19 years, covering the
years ending 31 December 1998 to 31
December 2017.
Consistency of Our audit opinion is consistent with
the audit report the additional report to the Board of
with the additional Directors we are required to provide
report to the in accordance with ISAs (UK).
Board of Directors
David M Johnson FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
25 April 2018
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEARED 31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 403,441 384,867
Cost of sales (41,615) (43,336)
GROSS PROFIT 361,826 341,531
Operating expenses 9 (181,610) (160,350)
OPERATING PROFIT 180,216 181,181
Other gains 331 522
Finance costs 5 (41,404) (39,139)
Finance income 5 1,100 1,354
PROFIT BEFORE INCOME
TAX 6140,243 143,918
Income tax 7 (28,805) (7,210)
PROFIT FOR THE YEAR 111,438 136,708
Profit attributable to:
Owners of the parent 111,438 136,708
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE YEARED 31 DECEMBER 2017
2017 2016
GBP'000 GBP'000
PROFIT FOR THE YEAR 111,438 136,708
OTHER COMPREHENSIVE INCOME
Item that will not be reclassified to profit or loss:
Re-measurement of net pension obligation 57,800 (84,700)
Income tax relating to item
of other comprehensive income (9,262) 14,197
48,538 (70,503)
Item that may be reclassified subsequently to profit or
loss:
Cash flow hedge (346) -
Income tax relating to item
of other comprehensive income 59 -
(287) -
OTHER COMPREHENSIVE INCOME/(LOSS)
FOR THE YEAR, NET OF 48,251 (70,503)
INCOME TAX
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 159,689 66,205
Total comprehensive income attributable to:
Owners of the parent 159,689 66,205
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 10 47,568 40,857
Property, plant and equipment 11 2,551,472 2,322,900
Investments 12 3,428 3,319
Pension asset 24 116,900 31,500
Trade and other receivables 15 6,358 8,406
2,725,726 2,406,982
CURRENT ASSETS
Inventories 13 13,382 12,836
Trade and other receivables 14 94,321 83,640
Cash and cash equivalents 15 16,612 515
Restricted cash 16 2,182 -
126,497 96,991
TOTAL ASSETS 2,852,223 2,503,973
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 17 72,173 72,173
Share premium 18 158,748 158,748
Hedging reserves 18 (287) -
Other reserves 18 6,185 6,185
Retained earnings 18 874,944 737,668
TOTAL EQUITY 1,111,763 974,774
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - continued
31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 19 584,348 562,308
Borrowings 20 694,092 587,414
Derivative liability 21 327 -
Deferred tax 23 102,552 89,462
Provisions 22 1,690 1,803
1,383,009 1,240,987
CURRENT LIABILITIES
Trade and other payables 19 144,828 129,882
Borrowings 20 203,972 153,844
Derivative liability 21 19 -
Tax payable 7,421 3,764
Provisions 22 1,211 722
357,451 288,212
TOTAL LIABILITIES 1,740,460 1,529,199
TOTAL EQUITY AND LIABILITIES 2,852,223 2,503,973
The financial statements were approved by the Board of Directors
on 24 April 2018 and were signed on its behalf by:
P A Jones
Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 10 - -
Property, plant and equipment 11 1,587 1,634
Investments 12 328,070 328,070
Deferred tax 23 137 -
329,794 329,704
CURRENT ASSETS
Trade and other receivables 14 3,762 317
Tax receivable 1,684 6,047
5,446 6,364
TOTAL ASSETS 335,240 336,068
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 17 72,173 72,173
Share premium 18 158,748 158,748
Other reserves 18 6,185 6,185
Retained earnings 18 14,797 23,391
TOTAL EQUITY 251,903 260,497
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings 20 1,117 1,117
Deferred tax 23 - 2,758
1,117 3,875
CURRENT LIABILITIES
Trade and other payables 19 6,073 3,177
Borrowings 20 74,537 66,806
Provisions 22 1,610 1,713
82,220 71,696
TOTAL LIABILITIES 83,337 75,571
TOTAL EQUITY AND LIABILITIES 335,240 336,068
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 GBP14.1 million (2016: GBP14.4 million).
The financial statements were approved by the Board of Directors
on 24 April 2018 and were signed on its behalf by:
P A Jones
Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Called
up
share Retained Share Hedging Other Total
capital earnings premium reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 January 2016 72,173 771,463 158,748 - 6,185 1,008,569
Changes in
equity
Dividends - (100,000) - - - (100,000)
Total comprehensive
income - 66,205 - - - 66,205
--------- ---------- --------- --------- ---------- ----------
Balance at 31
December 2016 72,173 737,668 158,748 - 6,185 974,774
--------- ---------- --------- --------- ---------- ----------
Changes in
equity
Dividends - (22,700) - - - (22,700)
Total comprehensive
income - 159,976 - (287) - 159,689
--------- ---------- --------- --------- ---------- ----------
Balance at 31
December 2017 72,173 874,944 158,748 (287) 6,185 1,111,763
========= ========== ========= ========= ========== ==========
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
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 2016 72,173 107,480 158,748 6,185
344,586
Changes in equity
Dividends - (100,000) - - (100,000)
Total comprehensive income - 15,911 - - 15,911
Balance at 31 December 2016 72,173 23,391 158,748 6,185
260,497
Changes in equity
Dividends - (22,700) - - (22,700)
Total comprehensive income - 14,106 - - 14,106
Balance at 31 December 2017 72,173 14,797 158,748 6,185
251,903
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 31 225,498 217,880
Finance costs paid (45,048) (41,413)
Interest received 435 1,065
Tax paid (21,261) (8,608)
Net cash from operating activities 159,624 168,924
Cash flows used in investing activities
Purchase of intangible fixed assets (11,417) (12,963)
Purchase of property, plant and equipment (321,520)
(247,702)
Sale of property, plant and equipment 396 487
Customer contributions 52,141 44,896
Dividends received 509 491
Net cash used in investing activities (279,891) (214,791)
Cash flows from financing activities
New loans in year 155,011 -
Movement in loans from Group 6,235 137,558
Movement in restricted cash (2,182) -
Equity dividends paid (22,700) (100,000)
Net cash from financing activities 136,364 37,558
Increase/(decrease) in cash
and cash equivalents 16,097 (8,309)
Cash and cash equivalents
at beginning of year 515 8,824
Cash and cash equivalents
at end of year 16,612 515
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2017
2017 2016
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 31 1,091 778
Finance costs paid (9,428) (9,096)
Interest received - 56
Dividends received 23,209 22,291
Tax received/(paid) 97 (2,885)
Net cash from operating activities 14,969 11,144
Cash flows used in financing activities
Movement in borrowings in year - 2,395
Movements in loans from Group 7,731 62,139
Equity dividends paid (22,700) (100,000)
Net cash used in financing activities (14,969) (35,466)
Decrease in cash and cash equivalents -(24,322)
Cash and cash equivalents
at beginning of year - 24,322
Cash and cash equivalents - -
at end of year
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2017
1. GENERAL INFORMATION
Northern Electric plc (the "Company") is a private company
limited by shares incorporated in England and Wales 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
IFRS 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. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and
services. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an
asset or a liability, the Group takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these consolidated
financial statements is determined on such a basis, except for
leasing transactions which are in the scope of IAS 17, and
measurements that have some similarities to fair value but are not
fair value, such as net realisable value in IAS 2 or value in use
in IAS 36.
In addition, 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 Company 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.
The principal accounting policies are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
and its subsidiaries made up to 31 December each year. Control is
achieved where the Company has power over the investee, is exposed,
or has rights, to variable returns from its involvement with the
investee, and has the ability to use its power to affects its
returns.
Entities not controlled by the Company and its subsidiaries are
recognised at their fair value through profit or loss.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Investments in associates and joint ventures
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies. A joint venture is a
joint arrangement whereby the parties that have joint control of
the arrangement have the rights to the net assets of the joint
arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require unanimous consent of the parties
sharing control.
The results and assets and liabilities of associates or joint
ventures are incorporated in these consolidated financial
statements using the equity method of accounting except when
classified as held for sale. Investments in associates or joint
venture entities are initially recognised at cost and adjusted
thereafter to recognise the Group's share of profit or loss and
other comprehensive income of the associate or joint venture. When
the Group's share of losses of an associate or a joint venture
exceeds the Group's interest in that associate or joint venture,
the Group discontinues recognising its share of future losses.
An investment in an associate or a joint venture is accounted
for using the equity method from the date on which the investee
becomes an associate or a joint venture. On acquisition of the
investment in an associate or a joint venture, any excess of the
cost of the investment over the Group's share of the net fair value
of the identifiable assets and liabilities of the investee is
recognised as goodwill, which is included within the carrying
amount of the investment. Any excess of the Group's share of the
net fair value of the identifiable assets and liabilities over the
cost of the investment, after reassessment, is recognised
immediately in profit or loss in the period in which the investment
is acquired.
A joint operation is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the
arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require unanimous consent of the parties
sharing control.
Fixed asset investments are stated at cost less provision or
amounts written off for impairment in value.
Application of new and revised IFRS
In the current year, the Company has a number of amendments to
IFRS issued by the International Accounting Standards Board
("IASB") that are mandatorily effective for an accounting period
that begins on or after 1 January 2017:
Amendments to IAS 1
The amendments clarify that an entity need not provide specific
disclosure required by an IFRS if the information resulting from
that disclosure is not material, and give guidance on the bases of
aggregating and disaggregating information for disclosure
purposes.
In addition the amendments clarify that an entity's share of its
other comprehensive income of associates and joint ventures
accounted for using the equity method should be presented
separately from those arising from the Group.
The adoption of these amendments has not resulted in any impact
on the financial performance or financial position of the
Group.
Amendments to IAS 7
The amendments require an entity to provide disclosures that
enable users of financial statements to evaluate changes in
liabilities arising from financing activities. The directors of the
Company do not anticipate the application of these amendments has
had no material impact on the Company's financial statements.
Amendments to IAS 12
The amendments to IAS 12 Income Taxes clarify when a deferred
tax asset should be recognised for unrealised losses. The
application of the amendments has not resulted in any impact on the
financial performance or financial position of the Company.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Amendments to IAS 16 and IAS 38
The amendments to IAS 16 prohibit entities from using a revenue
based depreciation method for items of property, plant and
equipment. The amendments to IAS 38 introduce a rebuttable
presumption that revenue is not an appropriate basis for
amortisation of an intangible asset. As the Group already uses the
straight-line method for depreciation and amortisation for its
property, plant and equipment and intangible assets, respectively,
the adoption of these amendments has had no impact on the Group's
consolidated financial statements.
