TIDMNTEA
RNS Number : 2531C
Northern Electric PLC
27 April 2012
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 2011.
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 2011 Annual Report and Accounts are also available on the
website
www.northernpowergrid.com
For a fully formatted version of this document please go to:
http://www.northernpowergrid.com/som_download.cfm?t=media:documentmedia&i=1031&p=file
Enquiries:
John Elliott 0191 223 5103
REPORT OF THE DIRECTORS AND
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2011
FOR
NORTHERN ELECTRIC PLC
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
Page
Company Information 1
Report of the Directors 2
Report of the Independent Auditor 28
Consolidated Income Statement 30
Consolidated Statement of Comprehensive
Income 31
Consolidated Statement of Financial
Position 32
Company Statement of Financial Position 34
Consolidated Statement of Changes in
Equity 35
Company Statement of Changes in Equity 36
Consolidated Statement of Cash Flows 37
Company Statement of Cash Flows 38
Notes to the Consolidated Financial
Statements 39
NORTHERN ELECTRIC PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2011
DIRECTORS: G E Abel
J A Andreasen
R Dixon
T E Fielden
J M France
P J Goodman
P A Jones
SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 2366942 (England and Wales)
AUDITOR: Deloitte LLP
Newcastle upon Tyne
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011
The directors present the annual report and accounts of Northern
Electric plc (the "Company") and its subsidiary companies (together
the "Group") for the year ended 31 December 2011, which includes
the business review and audited financial statements for that year.
Pages 1 to 24 inclusive of this annual report comprise a Report of
the Directors that has been drawn up and presented in accordance
with the Companies Act 2006.
Cautionary statement regarding forward-looking statements
This annual report has been prepared for the members of the
Company only. The Company, its directors, employees or agents do
not accept or assume responsibility to any other person in
connection with this document and any such responsibility or
liability is expressly disclaimed. This annual report contains
certain forward-looking statements, which can be identified by the
fact that they do not relate only to historical or current facts.
In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in
results of operations, business prospects, the availability of
financing to the Company and anticipated cost savings are
forward-looking statements.
By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the
date of preparation of this annual report and will not be updated
during the year. Nothing in this annual report should be construed
as a profit forecast.
PRINCIPAL ACTIVITY
The Company is part of the Northern Powergrid Holdings Company
group of companies (the "Northern Powergrid Group") and its
principal activity during the year was to act as a holding
company.
The activities of the Company's principal subsidiaries during
the year were the distribution of electricity by Northern Powergrid
(Northeast) Limited ("Northern Powergrid"), which was previously
called Northern Electric Distribution Limited, and the provision of
engineering contracting services by Integrated Utility Services
Limited ("IUS").
Northern Powergrid serves an area of approximately 14,400 sq km
in the northeast of England with a resident population of 3.2
million, which extends from North Northumberland, south to York and
west to the Pennines. Northern Powergrid's distribution system
receives electricity from the National Grid's transmission system
and distributes it, at voltages of up to 132kV, to approximately
1.6 million customers connected to its network of transformers,
switchgear and overhead and underground cables. Northern Powergrid
is an authorised distributor under the Electricity Act 1989 and
holds an electricity distribution licence granted by the Secretary
of State.
IUS operates an engineering contracting business, which is
divided into three main streams. UK Contracting provides design,
construction and maintenance services to public and private
networks throughout the UK, Rail provides a total service from
feasibility to design, installation, commissioning and on-going
maintenance and Multi-utility provides new electrical, gas and
water connections to housing and property developers. IUS also
provides connections consultancy and system study services.
In common with the Northern Powergrid Group, the Company
operates a business model and strategy based on its six core
principles (the "Core Principles"), which are:
Principle Strategy Indicator
Financial strength Effective stewardship of Profitability, cash
the Group's financial resources, flow and maintenance
investing in assets and focusing of investment grade
on long-term opportunities, credit ratings. Managing
which contribute to the Group's commercial risk.
future strength.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Customer service Delivering reliability, fair Improving customer
prices and exceptional service. satisfaction.
Operational Setting high standards for Effective asset management,
excellence the Group's operations and managing commercial
system investment, operation risk and improving
and maintenance. network resilience
and performance, measured
by: customer minutes
lost and, customer
interruptions.
Employee commitment Equipping employees with Leading safety performance,
the resources and skills engaging employees
they need to operate successfully and effective leadership.
and in a safe and rewarding
environment.
Environmental Using natural resources wisely Reducing environmental
respect and protecting the environment, impact and promoting
where it is impacted by the and pursuing long-term
Group's operations. sustainability.
Regulatory integrity Adhering to a policy of strict Strong internal controls,
compliance with appropriate regulatory engagement
standards, policies and legislation. and industry influence.
REVIEW OF BUSINESS
Although there continued to be only limited evidence of any
improvement in the general economic environment, the Group
delivered a satisfactory financial performance for the year, which
was mainly attributable to a benefit from the change to the rate of
corporation tax, and higher tariffs introduced during the year,
which resulted in an increase in revenue compared to the prior
year. The difficult trading conditions in the engineering
contracting market continued for IUS and had an adverse impact on
IUS' earnings due to lower volumes of work being awarded and
delivered, with activity levels in the UK Contracting and Rail
areas of IUS' business reducing in comparison to 2010. IUS
continued to make a positive contribution to the performance of the
Group.
During the year, Northern Powergrid completed a review of the
efficiency of its capital expenditure in order to maintain
consistent delivery of its unit costs under the Distribution Price
Control 5 ("DPCR5") arrangements and continued its drive to improve
customer service with action being taken to consolidate the
operations and extend the opening hours of the customer relations
centre, the creation of geographically-located customer response
teams and the introduction of certain internet-based services in
order to improve the efficiency of those services.
There Group's health and safety performance continued to compare
well with the industry average but the internal targets were missed
in respect of lost time accidents, operational incidents and
preventable vehicle accidents. However, environmental performance
improved with the amount of fluid loss to ground and carbon
emissions reducing in comparison to the prior year.
RESEARCH AND DEVELOPMENT
In 2011 Northern Powergrid began working, in partnership with
British Gas, Durham University and EA Technology, on a three-year
project, the Customer-Led Network Revolution, under Ofgem's Low
Carbon Networks Fund. This was the largest project supported by
Ofgem in the first year of the fund and Northern Powergrid will
incur expenditure of GBP31m over the three-year life of the
project. Of that expenditure, 90% is funded by electricity
customers in Great Britain and successful delivery of the project
over the three years agreed with Ofgem will enable recovery of the
additional 10% from customers and potentially qualify for a further
discretionary award. The project is assessing the potential for new
network technology and flexible customer response to facilitate
speedier and more economical take-up by customers of low-carbon
technologies and the connection to the distribution network of
increasing amounts of low-carbon or renewable energy
generation.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
The first year of the project comprised the project initiation
and detailed specification phases. All four key milestones for the
year were met and the project remains on track to deliver learning
that is relevant, timely and valuable.
Northern Powergrid also supports a programme of research that is
expected to contribute to higher standards of performance and a
more cost-effective operation of its business. That programme
includes building on the previously successful field trials of
newly developed superconducting fault limiters to provide
alternatives to traditional engineering solutions for network
constraints, investigating demand side management impacts on
network risk to support the low carbon network activities and
developing a warning device to detect when vehicles and other
equipment are in contact with live conductors, so allowing
operators to take mitigating action safely and at decreased risk of
injury to themselves and others.
During the year, the Group invested GBP4,075,000 (Note 6 to the
accounts) in its research and development activities.
FUTURE DEVELOPMENTS
The financial position of the Group, as at the year end, is
shown in the statement of financial position on page 32 and there
have been no significant events since the year end.
The Company intends to continue to act as a holding and
investment company and the directors intend to develop the Group's
business in a manner that concentrates on its core skills of
electricity distribution and engineering contracting.
Northern Powergrid will continue to operate its business with
the goal of out-performing the allowances provided in distribution
price control 5 ("DPCR5"), while efficiently investing in the
electricity distribution system with the aim of improving the
quality of supply provided to customers.
IUS will look to develop its business in a manner that
concentrates on its core skills of engineering contracting by
delivering a high standard of service to its existing clients and
pursuing opportunities to increase its portfolio of clients across
all regions of the United Kingdom in the sectors within which it
operates.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2011 to the date of this report.
G E Abel Chairman
J A Andreasen General Counsel
R Dixon Non-executive Director
T E Fielden Finance Director
J M France Regulation Director
P J Goodman Executive Vice-President and Chief Financial
Officer, MidAmerican Energy Holdings Company
P A Jones President and Chief Executive Officer
GROUP'S POLICY ON PAYMENT OF CREDITORS
The Group complies with the Better Payment Practice Code for the
prompt payment of suppliers in accordance with the normal terms of
trade. It is Group policy with respect to its suppliers to settle
the terms of payment with those suppliers when agreeing the terms
of each transaction, to ensure that those suppliers are aware of
the terms of payment and to pay in accordance with the Group's
contractual and other legal obligations. The number of days
purchases in trade creditors for the Group at 31 December 2011 was
23 (2010: 32).
VOTE HOLDER AND ISSUER NOTIFICATION
There have been no disclosures to the Company under Disclosure
and Transparency Rule 5 (Vote Holder and Issuer Notification
Rules).
POLITICAL AND CHARITABLE CONTRIBUTIONS
During the year, charitable donations of GBP19,125 were made
(2010: GBP25,452), principally to local charities serving the
communities in which the Group operates. No contributions were made
to political organisations (2010: nil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
STRATEGIC OBJECTIVES
As part of the Northern Powergrid Group, the Group's strategic
objectives remain based on the Core Principles and are to build a
business, which:
- continues to generate value over the long-term;
- invests in and manages its electricity distribution network in
an efficient and effective manner;
- provides its customers with an excellent standard of service;
- engages with its employees so that they feel rewarded and
recognised as part of a team that sets and achieves increasingly
high standards of performance; and
- is viewed as being a leader in terms of shaping the future
direction of the electricity distribution network sector in the
United Kingdom.
As part of its strategy the Group continues to be committed to
putting safety first, respecting its customers, their time and
property, doing a quality job, responding effectively to major
incidents on the network in times of severe weather and caring for
its local environment.
CORE PRINCIPLES
Financial strength
During the year, the Group continued to maintain good control in
respect of both its capital and non-operational expenditure and
Northern Powergrid completed the financing arrangements with the
European Investment Bank ("EIB"), which commenced in 2010. The
Company secured an acceptable settlement in the triennial valuation
of the defined benefit pension scheme and the Group continued to
closely monitor and manage the various financial issues that may
impact on its business as a result of the effect of the general
economic climate on its customers, including lower activity in
terms of new connections required to the network and the potential
for higher debt write-off.
Northern Powergrid benefits from the stability provided by DPCR5
in terms of its income until 31 March 2015 and recognises that it
needs to show that it is delivering reliable services at a fair
price to its customers, while operating in an efficient and
effective manner.
Key aspects of financial performance for the year were as
follows:
Revenue
The Group's revenue at GBP301,427,000 was GBP12,858,000 higher
than the prior year mainly due to additional allowances from the
DPCR 5 settlement, partly offset by a reduction in engineering
contracting revenues.
Operating profit
The Group's operating profit at GBP171,218,000 was GBP17,618,000
higher than the previous year reflecting increased revenues,
combined with cost savings.
Finance costs and investment income
Finance costs net of investment income at GBP35,689,000 were
GBP3,749,000 higher then the previous year reflecting additional
borrowings.
Taxation
The effective tax rate in the current year is 15%. Details are
provided in Note 7 to the accounts.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Results and dividends
The Company made a profit after tax for the year of
GBP116,139,000. An interim dividend of GBP30m was paid during the
year and the directors recommend that no final dividend be paid in
respect of the year.
Share capital and debt structures
There were no changes to the Company's share capital during the
year.
The financial obligations of Northern Powergrid in respect of
the GBP119m credit facility provided by EIB are guaranteed by
Northern Powergrid Holdings Company and, between 31 January 2011
and 28 February 2011, Northern Powergrid drew down the entire
facility of GBP119m at an average fixed rate of 4.228%.
Dividend policy
The Company's dividend policy is that dividends will be paid
only after having due regard to available distributable reserves,
available liquid funds and the financial resources and facilities
needed to enable the Company to carry on its business for at least
the next year. In addition, the level of dividends is set to
maintain sufficient equity in the Company so as not to jeopardise
its investment grade issuer credit rating.
Cash flow
The Group aims to collect from customers and pay suppliers
within contracted terms. Any surplus cash held is remitted to
Yorkshire Electricity Group plc ("YEG"), a company in the Northern
Powergrid Group, and invested accordingly, generating a market rate
of return.
Movements in cash flows were as follows:
- Operating activities: Cash flow from operating activities at
GBP124,468,000 was GBP23,650,000 higher than the previous year
primarily as a result of the increase in distribution revenue in
the year and favourable working capital movements.
- Investing activities: Net cash used in investing activities at
GBP74,864,000 was GBP7,900,000 lower than the previous year
reflecting a reduction in net capital expenditure.
- Financing activities: The net cash generated from financing
activities at GBP112,867,000 represents a GBP205,145,000 favourable
variance compared to 2010 due to the raising of new external debt
finance during 2011 and the payment of a larger dividend in the
prior year.
Treasury
The Group's short-term financial objective is to ensure that it
has access to sufficient liquidity to enable it to meet its
obligations as they fall due and to provide adequately for
contingencies. The long-term objective is to provide a stable and
low cost of financing over time whilst observing approved risk
parameters. The main risks are liquidity and interest rate
risk.
Liquidity risk
Northern Powergrid has access to GBP75m under a three year
committed revolving credit facility provided by Lloyds TSB Bank
plc, The Royal Bank of Scotland plc and Abbey National Treasury
Services plc, which expires on 31 March 2013. Northern Powergrid
expects to raise further facilities as required, at that time.
In addition, the Group has access to further short-term
borrowing facilities provided by YEG and has a GBP7m overdraft
facility provided by Lloyds TSB Bank plc, which is renewable
annually.
The directors do not consider there to be any doubt over the
Group's ability to raise appropriate levels of finance in the
future, given its investment grade issuer credit rating and the
fundamental financial strength and nature of its business.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Interest rate risk
The Group is financed by long-term borrowings at fixed rates and
has access to short-term borrowing facilities at floating rates of
interest. As at 31 December 2011, 99% of the Group's borrowings
were at fixed rates and the average maturity for these borrowings
was 17 years.
Currency risk
No material currency risks are faced by the Group.
Trading risk
Throughout the year under review, the Group's policy was that no
trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2011 and during the year it was the Group's
policy not to hold any derivative financial instruments.
Pensions
The Company is the principal employer in the Northern Electric
Group of the Electricity Supply Pension Scheme (the "Scheme"), a
defined benefit scheme. Full details of the Company's commitments
to the Scheme and the associated deficit repair payments are
provided in Note 24 to the accounts.
During the year, the Company was engaged with the Group Trustees
in the triennial actuarial valuation process, as at 31 March 2010,
in order to determine the funding position of the Scheme and the
associated deficit repair arrangements. The actuarial valuation
concluded that there was a shortfall of assets in the Scheme
compared to the value of accrued benefits of GBP276m.
Agreement was reached during June 2011 with the Group Trustees
to repair this deficit over the 15 year period to 31 March 2025,
subject to the actuarial assumptions adopted for the triennial
valuation as at 31 March 2010 being borne out in practice. The
agreement includes cash payments of GBP29.9m per annum, made on a
monthly basis, for the first five years of the recovery plan
followed by an agreed profile of payments to be made over the
remaining ten years of the recovery plan.
The Company also participates in the Northern Powergrid Pension
Scheme, which is a defined contribution scheme.
Insurance
As part of its insurance and risk strategy, the Northern
Powergrid Group has in place a range of insurance policies covering
it against risks, including damage to property and employer's,
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
in place are viewed as extremely important elements of the
business, given the contribution they make to the elimination or
reduction of exposure to such risks.