Amendments to IAS 27
The amendments focus on separate financial statements and allow
the use of the equity method in such statements. Specifically
amendments allow an entity to account for investments in
subsidiaries, associates and joint ventures in its separate
financial statements. Additionally the amendments also clarify that
when a parent ceases to be an investment entity, or becomes an
investment entity, it should account for the change from the date
when the change in status occurs. The adoption of the amendments
has had no impact on the Company's separate financial statements as
the Company accounts for investments in subsidiaries and associates
at cost.
Annual Improvements to IFRSs 2014-2016 Cycle
The annual improvements to IFRSs 2014-2016 Cycle include a
number of amendments to IFRSs. The application of these amendments
has had no effect on the Company's financial statement.
New and revised standards in issue but not yet effective
The Company has not applied the following new and revised IFRS
that have been issued but are not yet effective for the year ended
31 December 2017:
IFRS 9 - Financial Instruments (1 January 2018)
A revised version of IFRS 9, Financial Instruments, was issued
in July 2014 mainly to include:
a) impairment requirements for financial assets; and
b) limited amendments to the classification and measurement
requirements by introducing a 'fair value through other
comprehensive income' ("FVTOCI") measurement category for certain
simple debt instruments.
The directors of the Company anticipate that the application of
IFRS 9 in the future is unlikely to have a material impact on
amounts reported in respect of the Company's financial assets and
financial liabilities.
IFRS 15 - Revenue from Contracts with Customers (1 January
2018)
In May 2014, IFRS 15, Revenue from Contracts with Customers, was
issued which establishes a single comprehensive model for entities
to use in accounting for revenue arising from contracts with
customers. IFRS 15 will supersede the current revenue recognition
guidance including IAS 11 Construction Contracts, IAS 18 Revenue
and the related Interpretations.
The core principle of IFRS 15 is that an entity should recognise
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. Under IFRS 15, an entity recognises revenue when (or as)
a performance obligation is satisfied.
Far more prescriptive guidance has been added in IFRS 15 to deal
with specific scenarios. Furthermore, extensive disclosures are
required by IFRS 15. On the whole the directors anticipate that the
application of IFRS 15 will not have a material impact on the
Company's financial statements, however there is ongoing discussion
in the industry and amongst the accounting professions to consider
the appropriate accounting treatment for customer contributions
towards distribution system assets. We continue to engage in these
conversations and will evaluate and conclude prior to the
application of the standard.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
IFRS 16 - Leases (1 January 2019)
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance
including IAS 17 Leases and the related interpretations when it
becomes effective.
IFRS 16 distinguishes between leases and service contracts on
the basis of whether an identified asset is controlled by a
customer. Distinctions between operating leases and finance leases
are removed for lessee accounting, and is replaced by a model where
right-of-use asset and a corresponding liability have to be
recognised for all leases by lessees except for short term leases
and leases of low-value assets.
As of 31 December 2017, the Company has non-cancellable
operating lease commitments of GBP24.0 million, IAS 17 does not
require recognition of any right-of-use asset or liability for
future payments for these leases.
A preliminary assessment indicates that these arrangements will
meet the definition of a lease under IFRS 16, and hence the Company
will recognise a right-of-use asset and corresponding liability in
respect of all these leases unless they qualify for low-value or
short-term leases upon the application of IFRS 16. The directors of
the Company anticipate that the application of IFRS 16 is unlikely
to have a material impact on amounts reported in the statement of
profit or loss.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those
involving estimations, that the directors have made in the process
of applying the Group's accounting policies and that have the most
significant effect on amounts recognised in the consolidated
financial statements:
- The split of operating and capital expenditure
and the allocation of overheads to property,
plant and equipment:
The allocation of overheads to capital is derived
from a detailed analysis of the costs and their
cost drivers which is reviewed on annual basis.
The percentage allocation of overheads across
the workstream categories are obtained from
section managers who are asked to provide reasoning
and supporting evidence for the allocation.
Finance then undertake a financial impact assessment
review and the rationale to ensure it complies
with IFRS:
The amount of overheads capitalised in the year
was GBP40.0m (2016: GBP38.3m)
Key sources of estimation uncertainty
The following are the key assumptions concerning the future and
other key sources of estimation uncertainty at the end of the
reporting period that may have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year:
- Assumptions used when evaluation long-term pension
plans, these assumptions and their possible
impacts are disclosed in note 24.
Operating profit
Operating profit is stated after charging restructuring costs
and after the share of results of associates but before investment
income and finance costs.
Investments in subsidiaries
Investments in subsidiaries are account for at cost less
impairment.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
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 is measured at the fair value of consideration received
or receivable.
Revenue represents charges for the use of the Group's
distribution network, amortisation of customer contributions,
recharge of costs incurred on behalf of related parties and the
invoiced value of other goods sold and services provided, exclusive
of value added tax.
Revenues from charges to end customers for the use of the
Group's distribution network include estimates of the units
distributed. The estimated usage is based on historic data,
judgement 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 from a financial asset is recognised when it is
probable that the economic benefits will flow to the Group and the
amount of income can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying
amount on initial recognition.
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 end of the
reporting period, based on the proportion of contract costs
incurred for work performed to date relative 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, contract revenue is recognised to the extent of the costs
incurred where it is probable they will be recoverable. 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.
When contract costs incurred to date plus recognised profits
less recognised losses exceed progress billings, the surplus is
shown as amounts due from customers for contract work. For
contracts where progress billings exceed contract costs incurred to
date plus recognised profits less recognised losses, the surplus is
shown as the amounts due to customers for contract work. Amounts
received before the related work is performed are included in the
consolidated statement of financial position, as a liability, as
advances received. Amounts billed for work performed but not yet
paid by the customer are included in the consolidated statement of
financial position under trade and other receivables.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Software development costs
Costs in respect of major developments are carried at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over the
estimated useful life of the software of up to 10 years. The
estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use are added to the cost of those assets , until
such time as the assets are substantially ready for their intended
use.
All other borrowing costs are recognised in profit or loss in
the period which they are incurred.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and accumulated impairment losses. 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.
Depreciation is recognised so as to write off the cost of assets
less their residual values over their useful lives, using the
straight-line method:
Distribution system:
Distribution system assets 45 years
Distributed generation assets 15 years
Information technology equipment included up to 10
in distribution system assets years
Metering equipment up to 10
years
Non-operational land & buildings:
Buildings - freehold up to 60 years
Buildings - leasehold lower of lease
period or 60 years
up to 10 years
Fixtures and equipment:
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting period, with the
effect of any material changes in those estimates accounted for on
a prospective basis. Due to the significance of the Company's
investment in property, plant and equipment, variations in
estimates could impact operating results both positively and
negatively although, historically, few changes have been
required.
Assets in the course of construction are carried at cost, less
any recognised impairment loss. Costs include professional fees,
and, for qualifying assets, borrowing costs capitalised in
accordance with the Company's accounting policy. Such assets are
classified to the appropriate categories of property, plant and
equipment when completed and ready for intended use. Depreciation
on these assets, on the same basis as other assets, commences when
the assets are commissioned. Assets are derecognised when they are
disposed of profit or loss on disposal is recognised in other gains
on the statement of profit or loss.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Internally-generated intangible assets
An internally generated intangible asset arising from
development is recognised if the conditions set out in IAS 38
relating to the recognition of intangible assets are met. The
amount initially recognised for internally-generated intangible
asset is the sum of expenditure incurred from the date when the
intangible asset first meets the recognition criteria. Amortisation
is recognised on a straight-line basis over their estimated useful
lives.
Impairment of tangible and intangible assets
At the balance sheet date, the Company reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of the
impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the group estimates
the recoverable amount of the cash-generating unit to which the
asset belongs.
An intangible asset with an indefinite useful life is tested for
impairment at least annually and whenever there is an indication
that the asset may be impaired.
Where the recoverable amount is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is recognised immediately in
profit or loss.
Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition.
Financial liabilities are either recognised as financial
liabilities at fair value through profit or loss, or as other
liabilities. A financial liability is classified at FVTPL when the
financial liability is either held for trading or it is designated
at FVTPL. An asset is designated at FVTPL if such designation
eliminates or substantially reduces a measurement or recognition
inconsistency that would otherwise arise.
Other financial liabilities, including borrowings, are initially
recognised at fair value, net of transaction costs and subsequently
measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis.
Derivative Financial Instruments
Derivative financial instruments are initially recognised at
fair value and subsequently remeasured at fair value at each
reporting date. Changes in fair values are recorded in the period
they arise, in either the income statement or other comprehensive
income depending on the applicable accounting standards. Where the
fair value of a derivative is positive it is carried as a
derivative asset, and where negative as a derivative liability. The
fair value of the financial derivatives is calculated by
discounting all future cash flows using the market yield curve at
the reporting date. The market yield curve for each currency is
obtained from external sources. In the absence of sufficient market
data, fair values would be based on the quoted market price of
similar derivatives.
The Group designates certain hedging instruments as cash flow
hedges. At inception of the hedge and on an ongoing basis the group
documents whether the hedging instrument is highly effective in
offsetting changes in cash flows of the hedged item. The effective
portion of changes in fair value of derivatives that are designated
and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to the ineffective
portion is immediately recognised in profit or loss. Amounts
previously recognised in other comprehensive income and accumulated
in equity are reclassified to profit or loss in the periods when
the hedged item is recognised in profit or loss. Hedge accounting
is discontinued when the Group revokes the hedging relationship,
the hedging instrument expires or no longer qualifies for hedge
accounting. Any gain or loss recognised in other comprehensive
income at that time is accumulated in equity and is recognised when
the forecast transaction is ultimately recognised in profit or
loss.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Inventories
Inventories are stated at the lower of cost and net realisable
value. Net realisable value represents the estimated selling price
for inventories less all estimated costs of completion and costs
necessary to make the sale. Raw materials and goods for resale are
valued at purchase cost 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.
Assets held for sale comprise of leased vehicles which have been
returned to the Group at the end of the lease agreement and are
stated at the lower of the value attributed to the vehicle under
the terms of the agreement or net realisable value. Net realisable
value is based on estimated selling price less further costs
expected to be incurred to completion and disposal. Within the
statement of profit or loss, any profits or losses arising from the
sale of assets held for sale are recognised in costs of sales.
Taxation
The income 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 before tax' as reported
in the statement of profit or loss because of items of income or
expense that are taxable or deductible in other years and items
that are never taxable or deductible. The Company's current tax is
calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit. In addition, deferred tax liabilities are not
recognised if the temporary difference arises from the initial
recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary
differences associated with 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. Deferred tax assets arising from deductible
temporary differences associated with such investments and
interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting period 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.
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 the software development licenses, the Group and the
Company do not carry out any other development activity that would
give rise to an intangible asset.
Foreign currencies
Transactions in foreign currencies are recognised at the rate of
exchange prevailing at the date of the transaction. At the end of
each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing at that
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Leases
Leases are classified as finance leases wherever 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.