Customer service
During the year, Northern Powergrid distributed electricity to
customers in its distribution services area and continued to
improve the overall performance of the distribution network through
an investment strategy targeted at delivering improvements in an
efficient and cost-effective manner. Northern Powergrid is focused
on delivering a reliable and dependable supply of electricity and a
high standard of service to its customers. Northern Powergrid made
a major commitment to improving customer service, with the
introduction of a programme focused on the development of the
customer experience and actions being taken aimed at improving
performance in its contact centre services, web services,
stakeholder engagement and customer service competencies and
complaints handling processes. A significant number of improvements
have already been identified and delivered as part of the overall
goal to improve customer satisfaction with the service
provided.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Those improvements included:
- the introduction of monthly connections surgeries to enable
new connections customers to discuss their specific projects with
Northern Powergrid representatives;
- building on the introduction of the interactive voice response
system in the customer relations centre in order to take advantage
of the latest developments in automatic messaging and to enable the
provision of an improved service to customers during power cuts,
including text and voice-message updates;
- launching a new website offering so that customers can
self-serve on several service lines and obtain information on power
cuts via a smart phone application;
- improving the accuracy of the times estimated for the
restoration of supply during power cuts that are provided to
customers;
- continuing to improve under-performing parts of the
distribution network by identifying "hot spots" and taking specific
action to address the issues in those areas;
- maintaining the priority services register so that Northern
Powergrid is aware of people with disabilities or special needs,
who may be affected by power cuts and can take appropriate action
to assist those people in such circumstances;
- undertaking a programme to reduce the number of instances in
which Northern Powergrid fails to meet an electricity guaranteed
standard of performance;
- undertaking a training programme to provide employees from
other parts of the Northern Powergrid Group with the tools and
skill sets to handle calls regarding power cuts during periods of
peak call demand and supporting that process with the
implementation of new voice-over-internet-protocol technology;
and
- undertaking a major customer service training programme for
employees in all areas of the business to provide a service
personal to each customer.
Northern Powergrid achieved a customer satisfaction score of
86.6% for the regulatory year to 31 March 2011 and, by building on
the telephony system and actions mentioned above, intends to more
effectively integrate its other customer facing processes in order
to improve the service provided. Continued development of Northern
Powergrid's customer service improvement plan will include
increasing focus on excellence in customer service in order to
achieve a customer satisfaction score of greater than 90%.
Northern Powergrid's performance in respect of the new
electricity connections guaranteed standards of performance
introduced in October 2010 has continued to be positive, with the
recorded performance for the first calendar year of operation being
99.87%.
The performance of the distribution network operators ("DNOs")
against guaranteed standards, set for activities such as restoring
supplies after unplanned interruptions, provides a measure of the
level of customer service. Performance against these measures forms
part of Northern Powergrid's regular reporting to Ofgem.
Ofgem's incentive scheme for quality of service, by which the
DNOs are provided with financial incentives, is based upon targets
set by Ofgem with regard to each DNO's performance in the following
areas:
- The number of interruptions to supply;
- The duration of interruptions to supply; and
- Customer satisfaction.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Customer minutes lost ("CML") and customer interruptions ("CI")
are the key performance indicators used by Northern Powergrid to
measure the quality of supply and system performance. CML measures
the average number of supply minutes lost for every connected
customer due to faults and planned outages that last for three
minutes or longer. CI measures the average number of supply
interruptions for every 100 connected customers due to faults and
planned outages 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 the target number
in respect of CML and CI and more than the target number in respect
of customer satisfaction. Northern Powergrid's reported performance
for the regulatory year to 31 March 2011, against the targets
determined by Ofgem, was as follows:
Actual Target
CML: 71.1 (2010: 68.8) 71.3 (2010: 67.4)
CI: 65.2 (2010: 62.3) 68.3 (2010: 74.5)
Customer Satisfaction 86.6% (2010: 91.2%) 90% (2010: 90%)
Performance in the regulatory year to 31 March 2011 was better
than Ofgem's target for both CML and CI. Customer satisfaction was
below target and was affected by the introduction into the target,
in April 2010, of an element relating to the unsuccessful call
rate. Measured without the unsuccessful call element and on a
like-for-like basis with the prior year, customer satisfaction
performance would have been 90%. In this respect, Northern
Powergrid is continuing to develop its telephony system to address
the unsuccessful call rates and anticipates that the actions
mentioned above, together with the various improvement actions in
respect of the network's resilience, will continue to support
improvements in customer service performance.
Operational excellence
The Group's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP122,710,000 was
invested in the improvement of the distribution network, including
the replacement of assets and continuing network improvements
intended to increase the quality of the electricity supply provided
to customers.
Operational activity
Northern Powergrid's investment strategy is designed to deliver
improvements in an efficient and cost-effective manner in order to
improve the network's resilience by minimising the number of faults
that occur, reducing the average number of customers affected by a
fault and providing a quicker restoration service in the event of a
fault.
The Field Operations structure is designed to provide the best
possible foundation for optimum operational performance and is
based on seven individual business units for the operation of the
network. Those business units are Health and Safety, Network
Operations, which provides the day-to-day and reactive management
of the network, Service Delivery, which has responsibility for the
control and management of the direct labour force, Network Repairs,
which focuses on core repair activities, Connections Delivery,
which undertakes customer-driven work, Programme Delivery, which
includes primary engineering projects and technical services, and
Operational Services, which includes supply chain management and
training services.
Northern Powergrid's priorities during the year included a
reduction in the average level of fault repair work in progress,
the introduction of improvements in field response and supply
restoration times and in the management of intermittent faults, the
implementation of enhanced controls for outage risk management and
a more robust approach to the control of operations on the low
voltage network.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
The major projects undertaken in support of those targets and as
part of the investment strategy included:
- Completion of major asset replacement works for the 132kV
switchgear at Tynemouth in North Tyneside, a new 33/20kV substation
to provide improved voltage regulation in the Wensleydale area of
North Yorkshire, the replacement of 3.5km of 33kV oil-filled cables
over the River Tyne, refurbishment of over 8km of 66kV overhead
line and the refurbishment or rebuilding of 44km of high voltage
and 31km of low voltage overhead line;
- Commencement of works to reinforce the 33kV network in the
Harrogate area, to replace the 20kV switchgear at Fawdon and
Hartmoor substations and the 11kV switchgear at Northallerton and
Catterick Camp substations, to refurbish almost 20km of 66kV
overhead line and almost 50km of 132kV overhead line and of a
number of projects that will conclude with the replacement of
approximately 20km of 33kV oil filled cables in 2012;
- Replacement of 111 units of high voltage outdoor switchgear,
42 high voltage distribution substations and 339 units of high
voltage indoor switchgear;
- The upgrade and reinforcement of 21 sites to address the
quality of supply performance issues relating to those circuits;
and
- The installation and commissioning of 10 new remote control sites.
In order to deliver its investment strategy, Northern Powergrid
used a mix of its own staff and contractors, including Integrated
Utility Services Limited, an affiliated a company registered in the
Republic of Ireland.
Employee commitment
Health and safety
During the year, the focus on health and safety continued to be
of paramount importance for the directors, as it is for all
employees. Providing and maintaining a safe working environment is
the first objective of the Northern Powergrid Group. There is a
continuous drive for improvement in safety performance through the
setting of challenging goals and the pursuit of a programme of
on-site safety audits, which reflect the Northern Powergrid Group's
fundamental objectives that none of its staff should go home
injured and all employees should commit to behaving safely all of
the time. The Northern Powergrid Group makes no compromise in
respect of its health and safety obligations and centres its safety
plans and systems on the principles found in companies with world
class safety performance.
In 2011 Northern Powergrid received a President's Award and IUS
received its fourth consecutive Gold Medal from the Royal Society
for the Prevention of Accidents. The President's Award is for
achieving ten consecutive Gold Awards, which are presented in
recognition of achievements in the year in question and continued
or improving standards of health and safety over a sustained
period. Northern Powergrid also continued to maintain its
occupational health and safety management system and retained its
Occupational Health and Safety Assessment Series ("OHSAS") 18001
certification and environmental management system ISO 14001
certification.
In respect of the main key performance indicators used by the
Group to monitor safety performance, the goal is to achieve
performance that is below the target number. Those key performance
indicators are as follows:
2011 2010
Target Actual Target Actual
Lost time accidents 2 5 0 4
Restricted duty accidents 1 0 1 1
Medical treatment accidents 3 1 4 2
Operational incidents 4 5 4 6
Preventable vehicle accidents 13 15 13 8
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
The Group measures its safety performance in calendar years and,
although performance continued to be better than the industry
average, it fell short of the internal goals in certain areas
during 2011. The Northern Powergrid Group continues to implement a
safety and health improvement plan that targets delivery of
continuous improvement and, as part of that plan, carried out a
cross-business operational assurance audit programme by senior
managers during the year in order to reinforce the operational
safety values. The Northern Powergrid Group also delivered
operational seminars and stand down briefings to cascade
information on safety trends and to launch a new method of site
specific risk assessment.
Performance in respect of preventable vehicle accidents failed
to achieve the target for 2011 and showed a downturn in performance
compared with 2010. The Northern Powergrid Group continued to
implement a robust road risk management plan, which involved a
significant number of staff undertaking the Institute of Advanced
Motorists online driver assessment and training module followed by
an on-road refresher training session if required. The driver
training programme provides practical driving training to a
targeted population of drivers and is the primary route to
improving driver skills in the longer term.
In terms of the health of employees, the sickness absence rate
across the Northern Powergrid Group was 2.82% and, in support of
the drive for continuous improvement, the Group introduced a new
health surveillance policy during 2011 and conducted a stress
survey, which led to action plans being implemented to address
those areas which were identified for development.
Management structure
The Group has a clearly defined leadership team in which
specific roles are identified so allowing effective management of
the Group's business and response to any control weaknesses that
may become apparent, with single units being in place for field
operations, customer operations, asset management, and health,
safety and environment. The business systems, human resources,
procurement and finance functions are centralised in order to
provide those services across the Northern Powergrid Group. IUS has
its own dedicated management team.
Employees
The challenging external economic environment continued
throughout the year and the Group continued to implement its
programme of cost mitigation, which included the control of
headcount.
The Group continues to place significant emphasis on the
importance and application of high standards of management and
performance in pursuit of the Core Principles and ensures that a
level of consistency is adopted in so doing. In respect of employee
relations, the Group and the trades unions continue to work towards
building constructive and partnered relationships.
Given the demographics of Northern Powergrid's workforce, the
increasing investment in the distribution network and in order to
encourage investment in a sustainable workforce, Ofgem provided an
allowance in its DPCR5 final proposals in order to fund the plans
for workforce renewal across the DPCR5 period. Ofgem has stated
that the allowance is on a "use it or lose it" basis and Northern
Powergrid will need to demonstrate that it has used that allowance
appropriately and efficiently to recruit and train new staff or for
other means of renewing its workforce and report annually on its
progress in that respect. The Northern Powergrid Group recruited 64
members of staff in 2011 and has a target to recruit an additional
75 in 2012 under its workforce renewal programme. Overall, plans
are in place to have recruited a total of 275 graduate trainees,
technical trainees and craft apprentices by the end of 2015.
The Group employed 1,162 staff at the end of December 2011
(2010: 1,149).
The Northern Powergrid Group is committed to proper business
conduct and, in common with MidAmerican Energy Holdings Company
("MidAmerican"), its parent company, has adopted a code of business
ethics that emphasises the requirement for all staff to manage
their activities to achieve the highest level of ethical conduct. A
"speaking up" policy is in place so that staff are able to raise
any instances of unethical acts, malpractice or impropriety. An
additional process is also available to all staff via an
international, anonymous help line operated by an independent
company.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Human resource policies focus on skills, motivation and
excellence and the promotion of high standards of probity among
staff. In addition, the appropriate organisational structure has
been developed to control business units and to delegate authority
and accountability, having regard to acceptable levels of risk.
Disabled employees
The Northern Powergrid Group is committed to equality at work
and as such is committed to the criteria underpinning the
Employment Service disability symbol. It is the Northern Powergrid
Group's policy to provide all protected groups including disabled
people with equality at work in respect of employment, training,
career development and promotion, having regard to their aptitudes
and abilities. Should any member of staff become disabled during
their employment, the Group would work to retrain and/or redeploy
that member of staff wherever possible.
Employee consultation
The Northern Powergrid Group has a constitutional framework in
place and has agreed that framework with trade union
representatives. In addition, the Northern Powergrid Group
communicates directly and through the management structure with
personal contract holders and keeps them informed of and involved
as appropriate in any developments that may impact on them now or
in the future.
The Northern Powergrid Group is committed to maintaining and
improving effective communication with employees, principally
through regular staff briefs on current issues, meetings with staff
and their representatives and the issue of an employee publication.
During the year, the President and Chief Executive Officer of the
Northern Powergrid Group delivered regular broadcast briefings
using telephone conference call facilities in order to provide
employees with updates such as on the performance of the Northern
Powergrid Group, financial, organisational and safety issues and
customer service performance.
Environmental respect
The Northern Powergrid Group's approach to environmental
compliance is governed by its environmental policy and the policy
of Environmental RESPECT (Responsibility, Efficiency, Stewardship,
Performance, Evaluation, Communication and Training) implemented by
MidAmerican. These policies and their subordinate operational
control procedures and systems address compliance with legal and
other key environmental requirements, pollution prevention and
continual improvement and also promote environmental awareness and
best practice amongst the Group's staff and contractors.
Northern Powergrid has operated a United Kingdom Accreditation
Service scheme for environmental management since the late 1990s,
certified to the environmental management systems standard ISO
14001:2004. It is subject to regular six-monthly assessment visits
and a three-yearly certificate renewal assessment by an accredited
external certification body in order to retain that status. The
most recent visit was a six-monthly surveillance assessment carried
out by Lloyd's Register Quality Assurance in October 2011. The
assessment report drew management attention to some minor
non-conformances to be addressed by agreed proposed actions. The
report also noted good processes for identifying environmental
aspects and legal requirements and taking them into account in the
system. There were no major non-conformances noted and continued
certification was recommended and subsequently confirmed.
Having met its key improvement target in the reduction of cable
fluid leakages for the year, strong performance on all
environmental targets continued to provide a crucial contribution
to the control of Northern Powergrid's environmental impact to
ground and the associated risk to the business. Future improvements
are supported by the Northern Powergrid Group's continued asset
investment plan.
Improvements in support of the Northern Powergrid Group's
environmental policy objectives during the year included replacing
selected fluid-filled cable sections with non-fluid polymeric
equivalents, replacing oil-filled circuit breakers with vacuum and
sulphur hexafluoride gas filled units at outdoor substations to
reduce the potential for oil leakage and installing underground
cables using trenchless technology, where it is efficient and
practicable to do so, as opposed to open-cut excavations. In
addition the Group provides environmental awareness training for
new personnel and contractors and periodic refresher training for
all staff.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Environmental impact on protected structures, features, areas,
wildlife and habitat is a central consideration when planning
improvements to the electricity distribution network. This includes
protecting bird life by placing bird-diverters on power lines, in
reserves or in locations where rare species of bird are known to
live or breed and in response to information from incident trends
and the proximity of wetlands and flight paths.
Sustainability
The Group takes its responsibilities in respect of its
contribution to reducing the impact of global warming seriously,
both in its capacity as a major participant in the UK energy
industry and in terms of its own carbon footprint. Through its
involvement in industry groups and its interactions with government
and regulators, the Group is contributing to the target of reducing
the carbon emissions of the UK economy and it also works with
customers to assist in solving issues raised by the introduction of
low-carbon generation and technologies and their implications for
the planning and operation of the electricity network.
The Northern Powergrid Group measures and publishes details of
its own carbon footprint. It set and achieved a target of reducing
that footprint by 5% in 2011 and has set a target to reduce its
carbon footprint by a further 3.5% in 2012. Actions taken in 2011
to assist in meeting this target included fitting speed limiters to
the vehicle fleet, trialling the use of an electric car for six
months and extending the recycling of office waste to all major
office sites. Northern Powergrid has, in line with Ofgem's
requirements, contributed to the sustainability agenda through
public reporting on the carbon footprint of its business and,
during 2011, achieved certification under CEMARS (the Certified
Emissions Measurement and Reduction Scheme) that its measurement of
its greenhouse gas emissions was in compliance with ISO 14064.
The significant increase in the number of installations by
customers of low-carbon technologies such as photovoltaic solar
panels and heat pumps continued during 2011 and Northern Powergrid
worked with customers and installers to facilitate the process of
connecting this technology to the electricity network. In June
2011, Northern Powergrid hosted a well attended and well received
micro-generation conference, in conjunction with CO2 Sense, to
provide information to and obtain feedback from installers and
social-housing providers about this process.
Regulatory integrity
The Group manages its business to the highest behavioural
standards and adheres to a policy of strict compliance with all
relevant standards, legislation and regulatory conditions. The
Governance and Risk Management Group ("GRMG") monitored and managed
performance in risk-related and compliance areas and met on four
occasions during the year.
As has been the case for some years, breaches by a DNO of its
licence conditions could lead to financial penalties, which Ofgem
has stated "will have a proportionate impact on shareholder
returns". In order to assure compliance with its licence and other
regulatory obligations, Northern Powergrid operates a regulatory
compliance affirmation process, under which ownership of the
approximately 1,550 regulatory obligations contained within the
compliance database is currently assigned to 60 responsible
managers. Those responsible managers are required, on a quarterly
basis, to review compliance with the relevant obligations that have
been assigned to them for certification and report on any perceived
risks to the compliance process, which are then addressed. The
Regulation Manager reports to Northern Powergrid's board of
directors on the outcome of each quarter's exercise.
A revenue-related issue arose during 2010 in that the adjustment
of settlements data by certain suppliers had the effect of
distorting the apparent performance of Northern Powergrid under the
losses incentive scheme for the regulatory year ended 31 March
2010. Throughout 2011 Northern Powergrid has engaged with Ofgem,
which is seeking to resolve the complex issues of the Distribution
Price Control Review 4 losses incentive arrangements and the impact
of electricity supplier data-management programmes. Ofgem's
decision to approve the Northern Powergrid Group's application to
use a revised methodology for the calculation of 2009-2010 annual
reported losses was sustained throughout 2011 and Northern
Powergrid expects to reach a final conclusion to this issue with
Ofgem during 2012. In accordance with International Financial
Reporting Standards, the Group has not included any recognition of
this issue in the accounts.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Under the new RIIO (revenue = incentives + innovation + outputs)
model for regulation that emerged in 2010 from Ofgem's review of
energy-network regulatory arrangements, price controls will be set
for eight or nine years (rather than five as at present), with
provision for a mid-period review of the outputs that network
companies are required to deliver and there will be increased
involvement for stakeholders. As part of the move to RIIO, Ofgem
determined in the first quarter of 2011 that it intends to retain a
20-year depreciation profile for existing assets while moving new
assets to a 45-year profile. Ofgem launched the RIIO-ED1 price
control review during March 2012 which, on conclusion of the
process, will set revenues for the period from 2015 to either 2023
or 2024.
Corporate social responsibility
The Group values its relationship with its customers and
stakeholders and recognises the importance of maintaining a secure
and safe power supply for its customers and their local
communities. That commitment is underpinned by five customer
promises, which are to put safety first, to respect the Group's
customers, their time and property, to do a really good job, to be
there when needed and to care for the local environment.
The Group aims to enhance its relationship with various
stakeholders through direct engagement on the actions and
investment planned to improve the performance of the network and on
the environmental and social implications of its operations. The
Group seeks to engage disadvantaged groups in projects that bring
about benefits for participants and communities, which is supported
by a small donation programme focused on the Group's key priorities
of support for youth, education and the environment.
In order to improve its response to emergency situations,
Northern Powergrid has developed key partnerships with the
Environment Agency, the local authorities and the local resilience
forums, via a Civil Contingency Co-ordinator, so that it can
respond quickly to significant faults on or threats to the network.
In the event that river levels rise and flood warnings are issued,
staff can be deployed immediately to erect perimeter flood defences
at major substation sites and portable defence barriers at lower
risk sites. In addition, Northern Powergrid has well-established
emergency procedures that are triggered in times of weather-related
incidents or long duration power cuts when people are without power
for some time.
As well as redeploying staff from planned works to help restore
power as quickly as possible when major incidents occur, Northern
Powergrid dispatches customer service vehicles to the heart of
areas affected, which are able to distribute hot drinks and
microwave meals and generally assist with the welfare of customers
in order to alleviate the impact of the incident. Northern
Powergrid also utilises 'customer ambassadors' who are able to pay
particular attention to customers who have registered on the
Priority Services Register. Working in conjunction with the
customer relations centre, the ambassadors ensure that these
high-priority customers are comfortable and kept informed of the
situation both throughout the event and after the power is
restored.
As safety is the first priority and underpins every aspect of
its operations, Northern Powergrid participates alongside other key
organisations in 'Crucial Crew', which is a schools-based safety
initiative that teaches children to recognise and avoid situations
that put them in danger, such as climbing electricity pylons and
fishing near power lines. This campaign and a school visits
programme promoting safety messages are supported through an
interactive website and mobile phone game. In addition, the Group
supports a sports programme in partnership with England Athletics,
which is delivered through local schools and combines important
safety messages with the promotion of healthy lifestyles.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have an impact on the Group, its financial position and its
operations and may cause actual results to vary materially from
those expected or historically experienced. The principal risks are
outlined as follows:
Financial risk
As a holder of an electricity distribution licence, Northern
Powergrid is subject to regulation by the Gas and Electricity
Markets Authority ("GEMA"), which acts through Ofgem. Most of the
revenue of the electricity distribution licence holders is
controlled by the distribution price control formula set out in the
electricity distribution licence. The price control formula does
not constrain profits from year to year but sets a maximum
permitted revenue for each regulatory year and is a control on
revenue that operates independently of most of the electricity
distribution licence holder's costs. Where Northern Powergrid
recovers more, or less, than this maximum the difference is carried
forward, with interest, into the entitlement for the following
year.
It has been the practice of Ofgem to review and reset the
formula at five-year intervals, although the formula has been, and
may be, reviewed at other times at the discretion of Ofgem. A
resetting of the formula can now be made by GEMA without the
consent of the electricity distribution licence holder but, if a
licensee wishes to appeal such a modification, the licensee may
insist that the matter is referred to the Competition Commission
for it to determine whether the modification should be made.
Certain other interested parties have the same right. The current
five-year price control period became effective on 1 April 2010 and
has set Northern Powergrid's revenues through to 31 March 2015.
However, it is expected that the next price control will be set for
eight or nine years. During the term of the current price control,
changes in costs incurred will have a direct impact on Northern
Powergrid's financial results.
Ofgem recognises that defined benefit pension schemes and,
particularly, the current deficit positions of various schemes,
represent a significant cost to the DNOs and, in its DPCR5 final
proposals, confirmed that DNOs would be allowed to recover the full
value of the deficits attributable to a licensee's distribution
business in existence as at 31 March 2010 (after an adjustment to
reflect the residual of unfunded early retirement deficiency costs
as at 31 March 2010), via its regulated revenues.
However, given the regulated nature of the DNOs' businesses,
Ofgem took the view that there is not the same risk or urgency as
in other sectors of the economy to ensure that those deficits are
repaired as soon as possible and therefore set a notional repair
period of 15 years for the purpose of assessing the DNOs' allowed
revenues in respect of pension costs over the DPCR5 period.
The other financial risks facing the Group are outlined in the
Treasury section on page 6 of this report.
Operational risk
There are a number of risks to Northern Powergrid's operational
performance in respect of which mitigating actions have been taken.
Appropriate credit cover arrangements are in place with the
electricity suppliers, which would allow recovery of defaulted
payments through the price control mechanism, a robust major
incident management plan is implemented whenever severe weather
impacts on the distribution network's performance and a programme
of enhanced security measures has been put in place and awareness
raising activity pursued at a national and local level in respect
of the issues associated with metal theft from Northern Powergrid's
sites.
The principal operational risks facing IUS include the risk of
increased competition and tighter margins, the loss of key
management, personnel and sub-contract resource, revenue dependency
on contractual relationships and the potential impact on
profitability of increased bad debt as a result of the economic
climate.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Commercial risk
Managing commercial risk in the context of the difficult
economic and financial trading conditions, which continued
throughout the year, was, and will continue to be, of key
importance to the Group's operations. In that respect the Group
focused on ensuring that its policies for credit checking, payment
terms, payment performance tracking and debt management were
strictly adhered to.
Northern Powergrid's relationship with its main customers is
governed by a distribution connection and use of system agreement
("DCUSA"), which is in place with each of those customers. Those
customers are the electricity suppliers who, under the terms of the
DCUSA, pay charges for the use of the distribution network, in
respect of which it is necessary to ensure that the credit cover
arrangements remain in place in line with Ofgem's guidance. The
principal electricity suppliers that use Northern Powergrid's
network are RWE Npower, British Gas, EdF Energy, E.on, Scottish and
Southern Energy and Scottish Power.
Risk management
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk, as part of the
overall risk management approach. Risks are assessed with due
regard to probability and impact and the risk environment is
reviewed continually in order that new or emerging potential risks
are identified. Those risks assessed to be significantly high are
logged within a risk register that the GRMG reviews regularly and
key indicators are used to track and monitor those risks considered
to be significant.
Risk mitigation and loss control plans are prepared in response
to strategic risks in order that the directors can be assured that
appropriate mitigating actions are in place and are being
implemented. These plans are monitored through to implementation
and reviewed to determine whether the level of residual, mitigated
risk is within an acceptable level of tolerance.
The Northern Powergrid Group identifies and assesses risks
associated with the achievement of its strategic objectives,
including those of an environmental and social nature. Any key
actions needed to further enhance the control environment are
identified, along with the person responsible for the management of
the specific risk. A regular review of the key risks, controls and
action plans is undertaken.
Risk management continues to be a central theme of senior
management priority setting as well as an explicit business process
that helps to stimulate the senior leadership's consciousness of
lower probability, high consequence threats to business success or
continuity. This approach is reinforced by that of the wider
MidAmerican group, whose activities have continued to include a
structured benchmarking of risk management activities across its
business units, including the sharing of significant lessons
learned associated with risk management.
The risk management programme includes regular review of crisis
management and disaster recovery plans, which are periodically
tested. During the year, activities included a review of the
Northern Powergrid Group's major incident plan for operational
systems, participation in a national exercise to review the planned
response to a major flood event, a seminar with other regional
utilities to share best practice on disaster preparedness and
response, a peer review of the Northern Powergrid Group's risk
management systems by MidAmerican, a review of business continuity
plans in the event of the loss of a key office building,
penetration tests against firewall systems and disaster recovery
tests of IT servers and priority processes.
A key element and requirement of the risk management process is
that a written certificate is provided by the President and Chief
Executive Officer of the Northern Powergrid Group confirming that
the effectiveness of the system of internal controls has been
reviewed during the year. A self-certification process is in place,
in support of this review, whereby senior managers are required to
confirm that the system of internal control in their area of the
business is operating effectively.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Internal control
A rigorous internal control environment exists within the
Northern Powergrid Group based on regular reporting, a series of
operational and financial policy statements, investigations
undertaken by internal audit and a stringent process for ensuring
the implementation of any recommendations. MidAmerican requires a
quarterly control risk self-assessment to be undertaken by all
senior managers as part of its programme for compliance with the
requirements of the Sarbanes-Oxley Act. A review is undertaken of
the company-wide controls in place on a regular basis and, while no
significant areas of weakness have been identified, any recommended
improvements are implemented.
In addition, the Group employs comprehensive business planning
and financial reporting procedures, regularly reviews key
performance indicators to assess progress towards its goals and has
a strong internal audit function to provide independent scrutiny of
its internal control systems. The Group has risk management
procedures in place, including the standards required by the
Sarbanes-Oxley Act, operates under OHSAS 18001, which is subject to
external certification and regular assessment, and has centralised
treasury operations and established procedures for the planning,
approving and monitoring of major capital expenditure.
The Northern Powergrid Group is committed to preventing
corruption in all its forms and continues to have a zero-tolerance
approach to corruption in its business or by those with whom it
does business. During 2011, the board of Northern Powergrid
Holdings Company addressed the risks introduced by the Bribery Act
2010 through a new compliance policy, changes to contractual terms,
training and other staff awareness measures. The introduction of
annual risk assessments and enhanced due diligence in respect of
new business transactions has further assisted in ensuring
compliance. The Northern Powergrid Group requires staff, suppliers
of services and business partners to comply with Bribery Act. Its
policies encourage an employee who has any suspicion of bribery or
other form of corruption within or related to the Northern
Powergrid Group to report the suspicion to a manager.
Northern Powergrid has appropriate controls in place directed at
ensuring compliance with the conditions in its licence requiring
any payments made to, or received from, affiliates or related
undertakings in respect of goods and services provided or supplied
to be on an arm's length basis and on normal commercial terms.
CORPORATE GOVERNANCE STATEMENT
The Financial Reporting Council issued the UK Corporate
Governance Code (the "Code") in June 2010. The Disclosure and
Transparency Rules ("DTR") require an issuer, to which section 7.2
of the DTR applies, to provide, in its annual directors' report, a
corporate governance statement. That statement should set out how
the issuer has applied the main principles in the Code and, to the
extent that it departs from the Code, the issuer is required to
explain from which parts of the Code it departs and the reasons for
doing so.
The Company, therefore, provides the following statement by
reference to the main principles incorporated in the Code.
Compliance statement
Set out below and in the review of the year in the Report of the
Directors are the areas in which the Company adopts and complies
with the main principles of the Code. The Company has not complied
with certain of the main principles of the Code, including main
principles B2, B6, B7, D1, D2 and E2. The directors confirm that
such non-compliance was of a continuing nature throughout the year
but consider the governance framework in place to be appropriate to
the circumstances of the Company, given that the framework is
agreed with MidAmerican and includes regular reporting to and
meetings with the Chairman and senior management of MidAmerican,
the presence of an independent non-executive director at board
meetings of the Company and a strong internal control environment
designed to meet the standards required by the Sarbanes-Oxley
Act.
The Code includes the "comply or explain" approach and the
directors are of the opinion that, in the instances where the
Company does not comply with certain provisions of the Code, this
approach is justifiable, given that the Company is a wholly-owned
subsidiary of MidAmerican and, as mentioned above, the governance
framework in place throughout the Northern Powergrid Group is
agreed with MidAmerican.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Section A: Leadership
Main Principle A1: The Role of the Board:
The board of directors is responsible for the overall management
of the Company and its system of internal controls. The directors
have agreed a schedule of board meetings at which they review
performance, strategy and operational and risk-related issues for
the Group.
In addition, the President and Chief Executive Officer of the
Northern Powergrid Group participates in weekly performance review
meetings with the Chairman of MidAmerican and other senior managers
of the MidAmerican group, including the Executive Vice President
and Chief Financial Officer. At those weekly meetings, the views of
the Chairman of MidAmerican and the senior management team
regarding the key, current issues facing the Company are
discussed.
The Chairman of MidAmerican also receives weekly, monthly and
quarterly reports on the Company's performance from the Northern
Powergrid Group's President and Chief Executive Officer.
MidAmerican's Executive Vice President and Chief Financial Officer
and Executive Vice President, General Counsel and Corporate
Secretary also hold similar weekly review meetings in respect of
MidAmerican's financial and legal functions, at which the Company's
Finance Director and General Counsel present their respective
weekly reports.
The board meets as required to consider relevant issues and met
on seven occasions in total during the year, with the attendance of
those directors, who were directors as at 31 December 2011, being
as follows:
G E Abel Chairman 0
J A Andreasen General Counsel 2
R Dixon Non-executive Director 6
T E Fielden Finance Director 7
J M France Regulation Director 7
Executive Vice President and Chief Financial
P J Goodman Officer, MidAmerican 0
P A Jones President and Chief Executive Officer 7
Operational management of Northern Powergrid's business is
delegated to a single senior management team, with specific
functional responsibilities. That senior management team meets
monthly with the senior management of the Northern Powergrid Group
to monitor performance and address issues of policy across all
areas of the business and holds weekly conference calls to report
on and consider performance related issues for that week. The
senior management team of IUS also meets monthly but separately
with the President and Executive Officer and other senior managers
of the Northern Powergrid Group.
The directors have overall responsibility for the internal
control environment, which, within the Northern Powergrid Group, is
based on regular reporting, a series of operational and financial
policy statements, investigations undertaken by internal audit and
a stringent process for ensuring the implementation of any
recommendations. In addition, MidAmerican requires a quarterly
control risk self-assessment to be undertaken by all senior
managers as part of its programme for compliance with the
requirements of the Sarbanes-Oxley Act.
A review is undertaken of the company-wide controls in place on
an annual basis and the review carried out in 2011, while not
identifying any areas of significant weakness, resulted in the
implementation of various recommended improvements. The key
features of the Northern Powergrid Group's internal control system
and the issues addressed by the Company and the Northern Powergrid
Group during the year can be found in the review of business in the
Report of the Directors.