Operating lease rentals are charged to the statement of profit
or loss or in property, plant and equipment on a straight-line
basis over the lease term.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. The amount recognised as a provision is the best
estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account
the risks and uncertainties surrounding the obligation. When a
provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of
those cash flows (when the effect of the time value of money is
material). When some or all of the economic benefits required to
settle a provision are expected to be recovered from a third party,
a receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Pensions
The Group contributes to the DB Scheme a defined benefit
scheme.
The cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at
the end of each annual reporting period. Re-measurement, comprising
actuarial gains and losses, the effect of the changes to the asset
ceiling and the return on plan assets (excluding interest) are
reflected immediately in the statement of financial position with a
charge or credit recognised in other comprehensive income in the
period in which they occur. Re-measurement recognised in other
comprehensive income is reflected immediately in retained earnings
and will not be reclassified to profit or loss. Past service cost
is recognised in profit or loss in the period of a plan amendment.
Net interest is calculated by applying a discount rate at the
beginning of the period to the net defined liability or asset.
Defined benefit costs are categorised as service cost, net interest
expense or income and re-measurement.
The retirement benefit obligation recognised in the statement of
financial position represents the actual deficit or surplus in the
Company's defined benefit plan. Any surplus resulting from this
calculation is limited to the present value of any economic
benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
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 when employees have rendered service
entitling them to the contributions.
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and sick leave in the
period in which the related service is rendered at the undiscounted
amount of the benefits expected to be paid in exchange for that
service. Liabilities recognised in respect of short-term employee
benefits are measured at the undiscounted amount of the benefits
expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee
benefits are measured at the present value of the estimated future
cash outflows expected to be made by the Company in respect of
services provided by employees up to the reporting date.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
2. ACCOUNTING POLICIES - continued
Financial assets
Financial assets, including trade and other receivables and cash
and cash equivalents, are classified as loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment.
The effective interest method is a method of calculating the
amortised cost of an instrument and of allocating income over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts through the
expected life of the instrument to the net carrying amount on
initial recognition.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the effect of
discounting is immaterial.
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.
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are considered
to be 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 affected.
For certain categories of financial assets, such as trade
receivables, assets are assessed for impairment on a collective
basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables
could include the Group's past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past
the average credit period of 30 days, as well as observable changes
in national or local economic conditions that correlate with
default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, 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 profit or loss.
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 Going Concern Statement in the
Report of the Directors.
3. SEGMENTAL REPORTING
Reportable segments are those that meet two or more of the
following criteria under IFRS 8:
- Its reported revenue is 10% or more of the combined revenue of
all segments;
- The absolute measure of its profit or loss is 10% or more of
the combined reported profit; and
- Its assets are 10% or more of the combined assets of all
segments.
"Other" comprises business support units.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
3. SEGMENTAL REPORTING - continued
Distribution Contacting Metering Other Consolidation Total
adjustments
2017 2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
External
Sales 328.0 33.0 37.5 4.9 - 403.4
Inter-segment
sales 0.3 3.7 - 3.4 (7.4) -
------------ ---------- -------- ----- ------------- ---------
Total Revenue 328.3 36.7 37.5 8.3 (7.4) 403.4
============ ========== ======== ===== ============= =========
Segment results
Operating
profit/(loss) 137.1 3.1 14.2 2.4 23.4 180.2
============ ========== ======== ===== =============
Other gains 0.3
Finance costs (41.4)
Finance income 1.1
---------
Profit before
tax 140.2
=========
Other information
Capital additions 203.0 - 137.3 - (2.5) 337.8
Depreciation
and amortisation 82.0 - 22.2 - (1.6) 102.6
Amortisation
of revenue (21.2) - - - - (21.2)
============ ========== ======== ===== ============= =========
Statement
of financial
position
Segment assets 2,462.4 16.2 278.2 15.4 57.8 2,830.0
------------ ---------- -------- ----- -------------
Unallocated
assets 22.2
---------
Total assets 2,852.2
=========
Segment liabilities (694.3) (8.3) (22.7) (4.6) (2.6) (732.5)
------------ ---------- -------- ----- -------------
Unallocated
liabilities (1,007.9)
---------
Total liabilities (1,740.4)
=========
Net assets
by segment 1,768.1 7.9 255.5 11.0 55.2 2,097.5
------------ ---------- -------- ----- -------------
Unallocated
net liabilities (985.7)
---------
Total net
assets 1,111.8
=========
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
3. SEGMENTAL REPORTING - continued
Distribution Contacting Metering Other Consolidation Total
adjustments
2016 2016 2016 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
External
Sales 332.5 27.7 19.2 5.5 - 384.9
Inter-segment
sales 0.5 2.0 - 3.6 (6.1) -
------------ ---------- -------- ----- ------------- ---------
Total Revenue 333.0 29.7 19.2 9.1 (6.1) 384.9
============ ========== ======== ===== ============= =========
Segment results
Operating
profit/(loss) 153.5 (3.9) 7.4 0.3 23.9 181.2
============ ========== ======== ===== =============
Other gains 0.5
Finance costs (39.1)
Finance income 1.3
---------
Profit before
tax 143.9
=========
Other information
Capital additions 199.7 - 90.1 - (0.1) 289.7
Depreciation
and amortisation 77.9 - 11.2 - (1.7) 87.4
Amortisation
of revenue (19.3) - - - - (19.3)
============ ========== ======== ===== ============= =========
Statement
of financial
position
Segment assets 2,340.6 17.5 156.5 17.5 (32.0) 2,500.1
------------ ---------- -------- ----- -------------
Unallocated
assets 3.8
---------
Total assets 2,503.9
=========
Segment liabilities (666.6) (9.8) (14.2) (5.8) 1.7 (694.7)
------------ ---------- -------- ----- -------------
Unallocated
liabilities (834.4)
---------
Total liabilities (1,529.1)
=========
Net assets
by segment 1,674.0 7.7 142.3 11.7 (30.3) 1,805.4
------------ ---------- -------- ----- -------------
Unallocated
net liabilities (830.6)
---------
Total net
assets 974.8
=========
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
3. SEGMENTAL REPORTING - continued
2017 2016
GBP'000 GBP'000.
Distribution revenue 327,959 332,480
Engineering contracting 33,036 27,737
Meter asset rental 37,482 19,183
Other 4,964 5,467
403,441 384,867
Unallocated corporate assets and liabilities include cash and
cash equivalents (2017: GBP16.6 million. 2016: GBP0.5 million),
borrowings (2017: GBP742.8 million, 2016: GBP741.2 million) and
taxation (2017: GBP110.0 million, 2016: GBP93.0 million).
External sales to RWE Npower plc in 2017 of GBP69.3 million
(2016: GBP76.3 million) and British Gas plc in 2017 of GBP48.3
million (2016: GBP59.7 million) are included within the
Distribution segment.
Sales and purchases between the different segments are made at
commercial prices.
Consolidation Adjustments include the recognition of the
GBP116.9m retirement benefit asset (2016: GBP31.5 million
liability).
4. EMPLOYEES AND DIRECTORS
2017 2016
GBP'000 GBP'000
Salaries 63,699 63,030
Social security costs 7,049 7,004
Defined benefit pension costs (869) (2,458)
Defined contribution pension costs 2,312 1,893
72,191 69,469
Less charged to property, plant
and equipment (41,372) (42,129)
28,495 27,340
A large number of the Group's employees are members of the DB
Scheme, details of which are given in the Employee Benefit
Obligations note 27.
The average monthly number of employees during the year was:
2017 2016
No. No.
Distribution 1,072 1,066
Engineering Contracting 159 160
Other 29 44
1,260 1,270
The company had an average of 29 employees during the year
(2016: 44).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION
2017 2016
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 402 342
Post-employment benefits - 11
Other long-term benefits 466 396
868 749
Total:
Short-term employee benefits 628 551
Post-employment benefits 3 23
Other long-term benefits 587 562
1,218 1,136
Directors who are a member of the
defined benefit scheme -2
Directors who are a member of the
defined contribution scheme 11
Accrued pension benefit relating --
to highest paid director
OTHER KEY PERSONNEL REMUNERATION
2017 2016
Total: GBP'000 GBP'000
Short-term employee benefits 528 520
Post-employment benefits 124 111
Other long-term benefits 314 316
966 947
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
2017 2016
GBP'000 GBP'000
Finance income:
Interest in joint venture 619 254
Dividends received 46 37
Interest on tax refund - 388
Deposit account interest 52 58
Interest receivable on loans
to Group undertakings 383 617
1,100 1,354
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
5. NET FINANCE COSTS - continued
2017 2016
GBP'000 GBP'000
Finance costs:
Bank interest 326 113
Interest payable on other loans 27,627 25,612
Interest payable on loans from
Group undertakings 7,238 7,073
Preference dividends payable 9,001 9,001 Capitalised interest
(2,788) (2,660)
41,404 39,139
Net finance costs 40,304 37,785
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2017 2016
GBP'000 GBP'000
Depreciation - owned assets 97,845 83,737
Software development costs amortisation 4,706 3,730
Foreign exchange differences (9) (40)
Research costs 1,479 830
Amortisation of deferred revenue (21,210) (19,342)
Impairment of trade and other receivables 361 440
Profit on disposal of property,
plant and equipment (331) (522)
Analysis of auditor's remuneration is as follows:
2017 2016
GBP'000 GBP'000
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts 26 26
Fees payable to the Company's auditor
for the audit of the Company's subsidiaries 205 208
pursuant to legislation
Total audit fees 231 234
Audit of regulatory reporting 45 45
Other services 22 -
Total auditor's remuneration 298 279
2017 2016
GBP'000 GBP'000
Fees payable to the Company's auditor
and its associates in respect of the 7 7
audit of associated pension schemes
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
7. INCOME TAX
Analysis of tax expense
2017 2016
GBP'000 GBP'000
Current tax 30,174 14,030
Deferred tax (1,369) (6,820)
Total tax expense in consolidated
statement of profit or loss 28,805 7,210
Factors affecting the tax expense
The tax assessed for the year is higher (2016 - lower) than the
standard rate of corporation tax in the UK. The difference is
explained below:
2017 2016
GBP'000 GBP'000
140,243 143,918
Profit before income tax
Profit multiplied by the standard
rate of corporation tax in the
UK of 19.25% (2016 - 20.00%) 26,997 28,784
Effects of:
Permanent items/non-taxable income (149) (130)
Tax effect of result of joint venture (119) (51)
Under/(over) provision 2,385 (2,520)
Agreement of prior year tax claim - (13,817)
Release of deferred tax in respect
of prior year holdover relief claims
due to asset reinvestment (1,369) -
Effect of difference between corporation
and deferred tax rate (1,269) -
Effect of changes in tax rates - (7,651)
Pension contributions recognised
in Other Comprehensive Income ("OCI") 588 789
Non-deductible interest expense 1,733 1800
Other 8 6
Tax expense 28,805 7,210
Included within the prior year under-provision of GBP2.4m is a
net current and deferred tax amount of GBP2.5m in relation to an
initial assessment which the company has undertaken on the
availability of business asset replacement relief to shelter
historic chargeable gains. This under provision may reduce in
future periods following the completion of the assessment by the
company.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
7. INCOME TAX - continued
2017 2016
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the
year 26,477 28,907
Under/(over) provision for prior
years 3,697 (14,877)
Total current tax charge 30,174 14,030
Deferred tax:
Deferred tax expenses relating
to the origination and reversal (1,369)
of temporary differences 831
Effect of changes in tax rates - (7,651)
Total deferred tax credit (1,369) (6,820)
Tax on profit before tax 28,805 7,210
The Finance No2 Act 2015 reduced the rate of corporation tax to
19% effective from 1 April 2017 and the Finance Act 2016 reduced
the rate of corporation tax effective from 1 April 2020 to 17%.
Accordingly, deferred tax assets and liabilities have been
calculated at the tax rates which will be in force when the
underlying temporary differences are expected to reverse.
8. DIVIDS
2017 2016
GBP'000 GBP'000
Interim dividend paid at 18p
per share (2016: 78p) 22,700 100,000
9. OPERATING EXPENSES
Operating expenses comprise:
2017 2016
GBP'000 GBP'000
Distribution costs 107,931 101,879
Administrative expenses 73,679 58,471
181,610 160,350
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
10. INTANGIBLE ASSETS
Group
Software
development
costs
GBP'000
COST
At 1 January 2017 78,467
Additions 11,417
At 31 December 2017 89,884
AMORTISATION
At 1 January 2017 37,610
Amortisation for year 4,706
At 31 December 2017 42,316
NET BOOK VALUE
At 31 December 2017 47,568
Software
development
costs
GBP'000
COST
At 1 January 2016 65,503
Additions 12,964
At 31 December 2016 78,467
AMORTISATION
At 1 January 2016 33,880
Amortisation for year 3,730
At 31 December 2016 37,610
NET BOOK VALUE
At 31 December 2016 40,857
The Company had no intangible assets at 31 December 2017 (2016:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
11. PROPERTY, PLANT AND EQUIPMENT
Group
Non
operational Fixtures
land and Distribution and Metering
buildings system fittings equipment Totals
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January
2017 6,534 3,043,253 72,740 222,913 3,345,440
Additions - 186,418 2,700 137,299 326,417
Disposals - (7,024) (423) - (7,447)
At 31 December
2017 6,534 3,222,647 75,017 360,212 3,664,410
DEPRECIATION
At 1 January
2017 6,078 880,212 60,003 76,247 1,022,540
Charge for
year 103 70,094 4,007 23,641 97,845
Eliminated on disposal - (7,024) (423) - (7,447)
At 31 December
2017 6,181 943,282 63,587 99,888 1,112,938
NET BOOK VALUE
At 31 December
2017 353 2,279,365 11,430 260,324 2,551,472
Non
operational Fixtures
land and Distribution and Metering
buildings system fittings equipment Totals
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January
2016 6,534 2,872,430 67,721 133,218 3,079,903
Additions - 181,349 5,236 90,093 276,678
Disposals - (10,526) (217) (398) (11,141)
At 31 December
2016 6,534 3,043,253 72,740 222,913 3,345,440
DEPRECIATION
At 1 January
2016 5,973 823,154 56,712 63,982 949,821
Charge for
year 105 67,461 3,508 12,663 83,737
Eliminated on disposal - (10,403) (217) (398) (11,018)
At 31 December
2016 6,078 880,212 60,003 76,247 1,022,540
NET BOOK VALUE
At 31 December
2016 456 2,163,041 12,737 146,666 2,322,900
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
11. 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 2016 162,715 - 162,715
Additions 181,503 5,236 186,739
Available for use (173,551) (5,236) (178,787)
At 31 December 2016 170,667 - 170,667
Additions 188,871 2,694 191,565
Available for use (148,049) (2,694) (150,743)
At 31 December 2017 211,489 - 211,489
The Group has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP19.6 million (2016: GBP32.8 million).
The net book value of the Group's non-operational land and
buildings comprises:
2017 2016
GBP'000 GBP'000
Long leasehold 264 363
Short leasehold 89 93
353 456
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
11. 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 2017
and 31 December 2017 280 1,259 3,634 5,173
DEPRECIATION
At 1 January 2017 35 - 3,504 3,539
Charge for year 7-40 47
At 31 December 2017 42 - 3,544 3,586
NET BOOK VALUE
At 31 December 2017 238 1,259 90 1,587
Non
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2016
and 31 December 2016 280 1,259 3,634 5,173
DEPRECIATION
At 1 January 2016 29 - 3,464 3,493
Charge for year 6-40 46
At 31 December 2016 35 - 3,504 3,539
NET BOOK VALUE
At 31 December 2016 245 1,259 130 1,634
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
12. INVESTMENTS
Group
Share
of joint Shares Total
venture's in other
net assets undertakings
GBP'000 GBP'000 GBP'000
At 31 December 2016 3,297 21 3,318
Profit attributable to
the Group 619 - 619
Dividends (509) - (509)
At 31 December 2017 3,407 21 3,428
Company
Subsidiary Shares
undertakings in other Total
undertakings
GBP'000 GBP'000 GBP'000
At 31 December 2016 327,099 971 328,070
Movement - - -
At 31 December 2017 327,099 971 328,070
Details of the investments of the Group at 31 December 2017 are
listed below:
Proportion
of voting
Name of company Holding rights Nature of
of shares and shares business
held
Subsidiary undertakings
Held by Company:
CE Electric Services 1 at GBP1 100% Dormant
Limited
Central PowerGrid 1 at GBP1 100% Dormant
Limited
East PowerGrid Limited 1 at GBP1 100% Dormant
Eastern PowerGrid 1 at GBP1 100% Dormant
Limited
Infrastructure North 1 at GBP1 100% Dormant
Limited
Engineering
Integrated Utility 3,103,000 100% contracting
Services Limited at GBP1 services
IUS Limited 100 at GBP1 100% Dormant
Midlands PowerGrid 1 at GBP1 100% Dormant
Limited
NEDL Limited 2 at GBP1 100% Dormant
North East PowerGrid 1 at GBP1 100% Dormant
Limited
North Eastern PowerGrid 1 at GBP1 100% Dormant
Limited
North PowerGrid Limited 1 at GBP1 100% Dormant
North West PowerGrid 1 at GBP1 100% Dormant
Limited
North Western PowerGrid 1 at GBP1 100% Dormant
Limited
Northern Electric 84,785,000 100% Non-trading
& Gas Limited at GBP1 company
Northern Electric 1 at GBP1 100% Dormant
Distribution Limited
Property
Northern Electric 32,207,100 100% holding &
Properties Limited at GBP1 management
company
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
12. INVESTMENTS - continued
Proportion
of voting
Name of company Holding rights Nature of
of shares and shares business
held
Northern Electric
Share Scheme Trustee 2 at GBP1 100% Dormant
Limited
Northern Electricity 1 at GBP1 100% Dormant
(North East) Limited
Northern Electricity 1 at GBP1 100% Dormant
(Yorkshire) Limited
Northern Electricity 1 at GBP1 100% Dormant
Limited
Northern Electricity
Networks Company (North 1 at GBP1 100% Dormant
East) Limited
Northern Electricity
Networks Company (Yorkshire) 1 at GBP1 100% Dormant
Limited
Northern Electricity
Networks Company Limited 1 at GBP1 100% Dormant
Northern Electrics 2 at GBP1 100% Dormant
Limited
Northern Energy Funding 1 at GBP1 100% Dormant
Company Limited
Northern Metering 100 at GBP1 100% Dormant
Services Limited
Northern Powergrid 1 at GBP1 100% Meter asset
Metering Limited provider
Distribution
Northern Powergrid 200,000,100 100% of electricity
(Northeast) Limited at GBP1
Northern PowerGrid 1 at GBP1 100% Dormant
(North West) Limited
Northern Power Networks
Company (North East) 1 at GBP1 100% Dormant
Limited
Northern Power Networks
Company (Yorkshire) 1 at GBP1 100% Dormant
Limited
Northern Power Networks 1 at GBP1 100% Dormant
Company Limited
Northern Transport 7,000,000 100% Car finance
Finance Limited at GBP1 company
Northern Utility Services 100 at GBP1 100% Dormant
Limited
PowerGrid (Central) 1 at GBP1 100% Dormant
Limited
PowerGrid (East) Limited 1 at GBP1 100% Dormant
PowerGrid (Eastern) 1 at GBP1 100% Dormant
Limited
PowerGrid (Midlands) 1 at GBP1 100% Dormant
Limited
PowerGrid (North East) 1 at GBP1 100% Dormant
Limited
PowerGrid (North Eastern) 1 at GBP1 100% Dormant
Limited
PowerGrid (North West) 1 at GBP1 100% Dormant
Limited
PowerGrid (North Western) 1 at GBP1 100% Dormant
Limited
PowerGrid (North) 1 at GBP1 100% Dormant
Limited
PowerGrid (Northern) 1 at GBP1 100% Dormant
Limited
PowerGrid (South East) 1 at GBP1 100% Dormant
Limited
PowerGrid (South Eastern) 1 at GBP1 100% Dormant
Limited
PowerGrid (South West) 1 at GBP1 100% Dormant
Limited
PowerGrid (South Western) 1 at GBP1 100% Dormant
Limited
PowerGrid (South) 1 at GBP1 100% Dormant
Limited
PowerGrid (Southern) 1 at GBP1 100% Dormant
Limited
PowerGrid (West) Limited 1 at GBP1 100% Dormant
PowerGrid (Western) 1 at GBP1 100% Dormant
Limited
PowerGrid (Yorkshire) 1 at GBP1 100% Dormant
Limited
South East PowerGrid 1 at GBP1 100% Dormant
Limited
South Eastern PowerGrid 1 at GBP1 100% Dormant
Limited
South PowerGrid Limited 1 at GBP1 100% Dormant
South West PowerGrid 1 at GBP1 100% Dormant
Limited
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
12. INVESTMENTS - continued
Proportion
of voting
Name of company Holding rights Nature of
of shares and shares business
held
South Western PowerGrid 1 at GBP1 100% Dormant
Limited
Southern PowerGrid 1 at GBP1 100% Dormant
Limited
West PowerGrid Limited 1 at GBP1 100% Dormant
Western PowerGrid 1 at GBP1 100% Dormant
Limited
YEDL Limited 1 at GBP1 100% Dormant
Yorkshire Electricity 1 at GBP1 100% Dormant
Distribution Limited
Yorkshire PowerGrid 1 at GBP1 100% Dormant
Limited
Held by the Company's subsidiaries:
Northern Electric 50,000 at 100% Finance company
Finance plc GBP1
Joint Venture Entity
Held by the Company:
Vehicle Lease and
Service Limited(registered
office - Centre for 950,000 50% Transport
Advanced Industry, at GBP1 services
3rd Floor, Coble Dene,
North Shields, NE29
6DE)
Held by Joint Venture
Entity Held by the
Company:
VLS Limited (registered
office - Centre for
Advanced Industry, 50% of 50% Dormant
3rd Floor, Coble Dene, 1 at GBP1
North Shields, NE29
6DE)
All subsidiaries are registered in England and Wales, and except
where indicated, the registered office address of the above
companies is Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1
6AF. Except where stated share holdings are ordinary shares.