A schedule of key delegations of authority delegates authority
for decision-making to senior and other managers in respect of
issues such as capital expenditure, procurement, contractual, human
resource and payment matters and for the conduct of claims and
litigation. That schedule reserves decision-making to the directors
above certain financial limits.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
During the year, there were a number of committees in operation,
acting under delegated terms of reference, which oversee Northern
Powergrid Group and, therefore, Company policy. As part of the
approved terms of reference, certain of those committees report
regularly to the board on their activities and were as follows:
Health and Safety Management Committee
The board of Northern Powergrid Holdings Company has established
the Northern Powergrid Group Health and Safety Management Committee
with delegated powers to manage the health and safety policy and
performance of the Northern Powergrid Group. Membership of the
committee comprises:
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
P A Jones President and Chief Executive Officer
A J Maclennan Managing Director, Integrated Utility Services
Limited
G M Earl Head of Safety, Health and Environment
The committee meets on a regular basis in order to oversee
implementation of health and safety policy, review and agree
strategy for the management of health and safety issues, monitor
health and safety performance across the Northern Powergrid Group,
establish goals and targets, review the effectiveness of the health
and safety policies and the health and safety management system and
consider recommendations for changes in policy due to changes in
appropriate legislation, codes of practice or guidance or due to
recommendations arising from significant incidents.
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies outlined in the Report of the Directors and comprises:
G E Abel Chairman
P Ainsley Financial Controller
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Executive Vice President and Chief Financial
Officer, MidAmerican
P A Jones President and Chief Executive Officer
R D McHaddan Assistant Treasurer
O Sutherland Investor Reporting Manager
Pensions Committee
The Pensions Committee oversees the Northern Powergrid Group's
approach to the pension schemes to which it contributes and
comprises:
P Ainsley Financial Controller
T E Fielden Finance Director
J M France Regulation Director
K Mawson Head of Finance Development and Systems
A Patterson Director of Human Resources
N Dawson Pensions Manager
L Tweedie Head of Service Delivery
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Governance and Risk Management Group
The GRMG is the principal management forum in the Northern
Powergrid Group with regard to corporate governance. Its purpose is
to ensure that Northern Powergrid Group companies apply and
maintain appropriate arrangements to deliver sound corporate
governance and comply with the overall strategy, framework and
supporting policies. The GRMG monitors and reviews the strategic
risk environment, ensuring the continued suitability, adequacy and
effectiveness of risk management arrangements and reports to the
Northern Powergrid Group's Audit Committee. The GRMG comprises:
D Anderson Head of Internal Audit
J P Barnett Commercial Director
R Dixon Non-Executive Director
M Drye Director of Asset Management
G Earl Head of Safety, Health and Environment
J Elliott Company Secretary
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
A Maclennan Managing Director, Integrated Utility Services
Limited
A Patterson Director of Human Resources
The risk management framework was monitored regularly during the
year to ensure that all strategic risks, including those relating
to environmental and social issues, were being addressed. Risk
management policies and procedures were reviewed and updated to
ensure a robust and clear approach was maintained. Mr Dixon
attended meetings of the GRMG to provide an independent view in
respect of the matters discussed.
Asset risk continued to be a strong focus through the Asset Risk
Management Executive Review Group and comprehensive plans continued
to be in place to manage risks affecting all critical property
assets and to strengthen the arrangements for crisis management and
business continuity planning.
Further details of the Northern Powergrid Group's approach to
corporate governance and the management of internal controls can be
found in the Report of the Directors.
As explained in respect of main principles B2 and D1, the
Company does not have either a remuneration committee or a
nomination committee.
Main Principle A2: Division of Responsibilities
Mr Abel, the Chairman of MidAmerican, was formally appointed as
Chairman of the Board with effect from 1 August 2011 and Dr Jones
was appointed as President and Chief Executive Officer with effect
from the same date. As President and Chief Executive Officer, Dr
Jones is responsible for the operation and management of both the
Company and the Northern Powergrid Group and reports directly to Mr
Abel.
Main Principle A3: The Chairman
Dr Jones chairs board meetings and is responsible for the
operation and management of both the Company and the Northern
Powergrid Group and reports directly to Mr Abel, the Chairman of
the Board.
Main Principle A4: Non-executive Directors
Mr Dixon was the Company's sole independent non-executive
director during the year and acts under agreed terms of
reference.
Section B: Effectiveness
Main Principle B1: The Composition of the Board
The board comprises six executive directors and Mr Dixon, an
independent non-executive director, who, collectively, bring a
range of skills and experience to the board. Although Mr Dixon is
the sole non-executive director, so the board does not include a
balanced number of executive and non-executive directors, the board
believes that it possesses the skills and experience necessary to
provide effective leadership, stewardship and control of the
Company.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Main Principle B2: Appointments to the Board
The Company does not have a nomination committee. Appointments
to the board are made by MidAmerican, in conjunction with the
President and Chief Executive Officer.
Main Principle B3: Commitment
The Company's non-executive director commits sufficient time to
preparation for and attendance at board meetings, although his
terms of reference do not quantify the time commitment
required.
Main Principle B4: Development
The directors continually update their knowledge of and
familiarity with the operations of the Group due to the robust
reporting arrangements in place and have ongoing access to the
Group's operations and its staff.
Main Principle B5: Information and Support
Directors receive monthly reports outlining progress against the
Company's goals and targets, enabling financial performance against
budget and operational performance against a number of indicators
to be reviewed, and are also able to participate in weekly
meetings, which consider the key issues of that week in some
detail. The directors are able to utilise the advice and services
of the Company Secretary, in respect of their duties and
responsibilities as directors and any new legislation that may
affect those duties and responsibilities. The directors also have
access to external legal advice should they feel it necessary.
Interim briefings are provided to the non-executive director, as
appropriate.
Main Principle B6: Evaluation
As part of their approved terms of reference, certain committees
report regularly on their activities, enabling the directors to
evaluate the activities of those committees. However, the board
does not have a process of evaluation of its own performance or of
the performance of individual directors in their capacity as
directors. MidAmerican has a performance appraisal and development
scheme in place, under which each senior manager of the Northern
Powergrid Group is subject to a formal annual appraisal of
performance against his individual and MidAmerican's goals.
Main Principle B7: Re-election
The directors present themselves for re-election in accordance
with the Company's articles of association.
Section C: Accountability
Main Principle C1: Financial and Business Reporting
The board believes that the Report of the Directors and review
of the year provide a balanced and understandable assessment of the
Company's position and prospects. The directors explain, at page 2,
the Core Principles behind the Company's strategy and, at page 23,
their responsibility for preparing the report and accounts, have
reported, at page 23 in the Report of the Directors, that the
Company is a going concern and included the independent auditor's
report at page 28 of the report and accounts.
Main Principle C2: Risk Management and Internal Control
Details of the principal risks and uncertainties facing the
Group and its internal control system, together with details of the
issues addressed by the Group during the year, can be found at
pages 15 to 17 of the directors' report.
Other key features of the internal control system are:
- Comprehensive business planning and financial reporting
procedures, including the annual preparation of detailed
operational budgets for the year ahead and projections for
subsequent years;
- Regular review of key performance indicators to assess progress towards objectives;
- A range of policies, codes of practice and more detailed
instructions that define the processes to be followed;
- A strong internal audit function to provide independent
scrutiny of internal control systems and risk management
procedures, including the standards required by the Sarbanes-Oxley
Act;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
- On-going health and safety performance reviews carried out by
in-house safety professionals in addition to the regime of routine
health and safety risk assessment and management processes carried
out within each of the operating units;
- Processes and procedures to operate under OHSAS 18001, which
is subject to external certification and regular assessment;
- An external obligations register, which assists with
compliance with financial, legal and regulatory obligations;
- Centralised treasury operations that operate within defined
limits and are subject to regular reporting requirements and audit
reviews; and
- Established procedures for planning, approving and monitoring
major capital expenditure, major projects and the development of
new business which includes short and long-term budgets, risk
evaluation, detailed appraisal and review procedures, defined
authority levels and post-investment performance reviews.
Main Principle C3: Audit committee and auditors
The board of Northern Powergrid Holdings Company has established
an audit committee for the Northern Powergrid Group, under
delegated terms of reference which include monitoring of the
financial reporting process, the effectiveness of the internal
control, internal audit and risk management systems, the statutory
audit of the accounts and the independence of and the provision of
additional services by the auditor.
The Audit Committee receives annual reports from the GRMG and
from the Northern Powergrid Group's Head of Internal Audit on the
work of the Internal Audit Section during the year and the audit
plan for the following year. The Audit Committee comprises:
R Dixon Non-executive Director
T E Fielden Finance Director
Details of the fees paid by the Company to Deloitte LLP in
relation to non-audit services during the year are provided in Note
6.
The employees section on page 11 of the Report of the directors
contains details of the Company's "speaking up" policy.
Section D: Remuneration
Main Principle D1: The Level and Components of Remuneration
The Company does not have a remuneration committee. Annual
remuneration awards for senior management of the Northern Powergrid
Group are subject to the performance appraisal and development
scheme process and consideration by the Chairman of MidAmerican and
the President and Chief Executive Officer. As the Company has no
equity securities listed on the London Stock Exchange, it is not
required to make directors' remuneration disclosures, other than
those required for private companies.
Main Principle D2: Procedure
As mentioned under main principle D1, the annual remuneration
awards for senior management of the Northern Powergrid Group are
subject to the performance appraisal and development scheme process
and consideration by the Chairman of MidAmerican and the President
and Chief Executive Officer. Mr Fielden, Dr France and Dr Jones are
subject to the performance appraisal and development scheme process
in their capacity as senior managers of the Northern Powergrid
Group and not, specifically, in their capacity as board directors.
No director is involved in deciding his own remuneration.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
Section E: Relations with Shareholders
Main Principle E1: Dialogue with Shareholders
As a wholly-owned subsidiary of a privately held group of
companies, the board is in continuing dialogue with
MidAmerican.
Main Principle E2: Constructive use of the AGM
This section of the Code is not applicable to the Company, as it
is a wholly-owned subsidiary of a privately held group of companies
and, therefore, has no institutional equity shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Report of the
Directors and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
in the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for
that period. In preparing these financial statements, International
Accounting Standard 1 requires the directors to:
-- Properly select and apply accounting policies;
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's and the Group's financial position and
financial performance; and
-- Make an assessment of the Company's and the Group's ability
to continue as a going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's and
the Group's transactions and disclose with reasonable accuracy at
any time the financial position of the Company and the Group and to
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Going concern
The Group's business activities, together with details regarding
its future development, performance and position are set out in the
Business Review in the Report of the Directors. In addition, the
Group's objectives, policies and processes for managing its
capital, its financial risk management objectives, details of its
financial instruments and hedging activities and its exposures to
credit risk and liquidity risk are included in the Report of the
Directors and the appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
into account a number of factors, including the following:
a) The Group's main subsidiary, Northern Powergrid, is a stable
electricity distribution business operating an essential public
service and is regulated by the Gas and Electricity Markets
Authority ("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;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011 (CONTINUED)
b) The Group is profitable with strong underlying cash flows.
The Company and Northern Powergrid hold investment grade credit
ratings;
c) The Group is financed by long-term borrowings with an average
maturity of 17 years and has access to borrowing facilities
provided by Lloyds TSB Bank plc, Royal Bank of Scotland plc and
Abbey National Treasury Services plc; and
d) No repayments of long term-debt are due until 2018.
Consequently, after making enquiries, the directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the financial statements.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
a) so far as he is aware, there is no relevant audit information
of which the Company's auditors are unaware; and
b) he has taken all the steps he ought to have taken as a
director in order to make himself aware of any relevant audit
information and to establish that the auditors are aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITORS
A resolution to reappoint Deloitte LLP and to authorise the
directors to determine their remuneration will be proposed at the
Annual General Meeting, notice of which is provided at page 81.
ON BEHALF OF THE BOARD:
J Elliott
Company Secretary
20 April 2012
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
Each of the directors in office as at the date of the Annual
Report, whose names and functions are set out on page 4 of the
Report of the Directors confirms that, to the best of their
knowledge:
a) the accounts, prepared in accordance with applicable UK law
and in conformity with IFRS, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole; and
b) the Report of the Directors includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation as a
whole, together with a description of the principal risks and
uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 20 April 2012 and signed on its behalf by:
P A Jones
Director and President and Chief Executive Officer
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
DIRECTORS' BIOGRAPHIES
GREGORY E ABEL
Appointed in January 1997, Mr Abel, 49 is chairman, president
and chief executive officer of MidAmerican Energy Holdings Company,
based in Des Moines, Iowa. He serves as chairman and chief
executive officer of PacifiCorp, which provides electric service to
six Western states and approximately 1.6 million customers, and as
chairman of the Northern Powergrid Group, which distributes
electricity to approximately 3.8 million customers in England. Mr
Abel is also a director of Kern River Gas Transmission Company and
Northern Natural Gas Company. Kern River is a 1,700 mile interstate
pipeline transporting Rocky Mountain and Canadian natural gas to
markets in California, Nevada and Utah. Northern Natural Gas
Company operates 16,400 miles of pipeline extending from the
Permian Basin in Texas to the Upper Midwest. His responsibilities
at MidAmerican are the operation and management of the holdings
company, PacifiCorp's and MidAmerican Energy Company's supply and
marketing and delivery services businesses, the Northern Powergrid
distribution businesses, CalEnergy's operations as an independent
power producer and the Kern River Gas Transmission Company and
Northern Natural Gas Company pipeline operations.
JON A ANDREASEN
Appointed in March 2010, Mr Andreasen, 48, has been Vice
President & General Counsel for the Northern Powergrid Group
since 2005. In addition to this appointment, he provides legal
counsel to MidAmerican Energy Holdings Company and its other
subsidiaries. He is a 1989 graduate of the University of Iowa
College of Law and has worked in the electric utility business
since 1989. From 2000-2002 he worked in Newcastle-upon-Tyne for the
Northern Powergrid Group and is currently based in Urbandale, Iowa,
USA.
RONALD DIXON
Appointed in October 1997, Mr Dixon, 74, worked for North
Eastern Electricity Board and Northern Electric plc throughout his
career, being appointed Secretary in 1987. He was appointed
Managing Director of the Power Division in 1990, responsible for
electricity supply and distribution, and Commercial Director in
1991. He retired from the board on 31 July 1997 and was
re-appointed in the capacity of a non-executive director on 22
October 1997. Mr Dixon is also a non-executive director of Northern
Powergrid Holdings Company, Northern Powergrid (Northeast) Limited
and Northern Powergrid (Yorkshire) plc.
JOHN M FRANCE
Appointed in January 2000, Dr France, 54, is Regulation Director
for the Northern Powergrid Group. After leaving university he
joined the British Gas Corporation where he held a number of posts
before becoming a member of the team that handled the privatisation
of British Gas in 1986. He joined Northern Electric plc as its
Regulation Manager in 1989 and has been involved with all the
distribution (and supply) price control reviews that have affected
the Company since privatisation. He was a member of the team that
negotiated the acquisition of the distribution business of
Yorkshire Electricity Group plc and the sale of the Northern
Electric plc supply businesses in 2001.
THOMAS E FIELDEN
Mr Fielden joined the Northern Powergrid Group in July 2009,
became Finance Director on 12 October 2009 and was appointed as a
director of the Company on 16 October 2009. Mr Fielden, 41, 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 and transferred to National
Express East Coast in 2007.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
DIRECTORS' BIOGRAPHIES
PATRICK J GOODMAN
Appointed in May 1999, Mr Goodman, 45, is Executive Vice
President and Chief Financial Officer of MidAmerican and is
responsible for managing all aspects of MidAmerican's financial
operations. Mr Goodman supports the negotiation and closing of
MidAmerican's international and domestic project financings along
with supporting future acquisitions and project developments.
Additionally, Mr Goodman manages all accounting, financial
reporting, tax, budgeting and long-range financial planning
functions for MidAmerican. Since joining MidAmerican in 1995, Mr
Goodman has served in various financial positions including Chief
Accounting Officer. Prior to joining MidAmerican, he served as a
financial manager for National Indemnity Company and was a senior
associate at PricewaterhouseCoopers.