Interest in Joint venture
Summarised financial information in respect of the Group's joint
venture is set out below:
2017 2016
GBP'000 GBP'000
Long-term assets 19,244 16,192
Current assets 12,322 15,706
Long-term liabilities (13,424) (14,962)
Current liabilities (11,328) (10,340)
Net assets 6,814 6,596
Group's share of joint venture's
net assets 3,407 3,298
Revenue 18,711 18,417
Profit for the year 1,238 508
Group's share of joint venture's
profit for the year 619 254
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
13. INVENTORIES
Group
2017 2016
GBP'000 GBP'000
Inventory 12,284 11,853
Work-in-progress 799 232
Vehicle Inventory 299 751
13,382 12,836
The Company had no inventories at 31 December 2017 (2016 -
GBPnil).
14. TRADE AND OTHER RECEIVABLES
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Distribution use of
system receivables 49,140 50,524 - -
Construction contract
customers 6,205 2,160 - -
Amounts due from customers
for contract work 9,721 12,542 - -
Amounts receivable in
respect of finance leases 8,041 8,047 - -
Social security and other
taxes - - 3,487 -
Other debtors 286 - - -
Amounts receivable for
sale of goods and services 16,895 8,339 60 65
Prepayments and accrued income 4,888 2,786 215 252
Allowance for doubtful debts (855) (758) - -
94,321 83,640 3,762 317
Non-current:
Amounts receivable in
respect of finance leases 6,358 8,406 --
Aggregate amounts 100,679 92,046 3,762 317
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 end of the
reporting period. The fair valuation of the assets is based on
Level 1 inputs. The maximum exposure of 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 YEARED 31 DECEMBER 2017
14. 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 21% of
distribution revenues in 2017 (2016: 22%) and British Gas plc
accounting for approximately 14% of distribution revenues in 2017
(2016: 15%). 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 GBP0.9 million as at 31 December 2017 (2016: GBP0.4
million).
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 GBP0.4 million,
which have been placed into administration and have therefore been
provided in full at the year-end (2016: GBP0.2m).
Construction contract customers
The average credit period on construction contracts is 30 days.
Interest is not generally charged on construction contracts paid
after the due date. The Group has provided fully for all
receivables over one year for UK Contracting debts and all
receivables over six months for Multi-Utility debts. Trade
receivables between 30 days and these pre-determined 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 GBP3.3 million (2016: GBP3.3
million), which are past due at the reporting date for which the
Group has provided for an irrecoverable amount of GBP0.3 million
(2016: GBP0.3 million) based on experience. The Group does not hold
collateral over these balances. The average age of these
receivables is 91 days (2016: 55 days).
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBPnil (2016: 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 the reporting date:
2017 2016
GBP'000 GBP'000
Contract costs incurred plus
recognised profits less recognised
losses to date 48,851 70,382
Less: progress billings (39,130) (57,840)
Amount due from customers 9,721 12,542
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
14. TRADE AND OTHER RECEIVABLES - continued
At 31 December 2017, retentions held by customers for contract
work amounted to GBP0.3 million (2016: GBP0.3 million).
Advances received from customers for contract work amounted to
GBPnil (2016: GBPnil).
The Company had no construction contracts at 31 December 2017
(2016: GBPnil).
Finance lease receivables
Minimum lease Present value
payments
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable under finance leases:
Within one year 5,932 5,650 5,420 5,189
In the second to
fifth years inclusive 10,483 12,913 8,142 10,522
More than five years 3,820 4,962 837 742
20,235 23,525 14,399 16,453
Less: unearned finance
income (5,836) (7,072) --
14,399 16,453 14,399 16,453
Northern Transport Finance Limited ("NTFL"), a wholly-owned
subsidiary, enters into credit finance arrangements for motor
vehicles with employees in the Northern Powergrid Group. All
agreements are denominated in sterling. The term of the finance
agreements is predominantly three years.
The interest rate inherent in the agreements is fixed at the
contract date for all of the term of the agreement. The average
effective interest rate contracted is approximately 6.5% (2016:
6.5%) per annum. None of these debts are past due and there are no
indicators of impairment.
Northern Powergrid Metering Limited, a wholly-owned subsidiary,
enters into credit finance arrangements for smart meters with
energy supply companies. All agreements are denominated in
sterling. The term of the finance agreements is predominantly ten
years.
The interest rate inherent in the agreements is fixed at the
contract date for all of the term of the agreement. 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 assets.
Amounts receivable from sale of goods and services
Sales of goods and services comprise all other income streams,
examples would be meter rentals, service alterations 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
14. TRADE AND OTHER RECEIVABLES - continued
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP1.1
million (2016: GBP0.8 million) which are past due at the reporting
date and for which the Group has provided an irrecoverable amount
of GBP0.2 million (2016: GBP0.2 million) based on past experience.
The Group does not hold any collateral over these balances. The
average age of these receivables is 207 days (2016: 207 days).
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP0.2
million (2016: GBP0.2 million). These amounts are past due at the
reporting date and the Group has not provided for any amounts as
not being recoverable because there has not been a significant
change in credit quality and the amounts are still considered
recoverable. The Group does not hold any collateral over these
balances. The average age of these receivables is 66 days (2016: 66
days).
Ageing of past due but not impaired receivables:
2017 2016
GBP'000 GBP'000
30-60 days 194 116
60-120 days 119 66
120-210 days 17 7
Total 330 189
Movement in the allowance for doubtful debts
2017 2016
GBP'000 GBP'000
At 1 January 758 400
Amounts utilised/written off in
the year (153) (262)
Amounts recognised in statement
of profit or loss 250 620
At 31 December 855 758
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 GBP0.1 million (2016: GBP0.2
million) 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
14. TRADE AND OTHER RECEIVABLES - continued
Categories of financial assets
2017 2016
Group: GBP'000 GBP'000
Cash and bank balances 16,612 515
Restricted cash 2,182 -
Loans and receivables at amortised
cost 95,791 89,260
Total financial assets 114,585 89,775
Non-current assets 2,602,468 2,367,076
Inventories 13,382 12,836
Prepayments and accrued income 4,888 2,786
Pension asset 116,900 31,500
Total non-financial assets 2,737,638 2,414,198
Total assets 2,852,223 2,503,973
2017 2016
Company: GBP'000 GBP'000
Cash and bank balances - -
Loans and receivables at amortised
cost 60 65
Total financial assets 60 65
Non-current assets 329,657 329,704
Prepayments and accrued income 215 252
Income tax receivables 1,821 6,047
Social security and other taxes 3,487 -
Total non-financial assets 335,180 336,003
Total assets 335,240 336,068
15. CASH AND CASH EQUIVALENTS
Group
2017 2016
GBP'000 GBP'000
Cash at bank and in hand 16,612 -
Amounts owed by Group undertakings - 515
16,612 515
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 company in
the Northern Powergrid Group, and invested to generate a market
rate of return for the Group. This is repayable on demand by
YEG.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
16. RESTRICTED CASH
Group
2017 2016
GBP'000 GBP'000
Restricted cash in Northern Powergrid Metering Limited 2,182
-
2,182 -
Restricted cash are cash and cash equivalents that are
restricted as to withdrawal or use under the terms of certain
contractual agreements.
17. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid:
Number: Class: Nominal 2017 2016
value: GBP'000 GBP'000
127,689,809 Ordinary share capital 56 12/13p 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.
18. RESERVES
Retained Share Hedging Other Total
earnings premium reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 January 2016 771,463 158,748 - 6,185 936,396
Changes in
equity
Dividends (100,000) - - - (100,000)
Total comprehensive
income 66,205 - - - 66,205
---------- --------- --------- ---------- ----------
Balance at 31
December 2016 737,668 158,748 - 6,185 902,601
---------- --------- --------- ---------- ----------
Changes in
equity
Dividends (22,700) - - - (22,700)
Total comprehensive
income 159,976 - (287) - 159,689
---------- --------- --------- ---------- ----------
Balance at 31
December 2017 874,944 158,748 (287) 6,185 1,039,590
========== ========= ========= ========== ==========
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
18. RESERVES - continued
Company
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 23,391 158,748 6,185 188,324
Profit for the
year 14,106 --14,106
Dividends (22,700) - - (22,700)
At 31 December 2017 14,797 158,748 6,185 179,730
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2016 107,480 158,748 6,185 272,413
Profit for the
year 15,911 --15,911
Dividends (100,000) - - (100,000)
At 31 December 2016 23,391 158,748 6,185 188,324
19. TRADE AND OTHER PAYABLES
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Payments on account 44,726 37,438 - -
Trade creditors 20,289 5,037 3,243 263
Amounts owed to related
parties - 583 - -
Social security and
other taxes 2,906 5,036 49 54
Other creditors 10,355 8,922 2,257 2,394
Deferred revenue 22,450 20,920 - -
Accrued expenses 44,102 51,946 524 466
144,828 129,882 6,073 3,177
Non-current:
Deferred revenue 584,348 562,308 - -
584,348 562,308 - -
Aggregate amounts 729,176 692,190 6,073 3,177
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
19. TRADE AND OTHER PAYABLES - continued
The directors consider that the carrying amount of other
financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the end of the
reporting period. The valuation of liabilities set out above 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 standard payment terms for the Group is net monthly.
The following tables detail the remaining contractual maturities
for non-derivative financial liabilities. The tables have been
drawn up based on the 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.
Group
Less than 3 months
3 months to 1 year 1 to 5+ years Total
5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2017:
Non-interest
bearing 78,276 - - - 78,276
Variable interest 141,457
rate liability - - - 141,457
Fixed interest 38,341 389,307 659,910 1,132,589
rate liability 45,031
264,764 38,341 389,307 659,910 1,132,589
2016:
Non-interest
bearing 71,524 - - - 71,524
Variable interest 2,925
rate liability - - - 2,925
Fixed interest
rate liability 5,031 25,539 325,057 590,486 946,113
79,480 25,539 325,057 590,486 1,020,562
Company
Less than 3 months
3 months to 1 year 1 to 5+ years Total
5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2017:
Non-interest
bearing 6,073 - - - 6,073
Variable interest 72,286
rate liability - - - 72,286
Fixed interest 9,001 36,004 226,144 271,149
rate liability -
78,359 9,000 36,000 226,144 349,508
2016:
Non-interest
bearing 3,177 - - - 3,177
Variable interest 66,806 66,806
rate liability - - -
Fixed interest
rate liability - 9,000 36,000 115,532 160,532
69,983 9,000 36,000 115,532 230,515
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
19. TRADE AND OTHER PAYABLES - continued
Categories of financial liabilities
2017 2016
Group: GBP'000 GBP'000
Loans and payables at amortised
cost 928,709 755,740
Derivative liability 345 -
Total financial liabilities 929,054 755,740
Payments received on account 44,726 37,438
Income tax liabilities 109,973 93,226
Other taxes and social security 2,906 5,036
Accruals 44,102 51,946
Deferred revenue 606,798 583,288
Provisions 2,901 2,525
Total non-financial liabilities 811,406 773,459
Total liabilities 1,740,460 1,529,199
2017 2016
Company: GBP'000 GBP'000
Loans and payables at amortised
cost 81,203 70,632
Total financial liabilities 81,203 70,632
Income tax liabilities - 2,758
Other taxes and social security - 54
Accruals 524 466
Provisions 1,610 1,661
Total non-financial liabilities 2,134 4,939
Total liabilities 83,337 75,571
Deferred Revenue
2017 2016
GBP'000 GBP'000
At 1 January 583,228 546,590
Additions 44,780 55,980
Amortisation (21,210) (19,342)
At 31 December 606,798 583,228
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 45 years on a straight line
basis (except for distributed generation which is released over 15
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 2017 (2016:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
20. BORROWINGS
The directors' consideration of liquidity, interest rate and
foreign currency risk is described in the Strategic Report.
Group
Book Value Fair Value
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Loans 653,234 497,685 742,503 599,169
Cumulative preference
shares 3,368 3,368 182,585 167,790
Amounts owed to Group
undertakings 241,463 102,930 291,215 153,191
898,065 603,983 1,216,303 920,150
The borrowings are repayable as follows:
On demand or within
one year 203,972 16,569 203,972 16,569
Between one and five
years 292,045 218,268 317,957 256,576
After five years 402,048 369,146 694,374 647,005
898,065 603,983 1,216,303 920,150
Analysis of borrowings:
Short-term loan 10 11 10 11
Inter-company short-term
loan 141,447 2,914 141,447 2,914
Bond 2020 - 8.875% 101,345 101,192 122,791 130,276
Bond 2035 - 5.125% 153,034 152,959 207,238 207,505
Amortising loan 2026
- 2.736%** 155,298 - 155,298 -
Cumulative preference
shares 3,368 3,368 182,585 167,790
European Investment
Bank 2018 - 4.065%* 41,427 41,419 41,444 42,974
European Investment
Bank 2019 - 4.241%* 41,489 41,481 43,015 44,655
European Investment
Bank 2020 - 4.386%* 40,503 40,495 43,426 44,990
European Investment
Bank 2027 - 2.564% 120,128 120,128 129,281 128,758
Yorkshire Electricity
Group plc 2037 -
5.9% 100,016 100,016 149,768 150,277
898,065 603,983 1,216,303 920,150
** Loan is 85% swapped at a fixed rate of 2.8182%, with the
remaining 15% floating at 3 month LIBOR plus 1.75%.
Company
GBP'000 GBP'000 GBP'000 GBP'000
The borrowings are
repayable as follows:
On demand or within
one year 74,537 66,806 74,537 2,395
After five years 1,117 1,117 180,334 229,950
75,654 67,923 254,871 232,345
Analysis of borrowings:
Short term loans 22 2,395 22 2,395
Inter-company short-term
loan 72,264 62,161 72,264 62,160
Cumulative preference
shares 3,367 3,367 182,585 167,790
75,654 67,923 254,871 232,345
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
20. BORROWINGS - continued
Of the total financial liabilities, GBP656.6 million relates to
external borrowings and preference shares whose fair value 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
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 of LIBOR plus 0.35%
and 3% of the long term loans are at a floating rate of 3 month
LIBOR plus 1.75%, 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 2017 and 2016. As at
31 December 2017 and 2016 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;
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 2017, the Group had available GBP137 million
(2016: GBP97 million) 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 2017, 97% (2016:
100%) of the Group's long-term borrowings were at fixed rates and
the average maturity for these borrowings was 9 years (2016: 11
years).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
20. BORROWINGS - continued
Group
2017 2016
GBP'000 GBP'000
Secured - at Amortised Cost
Northern Powergrid Metering Limited
bond 155,298 -
Total secured loans 155,298 -
Unsecured - at Amortised Cost
Short term borrowings 10 11
Inter-company borrowings 241,463 102,930
Bonds 497,926 497,674
Preference shares 3,368 3,368
Total unsecured loans 742,767 603,983
All the Company's borrowings are unsecured.
21. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are financial instruments that derive their value
from the price of an underlying item such as interest rates,
foreign exchange rates, credit spreads, commodities, equity or
other indices. In accordance with Board approved policies,
derivatives are transacted to manage our exposure to fluctuations
in interest rate. The Group uses derivatives to manage these risks
from our financing portfolio to optimise the overall cost of
accessing the debt capital markets.
Derivative financial instruments are initially recognised at
fair value and subsequently remeasured at fair value at each
reporting date. Changes in fair values are recorded in the period
they arise, in either the income statement or other comprehensive
income depending on the applicable accounting standards. Where the
fair value of a derivative is positive it is carried as a
derivative asset, and where negative as a derivative liability. The
fair value of the financial derivatives is calculated by
discounting all future cash flows using the market yield curve at
the reporting date (level 2 inputs). The market yield curve and
fair value is obtained from external sources. In the absence of
sufficient market data, fair values would be based on the quoted
market price of similar derivatives.
All derivative financial instruments relate to cash flow
hedges.
Notional principal Fair value
value
2017 2016 2017 2016
Asset Liability Asset Liability
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Less than
1 year 9,389 - - 19 - -
1 to 2 years 19,239 - - 39 - -
2 to 5 years 61,348 - - 125 - -
More than
5 years 80,024 - - 163 - -
---------- --------- -------- ---------- -------- ----------
170,000 - - 346 - -
========== ========= ======== ========== ======== ==========
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
21. DERIVATIVE FINANCIAL INSTRUMENTS - continued
The interest rate swaps are settled on a quarterly basis and are
based on receiving a floating rate of 3-month LIBOR and paying a
fixed rate of 1.0682%. The Group will settle the difference between
the fixed and floating interest rate on a net basis.
All interest rate swap contracts exchanging floating rate
interest amounts for fixed rate interest amounts are designated as
cash flow hedges to reduce the Group's cash flow exposure resulting
from variable interest rate borrowings. The interest rate swaps and
interest payments on the underlying loan occur simultaneously and
the amount accumulated in equity is reclassified to profit or loss
over the period that the floating rate interest payments on debt
affect profit or loss.
22. LEASING AGREEMENTS
Minimum lease payments under non-cancellable operating leases
fall due as follows:
Group
2017 2016
GBP'000 GBP'000
Within one year 5,448 5,772
Between one and five years 15,715 14,530
In more than five years 2,842 2,921
24,005 23,223
Minimum lease payments made under operating leases recognised in
the year
6,245 5,447
Operating lease commitments relate to fleet vehicles with terms
of up to 7 years and operational and non-operational land and
buildings with terms of up to 50 years. No purchase options are
available on the Group's operating leases and no restrictions are
imposed by the lease arrangements.
Company
2017 2016
GBP'000 GBP'000
Within one year 89 172
Between one and five years - 88
89 260
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
22. PROVISIONS
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Other provisions 2,901 2,525 1,610 1,713
Analysed as follows:
Current 1,211 722 1,610 8
Non-current 1,690 1,803 - 1,705
2,901 2,525 1,610 1,713
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2017 290 2,235 2,525
Utilised/paid in the year (619) (451) (1,069)
Charged to statement of
profit or loss 1,194 253 1,446
At 31 December 2017 865 2,037 2,902
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 15 years.
Also included in 'other' is a provision to cover the actuarial
assessment of the costs of unfunded pension arrangements in respect
of former employees. Further details can be found in the Employee
Benefit Obligations note.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
23. DEFERRED TAX
Accelerated Rollover/ Retirement Other Total
tax depreciation holdover benefit
relief (obligations/
assets)
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 87,158 3,875 (1,214) (357) 89,462
Charge to the statement
of profit or loss 1,693 (2,925) (94) (43) (1,369)
Charge to other
comprehensive income - - 14,518 (59) 14,459
At 31 December 2017 88,851 950 13,210 (459) 102,552
Accelerated Rollover/ Retirement Other Total
tax depreciation holdover benefit
relief (obligations/
assets)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2016 89,204 6,016 9,295 344 104,859
Charge/(credit)
to the statement (6,820)
of profit or loss (2,046) (2,141) (1,932) (701)
Charge to other
comprehensive income - - (8,577) - (8,577)
At 31 December 2016 87,158 3,875 (1,214) (357) 89,462
Accelerated Rollover/ Retirement Total
tax depreciation holdover benefit
relief (obligations/
assets)
Company GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 (18) 3,066 (290) 2,758
Charge/(credit)
to statement of (2,894)
profit or loss 4 (2,914) 16
At 31 December 2017 (14) 152 (274) 136
Accelerated Rollover/ Retirement Total
tax depreciation holdover benefit
relief (obligations/
assets)
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2016 (23) 5,129 (297) 4,809
Charge/(credit)
to statement of (2,051)
profit or loss 5 (2,063) 7
At 31 December 2016 (18) 3,066 (290) 2,758
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 YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS
Introduction
The Company contributes to two pension schemes, which it
operates on behalf of the participating companies within the
Northern Powergrid Group. Those pension schemes are:
- 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 of the Northern Powergrid Group 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.
No other post-retirement benefits are provided 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 interests of all relevant beneficiaries and are responsible in
particular for the asset investment strategy 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 Trustee's actuarial advisors, Aon
Hewitt, as at 31 March 2016. Such valuations are required by law to
take place at intervals of no more than three years. Following each
valuation, the Trustees and the Northern Powergrid Group must agree
the contributions required (if any) such that the DB Scheme is
fully funded over time on the basis of suitably prudent
assumptions. The next funding valuation is due no later than 31
March 2019, at which progress towards full-funding will be
reviewed.