PHILIP A JONES
Appointed in April 2007, Dr Jones, 43, is President and Chief
Executive Officer of the Northern Powergrid Group, the UK platform
in the global portfolio of MidAmerican. Prior to his appointment as
President and Chief Executive Officer, he was Strategy &
Investment Director and, as such, was responsible for technical,
economic and regulatory strategy within the organisation. Dr Jones
is a chartered electrical engineer and has been working in the UK
power distribution sector since completing his PhD in Electronic
& Electrical Engineering in 1993. He has held a range of
technical and managerial roles, mostly in the engineering field. He
is also actively involved in a range of other industry bodies. He
has been a director of the Institute of Asset Management and of the
Energy Networks Association, the trade association that represents
the power transmission and distribution companies.
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF NORTHERN
ELECTRIC PLC
We have audited the financial statements of Northern Electric
plc (the "Company") for the year ended 31 December 2011 which
comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Company Statement of Financial Position,
the Consolidated Statement of Changes in Equity, the Company
Statement of Changes in Equity, the Consolidated Statement of Cash
Flows, the Company Statement of Cash Flows and related notes 1 to
29. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
a Report of the Auditors and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page twenty three, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of whether the accounting policies are
appropriate to the Group's and the Company's circumstances and have
been consistently applied and adequately disclosed, the
reasonableness of significant accounting estimates made by the
directors and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the annual report to identify material
inconsistencies with the audited financial statements. If we become
aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Group's and the Company's
affairs as at 31 December 2011 and of the Group's profit for the
year then ended;
- have been properly prepared in accordance with IFRSs as adopted
by the European Union;
- the Group's and the Company's 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.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Report of the
Directors for the financial year for which the financial statements
are prepared is consistent with the financial statements.
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF NORTHERN
ELECTRIC PLC
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- adequate accounting records have not been kept by the Company or
returns adequate for our audit have not been received from branches
not visited by us; or
- the Company's financial statements are not in agreement with the
accounting records and returns; or
- certain disclosures of directors' remuneration specified by law
are not made; or
- we have not received all the information and explanations we require
for our audit.
Christopher Powell FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Newcastle upon Tyne
April 2012
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 301,427 288,569
Cost of sales (24,035) (29,176)
GROSS PROFIT 277,392 259,393
Administrative expenses 10 (106,174) (105,793)
OPERATING PROFIT 171,218 153,600
Other gains 358 641
Finance costs 5 (37,617) (33,913)
Finance income 5 1,928 1,973
PROFIT BEFORE INCOME TAX 6 135,887 122,301
Income tax 7 (19,748) (25,131)
PROFIT FOR THE YEAR 116,139 97,170
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
GBP'000 GBP'000
PROFIT FOR THE YEAR 116,139 97,170
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 116,139 97,170
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 12 4,164 4,011
Property, plant and equipment 13 1,515,896 1,439,853
Investments 14 3,346 3,328
Pension asset 24 201,800 158,345
Trade and other receivables 16 3,780 4,609
1,728,986 1,610,146
CURRENT ASSETS
Inventories 15 13,383 10,341
Trade and other receivables 16 54,882 51,166
Cash and cash equivalents 17 229,632 67,161
297,897 128,668
TOTAL ASSETS 2,026,883 1,738,814
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 18 72,173 72,173
Share premium 19 158,748 158,748
Other reserves 19 6,185 6,185
Retained earnings 19 539,460 453,321
TOTAL EQUITY 776,566 690,427
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - continued
31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 20 441,679 417,504
Borrowings 21 468,640 349,472
Deferred tax 23 172,120 177,933
Provisions 22 2,594 2,752
1,085,033 947,661
CURRENT LIABILITIES
Trade and other payables 20 113,588 74,430
Borrowings 21 37,789 9,650
Tax payable 12,907 14,544
Provisions 22 1,000 2,102
165,284 100,726
TOTAL LIABILITIES 1,250,317 1,048,387
TOTAL EQUITY AND LIABILITIES 2,026,883 1,738,814
The financial statements were approved by the Board of Directors
on 20 April 2012 and were signed on its behalf by:
P A Jones
Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
COMPANY STATEMENT OF FINANCIAL POSITION - 31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 13 1,802 1,535
Investments 14 328,070 328,070
329,872 329,605
CURRENT ASSETS
Trade and other receivables 16 800 681
Tax receivable 78 -
Cash and cash equivalents 17 57,357 65,247
58,235 65,928
TOTAL ASSETS 388,107 395,533
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 18 72,173 72,173
Share premium 19 158,748 158,748
Other reserves 19 6,185 6,185
Retained earnings 19 130,861 131,229
TOTAL EQUITY 367,967 368,335
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings 21 1,117 1,117
Deferred tax 23 7,680 12,120
Provisions 22 1,600 1,493
10,397 14,730
CURRENT LIABILITIES
Trade and other payables 20 7,470 6,395
Borrowings 21 2,273 4,814
Tax payable - 1,259
9,743 12,468
TOTAL LIABILITIES 20,140 27,198
TOTAL EQUITY AND LIABILITIES 388,107 395,533
The financial statements were approved by the Board of Directors
on 20 April 2012 and were signed on its behalf by:
P A Jones
Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
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 2010 72,173 416,151 158,748 6,185
653,257
Changes in equity
Dividends - (60,000) - - (60,000)
Total comprehensive income - 97,170 - - 97,170
Balance at 31 December 2010 72,173 453,321 158,748 6,185
690,427
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 116,139 - - 116,139
Balance at 31 December 2011 72,173 539,460 158,748 6,185
776,566
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
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 2010 72,173 172,326 158,748 6,185
409,432
Changes in equity
Dividends - (60,000) - - (60,000)
Total comprehensive income - 18,903 - - 18,903
Balance at 31 December 2010 72,173 131,229 158,748 6,185
368,335
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 29,632 - - 29,632
Balance at 31 December 2011 72,173 130,861 158,748 6,185
367,967
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 28 183,032 155,978
Finance costs paid (33,177) (33,685)
Interest received 1,536 1,620
Group relief paid (828) (15,533)
Tax paid (26,095) (7,562)
Net cash from operating activities 124,468 100,818
Cash flows from investing activities
Purchase of intangible fixed assets (2,654) (843)
Purchase of tangible fixed assets (131,186) (120,844)
Sale of tangible fixed assets 813 644
Customer contributions 57,771 37,926
Dividends received 392 353
Net cash used in investing activities (74,864) (82,764)
Cash flows from financing activities
Movement in external loans 141,154 (33,500)
Loans from Group undertakings 1,713 1,222
Equity dividends paid (30,000) (60,000)
Net cash from/(used in) financing activities 112,867
(92,278)
Increase/(Decrease) in cash and cash equivalents 162,471 (74,224)
Cash and cash equivalents
at beginning of year 67,161 141,385
Cash and cash equivalents
at end of year 229,632 67,161
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 28 3,233 1,004
Finance costs paid (9,618) (10,540)
Interest received 1,010 1,386
Dividends received 30,553 21,083
Group relief paid (1,256) (2,073)
Tax paid 1,025 -
Net cash from operating activities 24,947 10,860
Cash flows from investing activities
Purchase of tangible fixed assets (296) -
Net cash used in investing activities (296) -
Cash flows from financing activities
Movement in borrowings in year (2,541) 2,563
Equity dividends paid (30,000) (60,000)
Net cash used in financing activities (32,541) (57,437)
Decrease in cash and cash equivalents (7,890) (46,577)
Cash and cash equivalents
at beginning of year 65,247 111,824
Cash and cash equivalents
at end of year 57,357 65,247
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
1. GENERAL INFORMATION
Northern Electric plc is a company originally incorporated in
England and Wales under the Companies Act 1985. The address of the
registered office is Lloyds Court, 78 Grey Street,
Newcastle-upon-Tyne, NE1 6AF.
The nature of the Group's operations and its principal
activities are set out in the Business Review in the Report of the
Directors and in Note 3.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
financial statements have also been prepared in accordance with
IFRSs as adopted by the European Union and with those parts of the
Companies Act 2006 (the "Act") that are applicable to companies
reporting under IFRS. The parent company's financial statements
have also been prepared in accordance with IFRS, as applied in
accordance with the provisions of the Act. The directors have taken
advantage of the exemption offered by Section 408 of the Act not to
present a separate income statement for the parent company. The
financial statements have been prepared under the historical cost
convention. A summary of the more important group accounting
policies is set out below.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements. Further
detail is contained within the Report of the Directors on page
23.
Judgments in applying accounting policies and key sources of
estimation uncertainty
Many of the amounts included in the financial statements involve
the use of judgment and/or estimation. These judgments and
estimates are based on management's best knowledge of the relevant
facts and circumstances, having regard to previous experience, but
actual results may differ from the amounts included in the
financial statements. Information about such judgments and
estimates is contained in the accounting policies and/or the notes
to the financial statements and the key areas are summarised
below.
Areas of judgment and estimation which have the most significant
effect on the amounts recognised in the financial statements
are:
- The estimation of useful economic lives for property, plant and equipment;
- The split of operating and capital expenditure and the
allocation of overheads to capital projects;
- Impairment reviews carried out to evaluate the carrying value
of assets held at the balance sheet date; and
- Assumptions used when evaluating long-term pension plan assets and liabilities.
Critical accounting policies
The critical accounting policies adopted by the directors relate
to property, plant and equipment, taxation, pensions, revenue and
construction contracts and are described below. The accounting
policies have been applied consistently throughout the year and the
preceding year.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Adoption of new or revised standards
In the current year, the following new and revised Standards and
Interpretations have been adopted in these financial
statements.
Standards affecting presentation and disclosure:
IFRS 7 Financial Instruments: Disclosure
The amendments to IFRS 7 clarify the required level of
disclosure around credit risk and encourage qualitative disclosures
to help readers to form an overall picture of the nature and extent
of risks arising from financial instruments. This change has not
led to any change in the disclosures contained within these
financial statements.
IAS 1 Presentation of Financial Statements
The amendments to IAS 1 clarify that an entity may present the
analysis of other comprehensive income by item either in the
statement of changes in equity or in the notes to the financial
statements. This amendment has not impacted these financial
statements.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is
achieved where the Company has the power to govern the financial
and operating policies of an investee company so as to obtain
benefits from its activities.
Revenue
Revenue is only recognised when the risks and rewards of
ownership have been transferred to a third party. No revenue is
recognised where there are significant uncertainties regarding the
consideration to be received or the costs associated with the
transaction.
Revenue represents charges for the use of the Group's
distribution network, amortisation of customer contributions,
recharge of costs incurred on behalf of companies in the Northern
Powergrid Holdings Company group of companies (the "Northern
Powergrid Group") and the invoiced value of other goods sold and
services provided, exclusive of value added tax.
Revenues from charges to end customers for the use of the
Group's distribution network include estimates of the units
distributed. The estimated usage is based on historic data,
judgment and assumptions. Revenues are gradually adjusted to
reflect actual usage in the period during which actual meter
readings are obtained.
Any under or over-recovery of allowed distribution network
revenues as prescribed by Ofgem is not provided for in the
financial statements and will be recovered/repaid through future
tariffs.
Customer contributions towards distribution system assets are
included in deferred revenue. The Group's policy is to credit the
customer contribution to revenue over 15-45 years on a
straight-line basis, in line with the useful life of the
distribution system assets.
Income from credit sale charges is apportioned in the income
statement over the period of the sales agreements.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established.
Construction contracts
Where the outcome of a construction contract can be estimated
reliably, revenue and costs are recognised by reference to the
stage of completion of the contract activity at the balance sheet
date. This is normally measured by the proportion that contract
costs incurred for work performed to date bear to the estimated
total contract costs, except where this would not be representative
of the stage of completion. Variations in contract work, claims and
incentive payments are included to the extent that they have been
agreed with the customer.
Where the outcome of a construction contract cannot be estimated
reliably, revenue in respect of that contract is recognised to the
extent of the costs incurred where it is probable they will be
recovered. Contract costs are recognised as expenses in the period
in which they are incurred.
When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised as an expense
immediately.
Operating profit
Operating profit is stated before profit on disposals, the share
of the results of joint ventures, investment income and finance
costs.
Software Development Costs
Costs in respect of major developments are capitalised and
amortised over the expected life of the software.
Capitalised software costs that are not an integral part of the
related hardware are included in intangible assets on the balance
sheet and amortised over the expected life of the software of up to
10 years.
Investments
Undertakings, other than subsidiary undertakings, which the
Group jointly controls, are treated as joint ventures.
The results and assets and liabilities of joint ventures are
incorporated in these financial statements using the equity method
of accounting. Investments in joint ventures are carried in the
balance sheet at cost as adjusted by post-acquisition changes in
the Group's share of the net assets of the joint venture, less any
impairment in the value of individual investments. Losses of the
joint venture in excess of the Group's interest in those joint
ventures are not recognised.
Fixed asset investments are stated at cost less provision for or
amounts written off for impairment in value.
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost. Cost includes
the purchase price of the asset and any costs, including internal
employee and other costs, directly attributable to bringing the
asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
The charge for depreciation is calculated to write off assets to
their residual values over their estimated useful lives using the
straight-line basis:
Distribution system assets 45 years
Distributed generation assets 15 years
Metering equipment included in distribution system up to 5 years
assets
Information technology equipment included in distribution up to 10 years
system assets
Non-operational assets:
Buildings - freehold up to 60 years
lower of lease
Buildings - leasehold period or 60
years
Fixtures and equipment up to 10 years
Software development costs up to 10 years
Freehold land is not depreciated.
Assets in the course of construction are carried at cost.
Depreciation on these assets, on the same basis as other assets,
commences when the assets are commissioned.
The estimated useful economic lives of property, plant and
equipment are based on management's judgement and experience. When
management identifies that actual useful lives differ materially
from the estimates used to calculate depreciation, that charge is
adjusted prospectively. Due to the significance of the Group's
investment in property, plant and equipment, variations between
actual and estimated useful lives could impact operating results
both positively and negatively, although historically, few changes
to estimated useful lives have been required.
In accordance with IFRS, the Group is required to evaluate the
carrying values of property, plant and equipment for impairment
whenever circumstances indicate, in management's judgment, that the
carrying value of such assets may not be recoverable. An impairment
review requires management to make judgments concerning the cash
flows, growth rates and discount rates for the cash-generating
units under review.
Financial instruments
Financial assets and financial liabilities are recognised on the
balance sheet when the Group or Company becomes a party to the
contractual provisions on the instrument.
Financial assets are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been
impacted.
For certain categories of financial assets, such as trade
receivables and construction contract debt, assets that are
assessed not to be impaired individually are subsequently assessed
for impairment on a collective basis. Objective evidence of
impairment for a portfolio of receivables and construction contract
debts could include the Group's past experience of collecting
payments, an increase in the number of delayed payments in the
portfolio past the average credit period of 30 days, as well as
observable changes in national or local economic conditions that
correlate with default on receivables.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables and construction contract debts,
where the carrying amount is reduced through the use of an
allowance account. When a trade receivable or construction contract
debt is considered uncollectable, it is written off against the
allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
income statement.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangement entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Company after deducting all
of its liabilities.
Inventories
Inventories are stated at the lower of cost and net realisable
value as follows:
Raw materials and consumables are valued at purchase cost
determined on an average price basis.
Work in progress in relation to construction contracts is valued
based on the cost of direct materials and labour plus attributable
overheads based on the normal level of activity less progress
payments.
Net realisable value is based on estimated selling price less
further costs expected to be incurred to completion and costs to be
incurred in marketing, selling and distribution.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Research costs
Expenditure on research activities is written off to the income
statement in the year in which it is incurred.
Other than software development costs noted below, the Group and
Company do not carry out any other development activity that would
give rise to an intangible asset.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
Rental costs under operating leases are charged to the income
statement or to property, plant and equipment in equal amounts over
the periods of the leases.
Pensions
The Group contributes to the Northern Electric Group of the
Electricity Supply Pension Scheme (the "Northern Electric Group of
the ESPS"), a defined benefit scheme.
The cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at
each December balance sheet date. Actuarial gains and losses
arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of the
plan assets or 10% of the defined benefit obligation are spread to
income over the employees' expected average remaining working
lives.
Past service cost is recognised immediately to the extent that
the benefits are already vested and otherwise is amortised on a
straight-line basis over the average period until the benefits
become vested.