Agreement was reached during August 2017 with the Trustees to
repair the funding deficit of GBP194.9m as at 31 March 2016 over
the 9 year period to 31 March 2025, subject to the actuarial
assumptions adopted for the triennial valuation as at 31 March 2016
being borne out in practice. The agreement includes payments of
GBP2.3m per month to be made over the remaining 8 years and 3
months of the recovery plan. This amount is in 2017/18 prices and
will be updated on 1 April 2018 and on each 1 April thereafter in
line with annual changes in RPI inflation.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
Funding requirements - continued
The contributions payable by the Northern Powergrid Group to the
DB Scheme in respect of future benefits which are accruing
increased from 34.2% to 43.6% of pensionable pay from 1 September
2017. These contributions were determined as part of the 31 March
2016 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
2019 valuation. In addition, the Company pays contributions to
cover the expenses of running the DB Scheme which increased from
3.0% to 3.6% of pensionable pay from 1 September 2017.
The Northern Powergrid Group's total contributions to the DB
Scheme for the next financial year are expected to be GBP45.4M.
The Trust Deed provides the Northern Powergrid Group with an
unconditional right to a refund of surplus assets assuming the full
settlement of plan liabilities in the event of a plan wind-up.
Furthermore, in the ordinary course of business the Trustees have
no rights to unilaterally wind up, or otherwise augment the
benefits due to members of the DB Scheme. Based on these rights,
any net surplus in the scheme is recognised in full.
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 good
administration;
- reduce the risk of situations arising which
may lead to compensation being payable from
the Pension Protection Fund ("PPF"); and
- minimise any adverse impact on the sustainable
growth of an employer.
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 where
trustees and company fail to agree on appropriate
contributions; and
- impose contributions where there has been a
detrimental action against the scheme.
Profile of the DB Scheme
The Defined Benefit Obligation ("DBO") is the value of the DB
Scheme's liabilities i.e. obligations, and 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 results of the 31 March 2016 funding
valuation. This is the weighted-average time over which benefit
payments are expected to be made.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
Profile of the DB Scheme - continued
Estimated undiscounted benefit payments expected to be paid from
the fund over its life, derived from the data used in the triennial
valuation of the DB Scheme as at 31 March 2016 is shown on the
following graph:
Investment objectives for the DB Scheme
The Trustees aim to achieve the scheme's investment objectives
through investing partly in a diversified mix of growth assets
which, over the long term, are expected to grow in value by more
than low risk assets like cash and gilts. This is done with a broad
liability driven investing framework that uses cash, gilts and
other hedging instruments like swaps in a capital efficient way. In
combination this efficiently captures the Trustees risk tolerances
and return objectives relative to the scheme's liabilities.
The Company and Trustees have agreed a long-term strategy for
reducing investment risk as and when appropriate. This includes the
use of Liability Driven Investment (LDI) from October 2016 to more
closely match the nature and duration of the DB Scheme's
liabilities through the use of derivatives such as swaps and
repurchase agreements. The portfolio is designed to hedge a
proportion of the interest rate and inflation risk inherent in the
DB Scheme's liabilities. The target hedging level is currently 75%
(2016: 60%) of the DB Scheme's liabilities as measured on the basis
used for the funding valuation.
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 The DBO is calculated The allocation to return-seeking
asset using a discount rate assets is monitored
returns set with reference to ensure it remains
to corporate bond yields. appropriate given the
If assets underperform DB Scheme's long-term
this discount rate, objectives. The Trustees
this will create an regularly review the
element of deficit. strategy from return-seeking
The DB Scheme aims assets and have diversified
to hold a significant some return-seeking
proportion (44%) of assets from equities
its assets in return-seeking into Reinsurance and
assets (such as equities) Listed Infrastructure
which, although expected to reduce overall risk.
to outperform corporate To avoid concentration
bonds in the long-term, risk, the allocation
create volatility and to UK equity is restricted
risk in the short-term. to 35% of the total
equity allocation.
Changes A decrease in corporate The DB Scheme also
in bond bond yields will increase holds a substantial
yields the value placed on proportion of its assets
the DBO for accounting (56%) as bonds and
purposes, although LDI, which provide
this will be partially a hedge against falling
offset by an increase bond yields (falling
in the value of the yields which increase
DB Scheme's bond holdings. the DBO will also increase
the value of the bond
assets). There are
some differences in
the credit quality
of bonds 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
Risks associated with the DB Scheme - continued
Risk Description Mitigation
Inflation A significant proportion The DB Scheme invests
risk of the DBO is indexed around 35% in LDI (included
in line with price in the 56% above) which
inflation (specifically provides a hedge against
in line with RPI) and higher-than-expected
higher inflation will inflation increases
lead to higher liabilities on the DBO (rising
inflation will increase
both the DBO and the
value of the LDI portfolio).
Currency To increase diversification, The DB Scheme hedges
risk the DB Scheme invests a proportion of the
in overseas assets. overseas investments
This leads to a risk currency risk for those
that foreign currency overseas currencies
movements negatively that can be hedged
impact the value of efficiently. The DB
assets in Sterling Scheme's currency hedging
terms. ratio is currently
50% in respect of overseas
developed market currencies.
Life The majority of the The DB Scheme regularly
expectancy DB Scheme's obligations reviews actual experience
are to provide benefits of its membership against
for the pensionable the actuarial assumptions
lifetime of the member, underlying the future
so increases in life benefit projections
expectancy will result and carries out detailed
in an increase in the analysis when setting
liabilities. an appropriate scheme
specific mortality
assumption. The Trustees
insure certain benefits
payable on death before
retirement.
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).
The main risks associated with financial derivatives include:
losses may exceed the initial margin, counterparty risk where the
other party defaults on the contract; and liquidity risk where it
may be difficult to close out a contract prior to expiry. These
risks are managed by monitoring of investment managers to ensure
they have reasonable levels of market exposure relative to the
initial margin and positions are fully collateralised on a daily
basis with secure cash or gilts collateral.
A particular legislative risk exists in relation to the
equalisation of the 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.
Reporting at 31 December 2017
For the purposes of this disclosure, the current and future
pension costs of the Northern Powergrid 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 2016. 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
Northern Powergrid Group.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
Reporting at 31 December 2017 - continued
The results of the latest funding valuation at 31 March 2016
have been adjusted to 31 December 2017. Those adjustments take
account of experience over the period since 31 March 2016, changes
in market conditions, and differences in the financial and
demographic assumptions. The present value of 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 DB Scheme
approach retirement.
The principal assumptions used to calculate the liabilities
under IAS 19 are set out below:
Main financial assumptions 2017 2016
% p.a. % p.a.
RPI Inflation 2.95 3.00
Rate of long-term increase in
salaries 3.45 3.00
Pension increases 2.85 2.90
Discount rate for scheme liabilities 2.60 2.70
The financial assumptions reflect the nature and term of the DB
Scheme's liabilities.
Main demographic assumptions 2017 2016
Life expectancy for a male currently
aged 60 26.7 27.1
Life expectancy for a female
currently aged 60 28.8 28.8
Life expectancy at 60 for a male
currently aged 45 28.1 28.6
Life expectancy at 60 for a female
currently aged 45 29.9 30.6
Proportion of pension exchanged
for additional cash at retirement 10% 10%
The mortality assumptions are based on recent actual mortality
experience of DB Scheme members and allow for expected future
improvements in mortality rates.
The amounts recognised in the balance sheet are set out
below:
2017 2016
GBPm GBPm
Fair value of fund assets 1,746.0 1,754.4
Present value of funded defined
benefit obligations (1,629.1) (1,722.9)
Funded status 116.1 31.5
Present value of unfunded defined - -
benefit obligations
Unrecognised asset due to limit - -
in para 64
Asset recognised on the balance
sheet 116.1 31.5
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
The DB Scheme's funds are invested in the following assets:
Asset allocation 2017 2016
GBPm GBPm
Developed market equity 187.9 338.6
Emerging market equity 7.3 12.9
Property 164.7 91.4
Reinsurance 83.4 71.3
Listed infrastructure 112.7 99.2
Investment grade corporate bonds 423.2 366.9
Other debt (non-investment grade) 43.4 30.3
Fixed interest gilts 28.2 52.4
Index-linked gilts - 3.1
Liability driven investments 644.2 581.2
Cash 51.0 107.1
Total 1,746.0 1,754.4
Where available, the fair values above are determined as the
quoted bid market value. All other fair values are provided by the
fund managers. Where available, the fair values are quoted prices
(eg listed equity, sovereign debt and corporate bonds). Unlisted
investments (private equity) are included at values provided by the
fund manager in accordance with the relevant guidance. Other
significant assets are valued based on observable inputs such as
yield curves.
The amounts recognised in comprehensive income are set out
below:
2017 2016
GBPm GBPm
Service costs:
Current service cost 17.9 14.9
Administration expenses 1.3 1.2
Past service cost (incl. curtailments) - -
Financing cost:
Interest on net defined benefit
asset (1.8) (3.7)
Pension expense recognised in
profit and loss 17.4 12.4
Remeasurement in OCI:
Return on plan assets in excess
of that recognised in net interest (64.7) (200.9)
Actuarial losses due to changes
in financial assumptions 49.7 311.5
Actuarial gains due to changes
in demographic assumptions (33.3) -
Actuarial gains due to liability
experience (9.5) (25.9)
Adjustments due to the limit - -
in para 64
Total amount recognised in OCI (57.8) 84.7
Total amount recognised in profit
and loss and OCI (40.4) 97.1
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
As at 31 December 2017, the fair value of the DB Scheme's
assets, which related to self-investment, amounted to GBPnil (2016:
GBPnil).
Changes to the present value 2017 2016
of the DBO during the year
GBPm GBPm
Opening DBO 1,722.9 1,453.2
Current service cost 17.9 14.9
Interest expense on defined benefit
obligation 45.1 53.0
Contributions by DB Scheme participants 0.9 1.0
Actuarial gains on DB Scheme
liabilities arising from changes
in demographic assumptions (33.3) -
Actuarial losses on DB Scheme
liabilities arising from changes
in financial assumptions 49.7 311.5
Actuarial gains on DB Scheme
liabilities arising from experience (9.5) (25.9)
Benefits paid (164.6) (84.8)
Closing DBO 1,629.1 1,722.9
Changes to the fair value of 2017 2016
the DB Scheme assets during the
year
GBPm GBPm
Opening fair value of the DB
Scheme assets 1,754.4 1,541.3
Interest income on DB Scheme
assets 46.9 56.7
Remeasurement gains on DB Scheme
assets 64.7 200.9
Contributions by the employer 45.0 40.5
Contributions by DB Scheme participants 0.9 1.0
Benefits paid (164.6) (84.8)
Administration costs incurred (1.3) (1.2)
Net increase in assets from disposal/acquisition - -
Closing DBO 1,746.0 1,754.4
Actual return on DB Scheme assets 2017 2016
GBPm GBPm
Interest income on DB Scheme
assets 46.9 56.7
Re-measurement gain on DB Scheme
assets 64.7 200.9
Actual return on DB Scheme assets 111.6 257.6
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
27. EMPLOYEE BENEFIT OBLIGATIONS - continued
Sensitivity to key assumptions
The key assumptions used for IAS 19 are discount rate, inflation
and mortality. If different assumptions were used, it could have a
material effect on the results of the Group. The sensitivity of the
results to these assumptions is as follows.