The asset or liability recognised in the balance sheet
represents the present value of the defined benefit obligation less
the fair value of the scheme assets on a bid value basis, together
with adjustments for unrecognised actuarial gains and losses and
past service costs. The asset or liability initially recognised is
then assessed against the requirements of IFRIC 14, The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their
Interaction, and adjustments made when appropriate.
The defined benefit obligation is calculated annually by an
independent actuary using the projected unit credit method. The
present value of the defined benefit obligation is determined by
discounting the future cash outflows using yields on high quality
sterling corporate bonds that have terms to maturity approximating
to the terms of the related pension liability.
The key assumptions used for the actuarial valuation are based
on the best estimate of the variables that will determine the
ultimate cost of providing post-employment benefits and follow
discussions with the actuary. The operating results are affected by
the actuarial assumptions used. These assumptions include
investment returns on the scheme's assets, discount rates, pay
growth and increases to pensions and deferred pensions. These
assumptions may differ from actual results due to changing market
and economic conditions and longer or shorter lives of scheme
members. Further detail is provided in Note 24.
The Group also participates in a defined contribution scheme.
Contributions payable to that scheme are charged to the income
statement in the year. Differences between contributions payable in
the year and contributions actually paid are shown as either
accruals or prepayments in the balance sheet.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event and it is probable that the
Group will be required to settle that obligation. Provisions are
measured at the directors' best estimate of the expenditure
required to settle the obligation at the balance sheet date.
Reasonable estimates involve judgments made by management after
considering information including notifications, settlements,
estimates performed by independent parties and legal counsel,
available facts, identification of other potentially responsible
parties and their ability to contribute and prior experience.
Trade receivables
Trade receivables are measured at initial recognition at fair
value. Appropriate allowances for estimated irrecoverable amounts
are recognised in the income statement when there is objective
evidence that the asset is impaired.
Trade payables
Trade payables are not interest bearing and are stated at their
nominal value.
Borrowings
Borrowings are classified as other financial liabilities at
amortised cost. They are recorded at the proceeds received, net of
direct issue costs. Finance charges, including premiums payable on
settlement for redemption and direct issue costs, are accounted for
on an accruals basis in the income statement using the effective
interest rate method. They are added to the carrying amount of the
instruments to the extent that they are not settled in the period
in which they arise.
Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class
of assets on the face of the balance sheet) comprise cash at bank
and other short-term highly liquid investments with a maturity of
three months or less, which are subject to an insignificant risk of
changes in value.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
3. SEGMENTAL REPORTING
The tables below represent the internal information provided to
the President and Chief Executive Officer of the Northern Powergrid
Group, for the purposes of resource allocation and segmental
performance appraisal.
The Group operates in the principal area of activity of the
distribution of electricity in the United Kingdom.
Group revenue, Group profit before tax and Group net assets are
analysed below:
Consolidation
Distribution Other Adjustments Total
2011 2011 2011 2011
GBPm GBPm GBPm GBPm
REVENUE
External sales 277.1 24.3 - 301.4
Inter-segment sales 0.5 6.6 (7.1) -
Total revenue 277.6 30.9 (7.1) 301.4
SEGMENT RESULTS
Operating profit 129.0 4.2 38.0 171.2
Other gains 0.4
Finance costs (37.6)
Finance income 1.9
Profit before tax 135.9
OTHER INFORMATION
Capital additions 128.2 0.2 - 128.4
Depreciation and
amortisation 51.5 0.2 - 51.7
Amortisation of
deferred revenue (13.3) - - (13.3)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
3. SEGMENTAL REPORTING - continued
Consolidation
Distribution Other Adjustments Total
2011 2011 2011 2011
GBPm GBPm GBPm GBPm
BALANCE SHEET
Segment assets 1,623.7 224.8 (51.2) 1,797.3
Unallocated corporate
assets 229.6
Total assets 2,026.9
Segment liabilities (546.2) (8.4) (4.3) (558.9)
Unallocated corporate
liabilities (691.48)
Total liabilities (1,250.3)
Net assets/(liabilities)
by segment 1,077.5 216.4 (55.5) 1,238.4
Unallocated net
corporate liabilities (461.8)
Total net assets 776.6
"Other" comprises Engineering Contracting and business support
units.
Sales and purchases between the different segments are made at
commercial prices.
Segment assets in "Other" include investments in the
Distribution and Engineering Contracting activities totalling
GBP203.1m, which are eliminated in Consolidation Adjustments.
Consolidation Adjustments also include a GBP41.6m credit to
operating profit, the recognition of the GBP201.8m retirement
benefit asset and a GBP25.8m reduction in cumulative capitalised
costs as a consequence of all segments accounting for retirement
benefits on a cash accrued basis.
Unallocated corporate assets and liabilities include cash and
cash equivalents, borrowings and taxation.
External sales to RWE Npower plc of GBP77.6m are included within
the Distribution segment.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
3. SEGMENTAL REPORTING - continued
Engineering Consolidation
Distribution Contracting Other Adjustments Total
2010 2010 2010 2010 2010
GBPm GBPm GBPm GBPm GBPm
REVENUE
External sales 257.0 26.0 5.6 - 288.6
Inter-segment sales 0.6 - 6.3 (6.9) -
Total revenue 257.6 26.0 11.9 (6.9) 288.6
SEGMENT RESULTS
Gross profit 250.6 4.1 7.3 (2.6) 259.4
Pension deficit
charges (21.8) (0.6) 22.4 - -
Central recharges 0.7 (0.4) (0.3) - -
Other operating
costs (107.5) (2.7) (26.6) 31.0 (105.8)
Operating profit 122.0 0.4 2.8 28.4 153.6
Other gains 0.6
Finance costs (33.9)
Finance income 2.0
Profit before tax 122.3
OTHER INFORMATION
Capital additions 127.6 - - (1.3) 126.3
Depreciation and
amortisation 48.5 0.1 0.1 - 48.7
Amortisation of
deferred revenue (12.4) - - - (12.4)
BALANCE SHEET
Segment assets 1,540.3 7.5 219.7 (95.9) 1,671.6
Unallocated corporate
assets 67.2
Total assets 1,738.8
Segment liabilities (487.8) (4.4) (1.0) (3.6) (496.8)
Unallocated corporate
liabilities (551.6)
Total liabilities (1,048.4)
Net assets/(liabilities) 1,052.5 218.7 (99.5)
by segment 3.1 1,174.8
Unallocated net
corporate liabilities (484.4)
Total net assets 690.4
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
3. SEGMENTAL REPORTING - continued
"Other" comprises business support units.
Sales and purchases between the different segments are made at
commercial prices.
Segment assets in "Other" include investments in the
Distribution and Engineering Contracting activities totalling
GBP203.1m, which are eliminated in Consolidation Adjustments.
Consolidation Adjustments also include a GBP31.0m credit to
operating profit, the recognition of the GBP158.3m retirement
benefit asset and a GBP23.0m reduction in cumulative capitalised
costs as a consequence of all segments accounting for retirement
benefits on a cash accrued basis.
Unallocated corporate assets and liabilities include cash and
cash equivalents, borrowings and taxation.
External sales to RWE Npower plc of GBP77.1m are included within
the Distribution segment. External sales of GBP6.8m to E.ON are
included within the Engineering Contracting segment.
4. EMPLOYEES AND DIRECTORS
2011 2010
GBP'000 GBP'000
Salaries 48,065 47,461
Social security costs 4,728 4,349
Defined benefit pension costs (11,852) 1,473
Defined contribution pension costs 352 204
41,293 53,487
Less charged as capital expenditure (28,676) (30,069)
Released from work in progress - 860
12,617 24,278
The majority of the Group's employees are members of the
Northern Electric Group of the ESPS, details of which are given in
the pension note.
The average monthly number of employees during the year was:
2011 2010
No. No.
Distribution 967 968
Engineering Contracting 130 138
Other 60 60
1,157 1,166
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION
2011 2010
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 152 127
Post employment benefits 19 10
Other long-term benefits 180 149
351 286
Total:
Short-term employee benefits 335 321
Post employment benefits 59 49
Other long-term benefits 325 214
719 584
Directors who are members of the defined benefit
scheme 33
Accrued pension benefit relating to highest --
paid director
OTHER KEY PERSONNEL REMUNERATION
2011 2010
Total: GBP'000 GBP'000
Short-term employee benefits 341 360
Post employment benefits 96 100
Other long-term benefits 193 175
630 635
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.
The directors and key personnel are remunerated for their
services to the Northern Powergrid Group, of which the Company is a
subsidiary. The figures above represent the share of the costs
borne by the Company.
5. NET FINANCE COSTS
2011 2010
GBP'000 GBP'000
Finance income:
Share of profits of joint venture 392 353
Interest receivable on loans
to Group undertakings 1,536 1,620
1,928 1,973
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
5. NET FINANCE COSTS - continued
2011 2010
GBP'000 GBP'000
Finance costs:
Interest payable on other loans 22,230 17,119
Interest payable on loans
from Group undertakings 6,386 7,793
Preference dividends payable 9,001 9,001
37,617 33,913
Net finance costs 35,689 31,940
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2011 2010
GBP'000 GBP'000
Depreciation - owned assets 49,167 47,116
Profit on disposal of fixed assets (358) (641)
Software development costs amortisation 2,501 1,571
Research costs 4,075 586
Amortisation of deferred revenue (13,282) (12,416)
Impairment loss on trade and other receivables 219 128
Analysis of auditor's remuneration is as follows:
2011 2010
GBP'000 GBP'000
Fees payable to the Company's auditor for the
audit of the Company's annual accounts 25 29
Fees payable to the Company's auditor for the
audit of the Company's subsidiaries pursuant 161 162
to legislation
Total audit fees 186 191
Other services 74 5
Total auditor's remuneration 260 196
2011 2010
GBP'000 GBP'000
Fees payable to the Company's auditor and its
associates in respect of the audit of associated
pension schemes 5 5
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
7. INCOME TAX
Analysis of the tax charge
2011 2010
GBP'000 GBP'000
Current tax:
Tax 25,561 27,113
Deferred tax (5,813) (1,982)
Total tax charge in income statement 19,748 25,131
Factors affecting the tax charge
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2011 2010
GBP'000 GBP'000
Profit on ordinary activities before tax 135,877 122,301
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 26.5% (2010 - 28%) 36,007 34,244
Effects of:
Dividends on non-equity preference shares 2,520 2,520
Tax effect of result of joint venture (104) (99)
Adjustment to prior years (1,088) 200
Change in tax rates (13,607) (6,592)
Settlement of prior period capital gains
claims (3,361) (5,127)
Tax free income (6) (47)
Permanent disallowances (613) 17
Payment for rollover relief - 15
Total income tax 19,748 25,131
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
7. INCOME TAX - continued
2011 2010
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the year 23,649 7,936
Payment for use of group losses 1,799 18,889
Under provision for prior years 113 288
Total current tax charge 25,561 27,113
Deferred tax:
Deferred tax expenses relating to the origination (17,668)
and reversal of temporary differences 9,737
Prior period adjustment - (5,127)
Effect of changes in tax rates 11,855 (6,592)
Total deferred tax charge (5,813) (1,982)
Tax on profit before tax 19,748 25,131
The Finance Act 2011 included a provision that the standard rate
of corporation tax in the United Kingdom will reduce from 27% to
25% from April 2012. Accordingly, this rate has been applied when
calculating deferred tax assets and liabilities throughout the
Northern Powergrid Group as at 31 December 2011. The further 1%
reduction announced as part of the 2012 budget has not been
reflected within these financial statements as it had not been
substantively enacted as at the balance sheet date.
8. PROFIT OF PARENT COMPANY
As permitted by Section 408 of the Companies Act 2006, the
income statement of the parent company is not presented as part of
these financial statements. The parent company's profit for the
financial year was GBP29,632,000 (2010 - GBP18,903,000).
9. DIVIDENDS
2011 2010
GBP'000 GBP'000
Interim dividend at 24p per share (2010:
48p) 30,000 60,000
10. ADMINISTRATIVE EXPENSES
Administrative expenses comprise:
2011 2010
GBP'000 GBP'000
Distribution costs 77,553 74,088
Administrative expenses 28,621 31,705
106,174 105,793
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
11. OPERATING LEASE COMMITMENTS
Group
2011 2010
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 6,194 3,379
At the balance sheet date, the Group had outstanding commitments
for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
2011 2010
GBP'000 GBP'000
Within one year 4,673 2,445
In the second to fifth year 14,495 5,462
After five years 9,236 1,795
28,404 9,702
Company
2011 2010
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 172 172
At the balance sheet date, the Company had outstanding
commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
2011 2010
GBP'000 GBP'000
Within one year 172 172
In the second to fifth year 688 688
After five years 516 688
1,376 1,548
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
12. INTANGIBLE ASSETS
Group
Software
development
costs
GBP'000
COST
At 1 January 2011 28,567
Additions 2,654
At 31 December 2011 31,221
AMORTISATION
At 1 January 2011 24,556
Amortisation for year 2,501
At 31 December 2011 27,057
NET BOOK VALUE
At 31 December 2011 4,164
Software
development
costs
GBP'000
COST
At 1 January 2010 27,724
Additions 843
At 31 December 2010 28,567
AMORTISATION
At 1 January 2010 22,985
Amortisation for year 1,571
At 31 December 2010 24,556
NET BOOK VALUE
At 31 December 2010 4,011
The Group had no intangible assets at 31 December 2011 (2010:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
13. PROPERTY, PLANT AND EQUIPMENT
Group
Non
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2011 6,736 2,073,492 52,698 2,132,926
Additions 208 122,710 2,747 125,665
Disposals (540) (5,582) (335) (6,457)
At 31 December 2011 6,404 2,190,620 55,110 2,252,134
DEPRECIATION
At 1 January 2011 4,526 639,690 48,857 693,073
Charge for year 120 47,511 1,536 49,167
Eliminated on disposal (106) (5,561) (335) (6,002)
At 31 December 2011 4,540 681,640 50,058 736,238
NET BOOK VALUE
At 31 December 2011 1,864 1,508,980 5,052 1,515,896
Non
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2010 6,739 1,952,915 52,727 2,012,381
Additions - 124,462 1,048 125,510
Disposals (3) (3,885) (1,077) (4,965)
At 31 December 2010 6,736 2,073,492 52,698 2,132,926
DEPRECIATION
At 1 January 2010 4,416 598,215 48,288 650,919
Charge for year 110 45,360 1,646 47,116
Eliminated on disposal - (3,885) (1,077) (4,962)
At 31 December 2010 4,526 639,690 48,857 693,073
NET BOOK VALUE
At 31 December 2010 2,210 1,433,802 3,841 1,439,853
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
13. PROPERTY, PLANT AND EQUIPMENT - continued
Group
Assets in the course of construction included above:
Distribution Fixtures
system and fittings Totals
GBP'000 GBP'000 GBP'000
At 1 January 2011 59,187 - 59,187
Additions 127,083 1,557 128,640
Available for use (110,723) (1,557) (112,280)
At 31 December 2011 75,547 - 75,547
The Group has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP19,790,000 (2010: GBP15,412,000).
The net book value of the Group's non-operational land and
buildings comprises:
2011 2010
GBP'000 GBP'000
Freehold 1,396 1,742
Long leasehold 368 368
Short leasehold 100 100
1,864 2,210
Company
Non-operational Distribution Fixtures Totals
land & buildings system and fittings
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2011 - 1,259 3,558 4,817
Additions 296 - - 296
At 31 December 2011 296 1,259 3,558 5,113
DEPRECIATION
At 1 January 2011 - - 3,282 3,282
Charge for year - - 29 29
At 31 December 2011 - - 3,311 3,311
NET BOOK VALUE
At 31 December 2011 296 1,259 247 1,802
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
13. PROPERTY, PLANT AND EQUIPMENT - continued
Company
Fixtures
Distribution and
system fittings Totals
GBP'000 GBP'000 GBP'000
COST
At 1 January 2010
and 31 December 2010 1,259 3,558 4,817
DEPRECIATION
At 1 January 2010 - 3,270 3,270
Charge for year - 12 12
At 31 December 2010 - 3,282 3,282
NET BOOK VALUE
At 31 December 2010 1,259 276 1,535
14. INVESTMENTS
Group Company
Share of Shares Shares Shares
joint venture's in other in subsidiary in other
net assets undertakings Total undertakings undertakings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December
2010 3,307 21 3,328 327,099 971 328,070
Movement 18 - 18 - - -
At 31 December
2011 3,325 21 3,346 327,099 971 328,070
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
14. INVESTMENTS - continued
Details of the principal investments of the Group at 31 December
2011 are listed below:
Proportion
of voting
Name of company Holding of rights and Nature of business
shares shares held
Principal subsidiary undertakings
Held by Company:
Engineering contracting
Integrated Utility Services 3,103,000 100% services
Limited at GBP1
Distribution
Northern Powergrid (Northeast) 200,000,100 100% of electricity
Limited at GBP1
Property holding
Northern Electric Properties 32,207,100 100% and management
Limited at GBP1 company
Northern Transport Finance 7,000,000 100% Car finance company
Limited at GBP1
Subsidiaries of the Company:
Northern Electric Finance 50,000 at 100% Finance company
plc GBP1
Joint venture held by the Company:
Vehicle Lease and Service 950,000 at 50% Transport services
Limited GBP1
All the above companies are registered in England and Wales.