Changes Revised
in DBO DBO
GBPm GBPm
Current Figures 1,629.1
Following a 10 bps decrease in
the discount rate 31.9 1,661.0
Following a 10 bps increase in
the discount rate (31.5) 1,597.6
Following a 10 bps increase in
the inflation assumption 27.0 1,656.1
Following a 10 bps decrease in
the inflation assumption (26.7) 1,602.4
Following a 1 year increase in
life expectancy 68.5 1,697.6
Following a 1 year decrease in
life expectancy (67.1) 1,562.0
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.
28. DIRECTORS' ADVANCES, CREDITS AND GUARANTEES
During the year, 3 directors (2016: 2) and 4 key personnel
(2016: 5) utilised the services provided by NTFL. The amounts
included in finance lease receivables owed by these directors and
key personnel total GBP20,000 (2016: GBP43,000) in respect of
non-current and GBP38,000 (2016: GBP80,000) in respect of current
receivables.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
29. RELATED PARTY DISCLOSURES
Group
Details of transactions between the Group and other related
parties are disclosed below.
The Group entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
balances outstanding at the year-end were as follows:
Finance/
investment
Amounts income
owed from/ Borrowings
Sales Purchases from/(to) (costs to/(from)
to from to)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2017
Integrated
Utility Services 230
Limited (registered
in Eire) - (3,270) - -
Northern
Powergrid 68 - - - -
Gas Limited
Northern (6,228)
Powergrid - - - -
Limited
Northern
Powergrid
(Yorkshire) 24,103 (12,732)
plc - - -
Vehicle Lease
and Service 351
Limited 33 (4,562) 519 -
Yorkshire
Electricity (7,238) (241,463)
Group plc - - -
17,967 (16,731) 583 (12,674) (241,463)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
29. RELATED PARTY DISCLOSURES - continued
Finance/
investment
Amounts income/
Purchases owed (costs Borrowing
Sales from from/(to) from/(to s to/(from
to ) )
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2016
Integrated
Utility Services 165
Limited (registered
in Eire) - (1,022) - -
Northern
Powergrid 53 - - - -
Gas Limited
Northern (6,222)
Powergrid - - - -
Limited
Northern
Powergrid
(Yorkshire) 17,739 (11,311)
plc - - -
Vehicle Lease
and Service 418
Limited 175 (4,398) 617 -
Yorkshire
Electricity (7,073) (102,930)
Group plc - - -
17,967 (16,731) 583 (12,674) (102,930)
Sales and purchases from related parties were made at commercial
prices.
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
29. RELATED PARTY DISCLOSURES - continued
Company
Details of transactions between the Company and other related
parties are disclosed below.
The Company entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
balances outstanding at the year-end were as follows:
Finance/
investment
Amounts income/
Purchases owed (costs Borrowings
Sales from from/(to) from/(to) to/(from)
to
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2017
Integrated
Utility Services (576) -
Limited 98 - -
Northern -
Powergrid 67 - - -
Gas Limited
Northern - (6,228)
Powergrid - - -
Limited
Northern
Powergrid
(Northeast) 5,983 -
Limited (25) 21,700 -
Northern
Powergrid
(Yorkshire) 3,525 -
plc (2) - -
Northern -
Transport 19 - - -
Finance Limited
Vehicle Lease
and Service -
Limited 158 - 519 -
Yorkshire
Electricity - (72,264)
Group plc - - 426
9,850 (603) - 16,417 (72,264)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
29. RELATED PARTY DISCLOSURES - continued
Finance/
investment
Amounts income/
Purchases owed (costs Borrowings
Sales from from/(to) from/(to) to/(from)
to
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2016
Integrated
Utility Services (556) -
Limited 57 - -
Northern -
Powergrid 88 - - -
Gas Limited
Northern - (6,228)
Powergrid - - -
Limited
Northern
Powergrid
(Northeast) 5,658 -
Limited (35) 21,800 -
Northern 4,915 -
Powergrid - - -
(Yorkshire)
plc
Northern -
Transport 19 - - -
Finance Limited
Vehicle Lease
and Service -
Limited 138 - 491 -
Yorkshire
Electricity - (62,160)
Group plc - - 33
10,875 (591) - 16,036 (62,160)
Sales and purchases from related parties were made at commercial
prices.
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
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.
30. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Electric plc Group
is Northern Powergrid Limited (Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF). 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. (3555
Farnam Street, Omaha, Nebraska 68131) (the parent undertaking of
the largest group preparing group accounts) which include Northern
Electric plc Group 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)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
31. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO
CASH GENERATED FROM OPERATIONS
Group
2017 2016
GBP'000 GBP'000
Profit before income tax 140,243 143,918
Depreciation charges 102,551 87,421
Profit on disposal of fixed assets (331) (522)
Amortisation of deferred revenue (21,210) (19,342)
Retirement benefit obligations (27,604) (28,753)
Decrease in provisions 378 (468)
Finance costs 41,404 39,139
Finance income (481) (1,100)
Income from joint ventures (619) (254)
234,331 220,039
(Increase)/decrease in inventories (546) 615
Increase in trade and other receivables (9,518) (10,367)
Increase in trade and other payables 1,231 7,593
Cash generated from operations 225,498 217,880
Company
2017 2016
GBP'000 GBP'000
Profit before income tax 15,477 13,392
Depreciation charges 47 47
(Increase)/Decrease in provisions (103) 52
Finance costs 9,428 9,096
Finance income (23,209) (22,347)
1,640 240
Decrease in trade and other receivables 42 110
(Decrease)/increase in trade and other payables (591) 428
Cash generated from operations 1,091 778
32. 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 YEARED 31 DECEMBER 2017
33. 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 Wednesday 20 June 2018 at 11.00
am
The following resolutions will be proposed as ordinary
resolutions:
Annual Report and Accounts
1. To receive and consider the strategic, directors' and
auditor's reports and the Group accounts for the year ended 31
December 2017.
Dividend
2. To declare that no final dividend be paid for the year ended 31 December 2017.
Election and Re-election of Directors
3. To elect Mr J N Reynolds as a director.
4. To re-elect Dr P A Jones as a director.
5. To re-elect Mr T Fielden as a director.
The Auditors
6. To re-appoint Deloitte LLP as the Company's auditor until the
conclusion of the next general meeting at which accounts are laid
and to authorise the directors to determine their remuneration.
Authority to allot shares
7. That:
a) the Directors be authorised to allot shares in the Company or
grant rights to subscribe for, or convert any security into, shares
in the Company up to a maximum nominal amount of GBP27,827,000;
b) this authority shall expire at close of business on 20 June
2023 or, if earlier, on the conclusion of the Company's annual
general meeting in 2023, unless previously revoked or varied by the
Company;
c) the Company may before such expiry make offers and agreements
which would or might require shares to be allotted or rights to
subscribe for, or convert securities into, shares to be granted
after the expiry of this authority and the directors may allot
shares or grant rights to subscribe for, or convert securities
into, shares under any such offer or agreement as if the authority
conferred hereby had not expired;
d) subject to paragraph (e), all existing authorities given to
the directors pursuant to Section 551 of the Act shall be revoked
by this resolution; and
e) That paragraph (d) shall be without prejudice to the
continuing authority of the directors to allot shares, or grant
rights to subscribe for or convert any security into shares,
pursuant to an offer or agreement made by the Company before the
expiry of the authority pursuant to which such offer or agreement
was made.
The following resolution will be proposed as a special
resolution:
Authority to dis-apply pre-emption rights
8. That, subject to the passing of and pursuant to the general
authority conferred by resolution 7 in the notice convening this
meeting and in place of all existing powers, the directors be and
are hereby generally empowered pursuant to Section 570 of Act to
allot equity securities (as defined in Section 560 of the Act) for
cash, pursuant to the authority so conferred as if Section 561 of
the Act did not apply to any such allotment. This power shall
expire (unless previously renewed, varied or revoked by the Company
in general meeting) at the close of business on 20 June 2023 or, if
earlier, on the conclusion of the Company's annual general meeting
in 2023, but the Company may make an offers or and agreements which
would or might require equity securities to be allotted after
expiry of this power and the directors may allot equity securities
in pursuance of that offer or agreement as if this power had not
expired.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2017
33. NOTICE OF ANNUAL GENERAL MEETING - continued
By order of the Registered office:
board
Jennifer Riley Lloyds Court, 78
Grey Street,
Company Secretary Newcastle upon
Tyne, NE1 6AF
24 April 2018 Registered in England
No 2366942
Notes:
1. All the issued ordinary shares in the Company are held by or
on behalf of Northern Powergrid Limited.
2. Holders of preference shares have the right to receive notice
of, attend and speak at the Annual General Meeting but are only
entitled to vote if, at the date of the notice of the meeting,
payment of the dividend to which they are entitled is six months or
more in arrears, or if a resolution is to be considered at the
meeting for the winding up of the Company or abrogating, varying or
modifying any of the special rights attaching to the preference
shares. As none of these circumstances apply to this Annual General
Meeting, preference shareholders should note that they do not have
the right to vote on any of the business to be considered.
3. Members are entitled to appoint a proxy to exercise all or
any of their rights on their behalf at the meeting. A shareholder
may appoint more than one proxy in relation to the Annual General
Meeting provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by the
shareholder. A proxy need not be a shareholder of the Company.
4. Any person to whom this notice is sent who is a person
nominated under Section 146 of the Companies Act 2006 to enjoy
information rights (a "Nominated Person") may, under an agreement
between him/her and the shareholder by whom he/she was nominated,
have a right to be appointed (or to have someone else appointed) as
a proxy for the Annual General Meeting. If a nominated person does
not have such a right or does not wish to exercise it, he/she may
have a right under such an agreement to give instructions to the
member as to the exercise of voting rights
5. Any corporation which is a member can appoint one or more
corporate representatives who may exercise 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.
7. Resolution 7. The Companies Act 2006 provides that directors
may only allot shares if authorised to do so by the Company's
articles of association or by the shareholders in general meeting.
This resolution replaces the resolution passed by the shareholders
on 19 June 2013.
8. Special Resolution 8. This special resolution empowers the
directors for the duration of the authority conferred by Resolution
7 to allot equity shares for cash without regard to the pre-emption
provisions to which the ordinary shareholders would otherwise be
entitled under Section 561 of the Companies Act 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEAFEMFASEIL
(END) Dow Jones Newswires
April 26, 2018 09:09 ET (13:09 GMT)
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