Interest in Joint venture
Summarised financial information in respect of the Group's joint
venture is set out below:
2011 2010
GBP'000 GBP'000
Long-term assets 16,842 16,442
Current assets 16,547 12,930
Long-term liabilities (14,640) (12,330)
Current liabilities (12,099) (10,428)
Net assets 6,650 6,614
Group's share of joint venture's net
assets 3,325 3,307
Revenue 14,807 14,328
Profit for the year 784 706
Group's share of joint venture's profit
for the year 392 353
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
15. INVENTORIES
Group
2011 2010
GBP'000 GBP'000
Stocks 9,418 7,601
Work-in-progress 3,545 2,273
Assets held for sale 420 467
13,383 10,341
The Company had no inventories at 31 December 2011 (2010 -
GBPnil).
Group construction contracts
Contracts in progress at balance sheet date:
2011 2010
GBP'000 GBP'000
Amounts due from customers included in
inventories 3,545 2,273
Contract costs incurred plus recognised
profits less recognised losses to date 23,800 25,721
Less: progress billings (20,255) (23,448)
3,545 2,273
At 31 December 2011, retentions held by customers for contract
work amounted to GBP359,000 (2010: GBP445,000).
Advances received from customers for contract work amounted to
GBPnil (2010: GBPnil)
The Group had no construction contracts at 31 December 2011
(2010: GBPnil).
16. TRADE AND OTHER RECEIVABLES
Group Company
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Distribution use of system
receivables 38,037 36,193 - -
Construction contract customers 3,441 5,243 - -
Amounts receivable in respect
of finance leases 3,766 3,320 - -
Other debtors 584 - 584 442
Amounts receivable for sale
of goods and services 4,459 1,498 - -
Prepayments and accrued income 4,595 4,912 216 239
54,882 51,166 800 681
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
16. TRADE AND OTHER RECEIVABLES - continued
Group Company
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Non-current:
Amounts receivable in respect
of finance leases 3,780 4,609 - -
Aggregate amounts 58,662 55,775 800 681
The directors consider that the carrying amount of trade and
other receivables approximates their fair value calculated by
discounting the future cash flows at the market rate at the balance
sheet date. The maximum exposure to risk to the Group is the book
value of these receivables less any provisions for impairment.
Finance lease receivables
Present
Minimum lease value
payments
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable
under finance leases:
Within one year 3,757 3,731 3,766 3,320
In the second to
fifth years inclusive 4,368 4,877 3,780 4,609
8,125 8,608 7,546 7,929
Less: unearned finance
income (579) (679) - -
7,546 7,929 7,546 7,929
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% (2010:
6.5%) per annum. None of these debts are past due and there are no
indicators of impairment. The directors consider the carrying value
of finance lease receivables approximates their fair value. The
maximum risk exposure is the book value of these receivables, less
the residual value of the leased vehicles.
Distribution use of system receivables
The customers served by the Group's distribution network are
supplied predominantly by a small number of electricity supply
businesses with RWE NPower plc accounting for approximately 28% of
distribution revenues in 2011 (2010: 30%). 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 GBP1,532,000 as at 31
December 2011 (2010: GBP1,530,000).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
16. TRADE AND OTHER RECEIVABLES - continued
Ofgem has indicated that, provided the Group has implemented
credit control, billing and collection processes in line with best
practice guidelines and can demonstrate compliance with the
guidelines or is able to satisfactorily explain departure from the
guidelines, any bad debt losses arising from supplier default will
be recovered through an increase in future allowed income. Losses
incurred to date have not been material. Included in the Group's
use of system ("UoS") receivables are debtors with a carrying value
of GBPnil, which have been placed into administration and have
therefore been provided in full at the year end (2010:
GBP3,000).
Amounts receivable from sale of goods and services
Sales of goods and services comprise all income streams which
are not classified as UoS income. Examples of non-UoS income
streams would be service alterations/disconnections and recovery of
amounts for damage caused by third parties to the distribution
system.
The average credit period on sales of goods and services is 30
days. Interest is not generally charged on the trade receivables
paid after the due date. An allowance for doubtful debts is made
for debts past their due date based on estimated irrecoverable
amounts from the sale of goods and services, determined by
reference to past default experience.
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP779,000
(2010: GBP720,000) which are past due at the reporting date and for
which the Group has provided an irrecoverable amount of GBP320,000
(2010: GBP348,000) based on past experience. The Group does not
hold any collateral over these balances. The average age of these
receivables is 344 days (2010: 304 days).
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP695,000
(2010: GBP500,000). These amounts are past due at the reporting
date and the Group has not provided for any amounts as not being
recoverable, because there has not been a significant change in
credit quality and the amounts are still considered recoverable.
The Group does not hold any collateral over these balances. The
average age of these receivables is 56 days (2010: 60 days).
Ageing of past due but not impaired receivables:
2011 2010
GBP'000 GBP'000
30-60 days 569 358
60-120 days 102 129
120-210 days 24 13
Total 695 500
Construction contract customers
The average credit period on construction contracts is 30 days.
Interest is not generally charged on construction contracts paid
after the due date. The Group has provided fully for all
receivables over one year for UK Contracting debts and all
receivables over six months for Multi-Utility debts. Trade
receivables between 30 days and these predetermined provision dates
are provided for based on estimated irrecoverable amounts,
determined by reference to past default experience.
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBP1,358,000 (2010:
GBP3,054,000), which are past due at the reporting date for which
the Group has provided for an irrecoverable amount of GBP104,000
(2010: GBP199,000) based on past experience. The Group does not
hold any collateral over these balances. The average age of these
receivables is 126 days (2010: 99 days).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
16. TRADE AND OTHER RECEIVABLES - continued
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBP49,000 (2010: GBP9,000) which
are past due at the reporting date for which the Group has not
provided as there has not been a significant change in credit
quality and the amounts are still considered recoverable. The Group
does not hold any collateral over these balances. The average age
of these receivables is 45 days (2010: 45 days).
Ageing of past due but not impaired receivables:
2011 2010
GBP'000 GBP'000
30-90 days 49 9
Total 49 9
Movement in the allowance for doubtful debts
2011 2010
GBP'000 GBP'000
At 1 January 550 870
Amounts utilised/written off in the year (345) (448)
Amounts recognised in income statement 219 128
At 31 December 424 550
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 GBP205,000 (2010: GBP242,000) which
have been placed in administration. The impairment represents the
difference between the carrying amount of the specific trade
receivable and the present value of the expected liquidation
dividend.
Categories of financial assets
2011 2010
Group: GBP'000 GBP'000
Cash and bank balances 229,632 67,161
Loans and receivables at amortised cost 50,287 46,254
Total financial assets 279,919 113,415
Non-current assets 1,728,986 1,610,146
Inventories 13,383 10,341
Prepayments and accrued income 4,595 4,912
Total non-financial assets 1,746,964 1,625,399
Total assets 2,026,883 1,738,814
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
16. TRADE AND OTHER RECEIVABLES - continued
2011 2010
Company: GBP'000 GBP'000
Cash and bank balances 57,357 65,247
Loans and receivables at amortised cost 584 442
Total financial assets 57,941 65,689
Non-current assets 329,872 329,605
Prepayments and accrued income 216 239
Total non-financial assets 330,088 329,844
Total assets 388,029 395,533
17. CASH AND CASH EQUIVALENTS
Group Company
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by Group
undertakings 229,632 67,161 57,357 65,247
229,632 67,161 57,357 65,247
Cash and cash equivalents have a maturity of less than three
months, are readily convertible to cash and are subject to an
insignificant risk of changes in value. The carrying amount of
these assets approximates their fair value.
Amounts owed by Group undertakings represent surplus cash
remitted to Yorkshire Electricity Group plc ("YEG"), a fellow
company in the Northern Powergrid Group, and invested to generate a
market rate of return for the Group. This is repayable on demand by
YEG.
18. CALLED UP SHARE CAPITAL
2011 2010
No. No.
Ordinary shares at 56 12/23p each
Authorised 176,921,852 176,921,852
Allotted, called up and fully paid 127,689,809 127,689,809
2011 2010
GBP'000 GBP'000
Ordinary shares at 56 12/13p each
Authorised 100,000 100,000
Allotted, called up and fully paid 72,173 72,173
The Company has one class of ordinary shares which carries no
right to fixed income.
Details of the cumulative non-equity preference shares are
contained in the borrowings note.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
19. RESERVES
Group
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 453,321 158,748 6,185 618,254
Profit for the year 116,139 - - 116,139
Dividends (30,000) - - (30,000)
-------- ------- ----- --------
At 31 December 2011 539,460 158,748 6,185 704,393
======== ======= ===== ========
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2010 416,151 158,748 6,185 581,084
Profit for the year 97,170 - - 97,170
Dividends (60,000) - - (60,000)
-------- ------- ----- --------
At 31 December 2010 453,321 158,748 6,185 618,254
======== ======= ===== ========
Company
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 131,229 158,748 6,185 296,162
Profit for the year 29,632 - - 29,632
Dividends (30,000) - - (30,000)
-------- ------- ----- --------
At 31 December 2011 130,861 158,748 6,185 295,794
======== ======= ===== ========
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2010 172,326 158,748 6,185 337,259
Profit for the year 18,903 - - 18,903
Dividends (60,000) - - (60,000)
-------- --------
At 31 December 2010 131,229 158,748 6,185 296,162
======== ======= ===== ========
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
20. TRADE AND OTHER PAYABLES
Group Company
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Payments on account 43,166 21,420 - -
Trade creditors 5,575 8,544 1,295 1,368
Amounts owed to related
parties 490 401 - -
Social security and other
taxes 11,048 9,078 5,126 4,080
Other creditors 13,090 4,073 663 526
Deferred revenue 15,755 13,431 - -
Accrued expenses 24,464 17,483 386 421
113,588 74,430 7,470 6,395
Non-current:
Deferred revenue 441,679 417,504 - -
441,679 417,504 - -
Aggregate amounts 555,267 491,934 7,470 6,395
The directors consider that the carrying amount of other
financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the balance sheet
date. Trade creditors and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. Invoices are
paid at the end of the month following the date of the invoice. The
Group has financial risk management policies in place to ensure
that all payables are paid within the credit timeframe.
The following tables detail the remaining contractual maturities
for non-derivative financial liabilities. The tables have been
drawn up based on the discounted cash flows of financial
liabilities based on the earliest possible date on which the Group
can be required to pay. The tables include both interest and
principal cash flows.
Group
Less than 3 months
3 months to 1 year 1 to 5 5+ years Total
years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2011:
Non-interest bearing 54,667 - - - 54,667
Variable interest
rate liability 22,022 - - - 22,022
Fixed interest
rate liability 5,031 22,463 109,975 889,789 1,027,258
81,720 22,463 109,975 889,789 1,103,947
2010:
Non-interest bearing 39,579 - - - 39,579
Variable interest
rate liability 2,653 - - - 2,653
Fixed interest
rate liability - 31,463 125,850 767,425 924,738
42,142 31,463 125,850 767,425 966,880
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
20. TRADE AND OTHER PAYABLES - continued
Company
Less than 3 months
3 months to 1 year 1 to 5 5+ years Total
years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2011:
Non-interest bearing 7,470 - - - 7,470
Fixed interest
rate liability - 9,000 36,000 89,500 134,500
7,470 9,000 36,000 89,500 141,970
2010:
Non-interest bearing 6,395 - - - 6,395
Fixed interest
rate liability - 9,000 36,000 89,500 134,500
6,395 9,000 36,000 89,500 140,895
Categories of financial liabilities
2011 2010
Group: GBP'000 GBP'000
Loans and payables at amortised cost (525,494) (372,140)
Total financial liabilities (525,494) (372,140)
Payments received on account (43,166) (21,420)
Income tax liabilities (185,117) (192,477)
Other taxes and social security (11,048) (9,078)
Accruals (24,464) (17,483)
Deferred Revenue (457,434) (430,935)
Provisions (3,594) (4,854)
Total non-financial liabilities (724,823) (676,247)
Total liabilities (1,250,317) (1,048,387)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
20. TRADE AND OTHER PAYABLES - continued
2011 2010
Company: GBP'000 GBP'000
Loans and payables at amortised cost (5,348) (7,825)
Total financial liabilities (5,348) (7,825)
Income tax liabilities (11,218) (13,379)
Other taxes and social security (5,126) (4,080)
Accruals (386) (421)
Provisions (1,600) (1,493)
Total non-financial liabilities (18,330) (19,373)
Total liabilities (23,678) (27,198)
Deferred Revenue
2011 2010
GBP'000 GBP'000
At 1 January (430,935) (411,359)
Additions (39,781) (31,992)
Amortisation 13,282 12,416
At 31 December (457,434) (430,935)
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the income statement over 15 - 45 years on a straight line
basis, in line with the useful economic life of the distribution
system assets.
The Company had no deferred revenue at 31 December 2011 (2010:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
21. FINANCIAL LIABILITIES - BORROWINGS
The Directors consideration of liquidity, interest rate and
foreign currency risk are described in detail in the Report of the
Directors.
Group
Fair
Book Value Value
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Loans 398,785 253,191 460,450 280,900
Cumulative preference
shares 3,368 3,368 143,224 134,571
Amounts owed to Group
undertakings 104,276 102,563 119,592 108,579
506,429 359,122 723,266 524,050
The borrowings are repayable
as follows:
On demand or within
one year 37,789 9,650 37,789 9,650
After five years 468,640 349,472 685,477 514,400
506,429 359,122 723,266 524,050
Analysis of borrowings:
Short term treasury
loans 22,022 - 22,122 -
Short-term loans from
Group undertakings 4,276 2,563 4,276 2,563
2020 - 8.875% 100,598 100,508 140,817 133,249
2035 - 5.125% 152,856 152,683 161,544 147,651
2037 - 5.9% loan from
Group undertakings 100,000 100,000 115,316 106,016
Cumulative preference
shares 3,368 3,368 143,224 134,571
European Investment
Bank 2018 - 4.065%* 41,390 - 44,896 -
European Investment
Bank 2019 - 4.241%* 41,453 - 45,975 -
European Investment
Bank 2020 - 4.386%* 40,466 - 45,096 -
506,429 359,122 723,266 524,050
* The interest rates represent the weighted average interest
rate applicable to several loan tranches.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
21. FINANCIAL LIABILITIES - BORROWINGS - continued
Company
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
The borrowings are repayable
as follows:
On demand or within one
year 2,273 4,814 2,273 4,814
After five years 1,117 1,117 140,973 132,320
3,390 5,931 143,246 134,134
Analysis of borrowings:
Short-term loans from
Group undertakings 22 2,563 22 2,563
Cumulative preference
shares 3,368 3,368 143,224 134,571
3,390 5,931 143,246 137,134
The fair value of quoted external borrowings is determined with
reference to quoted market prices. The directors' estimates of the
fair value of internal borrowings are determined in accordance with
generally accepted pricing models based on discounted cash flow
analysis using prices from observable current market transactions
or dealer quotes for similar instruments. The fair value of
short-term borrowings is equal to their book value. All loans are
non-secured and are denominated in sterling.
Interest on short-term loans from Group undertakings is charged
at a floating rate of interest at Base Rate minus 0.25%, thus
exposing the Group to cash flow interest rate risk. A 1% movement
in interest rates would not subject the Group to any material
change in interest costs. All other loans are at fixed interest
rates and expose the Group to fair value interest rate risk.
The Company had authorised 115,000,000 non-equity cumulative
preference shares of 1p each as at 31 December 2011 and 2010. As at
31 December 2011 and 2010 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
21. FINANCIAL LIABILITIES - BORROWINGS - continued
At 31 December 2011, the Group had available GBP60m (2010:
GBP201m) 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 2011, 99% (2010:
99%) of the Group's borrowings were at fixed rates and the average
maturity for these borrowings was 17 years (2010: 21 years).
22. PROVISIONS
Group Company
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Other provisions 3,594 4,854 1,600 1,493
Analysed as follows:
Current 1,000 2,102 - -
Non-current 2,594 2,752 1,600 1,493
3,594 4,854 1,600 1,493
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2011 1,962 2,892 4,854
Utilised/paid in the year (1,335) (439) (1,774)
Charged to income statement 443 71 514
At 31 December 2011 1,070 2,524 3,594
Claims: Provision has been made to cover costs arising from
actual claims, which are not externally insured. Settlement is
expected substantially within 12 months.
Other: Primarily consists of a provision for future safe
disposal of transformers which contain oil contaminated with
Polychlorinated Biphenyls (PCBs) and for an amount to cover claims
made under section 74 of the New Road and Street Works Act 1991.
Costs are expected to be incurred over the next 20 years.
Also included in 'other' is a provision to cover the actuarial
assessment of the costs of unfunded pension arrangements in respect
of former employees. Further details can be found in the pension
note.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
23. DEFERRED TAX
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover assets
relief Other Total
Group; GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 121,834 13,794 42,355 (50) 177,933
Charge to income statement (8,933) (4,541) 7,701 (40) (5,813)
At 31 December 2011 112,901 9,253 50,056 (90) 172,120
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover assets
relief Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2010 125,155 19,347 35,540 (127) 179,915
Charge to income statement (3,321) (5,553) 6,815 77 (1,982)
At 31 December 2010 121,834 13,794 42,355 (50) 177,933
Retirement
Rollover/ benefit
Accelerated holdover assets
tax depreciation relief Total
Company; GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2011 (41) 12,559 (398) 12,120
Charge to income statement 11 (4,455) 4 (4,440)
At 31 December 2011 (30) 8,104 (394) 7,680
Retirement
Accelerated Rollover/ benefit
tax depreciation holdover assets
relief Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2010 (56) 18,155 (417) 17,682
Charge to income statement 15 (5,596) 19 5,562
At 31 December 2010 (41) 12,559 (398) 12,120
Other comprises provisions and employee expenses deductible for
tax on a paid basis.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
24. EMPLOYEE BENEFIT OBLIGATIONS
The Company has two retirement benefit schemes.
The Northern Electric Group of the ESPS is a defined benefit
scheme for directors and employees, which provides pension and
other related benefits based on final pensionable pay. The assets
of the Northern Electric Group of the ESPS, which was closed to
staff commencing employment on or after 23 July 1997, are held in a
separate trustee-administered fund. The Northern Powergrid Pension
Scheme, a money purchase scheme which is accounted for as a defined
contribution scheme, was made available to new employees from that
date.
The Northern Electric Group of the ESPS and the Northern
Powergrid Pension Scheme are operated by the Company on behalf of
the participating companies within the Northern Powergrid
Group.
The last triennial actuarial valuation of the Northern Electric
Group of the ESPS was carried out by the Group Trustees' actuarial
advisors, Aon Hewitt, as at 31 March 2010. The projected unit
method was used for the 2010 valuation. The principal actuarial
assumptions were that pre-retirement investment returns would
exceed salary increases by 1.8% per annum (inclusive of merit
awards) and post-retirement returns would exceed future pension
increases by 2.8% per annum.
The total market value of the assets of the Northern Electric
Group of the ESPS, at the date of the actuarial valuation, was
GBP983m.
For the Northern Electric Group of the ESPS, the actuarial
valuation showed that the value of the assets represented 78% of
the actuarial value of the accrued benefits. This represented a
shortfall of assets compared to the value of accrued benefits of
GBP276m. The accrued benefits include all benefits for pensioners
and other members, as well as benefits based on service completed
to date for active members, and allows for an estimate of future
salary increases.
Agreement was reached during June 2011 with the Group Trustees
to repair this deficit over the 15 year period to 31 March 2025,
subject to the actuarial assumptions adopted for the triennial
valuation as at 31 March 2010 being borne out in practice. The
agreement includes cash payments of GBP29.9m per annum, made on a
monthly basis, for the first five years of the recovery plan
followed by an agreed profile of payments to be made over the
remaining ten years of the recovery plan. Of these annual payments
GBP23.2m is paid by the Group.
At the Group's request the actuary has carried out a separate
formal review of the Group's future pension costs using the
assumptions set out below, which the actuary has confirmed
facilitate a reasonable best estimate of those costs. This review
has been based on the same membership and other data as at 31 March
2010. The board has accepted the advice of the actuary and formally
approved the use of these assumptions for the purpose of
calculating the Group's pension cost.
The contribution rates to the Northern Electric Group of the
ESPS, in addition to the deficit repair contributions mentioned
above, for 2011 were 41.9% for certain senior management and 23.5%
for other employees up to 30 June 2011 and 47.0% and 29.4%
respectively from 1 July 2011. These rates will remain in place
until a time as a new schedule of contributions is agreed between
the trustees of the Northern Electric Group of the ESPS and the
Company as part of the triennial valuation process.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
Principal assumptions:
2011 2010
Valuation method Projected Projected
unit unit
Discount rate 4.80% 5.50%
Inflation rate 2.80% 3.20%
Increase to pensions 2.80% 3.20%
Increase to deferred benefits 2.80% 3.20%
Salary increase 2.80% 3.20%
The mortality assumptions are based on the recent actual
mortality experience of members within the Northern Powergrid Group
and the assumptions also allow for future mortality improvements.
The assumption is that a member currently aged 60 will live for a
further 30 years. Life expectancy at age 60 for non-pensioners
(currently aged 45) is assumed to be 30 years, if they are male,
and 31 years, if they are female.
For closed schemes, such as the Northern Electric Group of the
ESPS, under the projected unit method the current service cost will
increase as the members of the scheme approach retirement.
The amount recognised in the balance sheet in respect of the
Group's defined benefit scheme is as follows:
2011 2010
GBPm GBPm
Present value of funded defined benefit
obligations (1,141.8) (1,061.1)
Fair value of plan assets 1,128.2 1,043.7
Deficit (13.6) (17.4)
Unrecognised actuarial losses 215.4 175.7
Net surplus recognised on the balance
sheet 201.8 158.3
Amounts recognised in the income statement or in property, plant
and equipment in respect of the defined benefit plan are as
follows:
2011 2010
GBPm GBPm
Current service cost 11.0 10.0
Interest cost on obligations 57.5 57.4
Expected return on plan assets (69.6) (60.4)
Amortisation of actuarial loss 7.2 7.8
6.1 14.8
Charged to other Northern Powergrid Group
undertakings (18.0) (13.2)
(11.9) 1.6
Allocated to income statement (7.1) (0.3)
Allocated to property, plant and equipment (4.4) 1.9
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
The pension costs incurred are allocated between active members
and pensioner/deferred members. Of the total amount allocated to
the active members, 65% is capitalised in line with the work
carried out by those members (2010: 58%). All of the amounts
allocated to pensioner/deferred members are expensed.
The amount that relates to the active members is calculated as
the total current service cost plus a proportion of the other
elements, which is based on the allocation of liabilities to the
active members and is proportionate to the total liabilities of the
Northern Electric Group of the ESPS. That allocation is currently
assumed to be 33.6% and is as agreed for the deficit repair
payments (2010: 33.6%)
The amounts recovered from Group undertakings are credited to
the income statement.
The actual return on plan assets was GBP86.3m (2010:
GBP102.3m)
Changes in present value of the defined benefit obligation are
as follows:
2011 2010
GBPm GBPm
Opening defined benefit obligation 1,061.1 1,021.9
Current service costs 11.0 10.0
Interest cost 57.5 57.4
Contributions from employees 2.4 3.0
Actuarial losses 63.0 12.5
Benefits paid (53.2) (43.7)
Closing defined benefit obligation 1,141.8 1,061.1
Changes in the fair value of the plan assets are as follows:
Opening fair value of plan assets 1,043.7 938.4
Expected returns 69.6 60.4
Actuarial gains 16.7 41.9
Contributions by employer 49.0 43.7
Contributions from employees 2.4 3.0
Benefit paid (53.2) (43.7)
Closing fair value of plan assets 1,128.2 1,043.7
The fair value of the plan assets at the balance sheet date is
analysed below:
Long term rates of
return expected at Value
2011 2010 2011 2010
% % GBPm GBPm
Equities 8.50 8.50 303.6 346.9
Gilts 3.70 4.60 714.6 602.0
Cash 3.00 4.20 9.8 0.8
Property 7.50 8.40 100.2 94.0
Total fair value
of scheme assets 1,128.2 1,043.7
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
The Northern Powergrid Group employs a building block approach
in determining the long-term rate of return on pension plan assets.
Historical markets are studied and assets with higher volatility
are assumed to generate higher returns consistent with widely
accepted capital market principles. The assumed long-term rates of
return on each asset class are set out within these disclosures.
The overall expected rate of return on assets is then derived by
aggregating the expected return for each asset class over the
actual asset allocation for the Northern Electric Group of the
ESPS.
The history of the plan for the current and prior years is as
follows:
2011 2010 2009 2008 2007
Present value
of defined benefit
obligation (1,141.8) (1,061.1) (1,021.9) (855.3) (917.2)
Fair value of
plan assets 1,128.2 1,043.7 938.4 801.4 956.6
(Deficit)/surplus (13.6) (17.4) (83.5) (53.9) 39.4
Experienced (losses)/gains
on plan liabilities:
Amount (GBPm) (63.0) (12.5) (145.7) 87.3 32.0
percentage of
scheme liabilities
(%) (5.5) (11.8) (14.3) 10.2 3.5
Experience of
gains/(losses)
on plan assets:
Amount (GBPm) 16.7 41.6 78.6 (231.4) (19.6)
Percentage of
scheme assets
(%) 1.5 3.9 8.4 (28.9) (2.0)
A provision to cover the actuarial assessment of the costs of
unfunded pension arrangements in respect of former employees has
been made by the Group and Company as follows:
GBPm
At 1 January 2011 1.5
Utilised/paid in the year (0.1)
Transferred from income statement 0.2
At 31 December 2011 1.6
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
25. RELATED PARTY DISCLOSURES
Group
Details of transactions between the Group and other related
parties are disclosed below.
Loans
The Group has made loans repayable on demand to companies in the
Northern Powergrid Group. The total interest included in investment
income in the income statement for the year ended 31 December 2011
was GBP1,536,000 (2010: GBP1,620,000). Included within cash and
cash equivalents is GBP225,356,000 as at 31 December 2011 (2010:
GBP67,161,000) in respect of these loans.
The Group has received loans from other companies in the
Northern Powergrid Group. The total interest included in finance
costs in the income statement for the year ended 31 December 2011
was GBP6,386,000 (2010: GBP7,793,000). Included within borrowings
is GBP104,276,000 as at 31 December 2011 (2010:
GBP102,563,000).
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
Trading transactions
The Company entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
trading balances outstanding at the year end were as follows:
Amounts
Sales Purchases owed
to related from related to related
parties parties parties
Related Party GBP'000 GBP'000 GBP'000
2011:
CE Insurance Services Limited - 471 -
Integrated Utility Services Limited
(registered in Eire) - 907 78
CE UK Gas Holdings Limited 156 - -
Northern Powergrid (Yorkshire) plc 18,532 8,775 -
Vehicle Lease and Service Limited - 3,620 412
2010:
CE Insurance Service Limited - 460 -
Integrated Utility Services Limited
(registered in Eire) - 1,070 70
CE UK Gas Holdings Limited 304 - -
Northern Powergrid (Yorkshire) plc 16,788 7,563 -
Vehicle Lease and Service Limited 92 3,131 331
Sales and purchases from related parties were made at commercial
prices.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties.
During 2011, 3 directors (2010: 3) and 8 key personnel (2010: 8)
utilised the services provided by NTFL. The amounts included in
finance lease receivables owed by these directors and key personnel
total GBP146,000 (2010: GBP13,000) in respect of non-current and
GBP32,000 (2010: GBP19,000) in respect of current receivables.
Company
Details of transactions between the Company and other related
parties are disclosed below.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
25. RELATED PARTY DISCLOSURES- continued
Loans
The Company has made loans repayable on demand to companies in
the Northern Powergrid Group. The total interest included in
investment income in the income statement for the year ended 31
December 2011 was GBP1,010,000 (2010: GBP1,091,000). Included
within cash and cash equivalents is GBP57,357,000 as at 31 December
2011 (2010: GBP62,684,000) in respect of these loans.
The Company has received loans from companies in the Northern
Powergrid Group. The total interest included in finance costs in
the income statement for the year ended 31 December 2011 was
GBP617,000 (2010: GBP1,539,000). Included within borrowings is
GBP22,000 as at 31 December 2011 (2010: GBP2,563,000) in respect of
these loans.
Interest on loans to/from Group companies is charged at a
commercial rate of interest.
Trading transactions
The Company entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
trading balances outstanding at the year end were as follows:
Dividends
Sales Purchases received
to related from related from related
parties parties parties
Related Party GBP'000 GBP'000 GBP'000
2011:
CE UK Gas Holdings Limited - -
Integrated Utility Services Limited 544 - -
Northern Powergrid (Northeast)
Limited 3,742 162 30,000
Northern Powergrid (Yorkshire)
plc 3,193 - -
Vehicle Lease and Service Limited - - 392
2010:
CE UK Gas Holdings Limited 304 - -
Integrated Utility Services Limited 114 - 800
Northern Powergrid (Northeast)
Limited 4,820 162 20,000
Northern Powergrid (Yorkshire)
plc 3,165 - -
Vehicle Lease and Service Limited - - 353
Sales and purchases from related parties were made at commercial
prices.
There are no amounts outstanding to other members of the
Northern Powergrid Group.
The Company has received GBP828,000 (2010: GBP1,000,000) of
group relief from other companies in the Northern Powergrid Group.
Payment at the UK statutory rate of 26% (2010: 28%) will be made
for the use of these tax losses.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
26. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Electric plc is
Northern Powergrid Limited. The ultimate controlling party and
ultimate parent undertaking of Northern Powergrid Limited is
Berkshire Hathaway, Inc., a company incorporated in the United
States of America.
Copies of the group accounts of Berkshire Hathaway, Inc. (the
parent undertaking of the largest group preparing group accounts)
which include Northern Electric plc and the group accounts of
Northern Powergrid Holdings Company, the largest parent undertaking
to prepare group accounts in the UK, can both be obtained from the
Company Secretary, Northern Powergrid Holdings Company, Lloyds
Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF.
27. RECONCILIATION OF MOVEMENTS IN RESERVES
Group
2011 2010
GBP'000 GBP'000
Profit for the financial year 116,714 97,170
Dividends (30,000) (60,000)
Net addition to reserves 86,714 37,170
Opening reserves 690,427 653,257
Closing reserves 777,141 690,427
Company
2011 2010
GBP'000 GBP'000
Profit for the financial year 29,632 18,903
Dividends (30,000) (60,000)
Net reduction from reserves (368) (41,097)
Opening reserves 368,335 409,432
Closing reserves 367,967 368,335
NORTHERN ELECTRIC PLC GROUP (REGISTERED NUMBER: 2366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
28. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM
OPERATIONS
Group
2011 2010
GBP'000 GBP'000
Profit before income tax 135,887 122,301
Depreciation charges 51,668 48,687
Profit on disposal of fixed assets (358) (641)
Amortisation of deferred revenue (13,282) (12,416)
Retirement benefit obligations (39,211) (27,334)
Movement in provisions (1,260) 691
Finance costs 37,617 33,913
Finance income (1,928) (1,973)
169,133 163,228
(Increase)/Decrease in inventories (3,042) 3,371
Decrease in trade and other receivables 87 1,048
Increase/(Decrease) in trade and other payables 16,854
(11,669)
Cash generated from operations 183,032 155,978
Company
2011 2010
GBP'000 GBP'000
Profit before income tax 24,086 14,272
Depreciation charges 29 12
Finance costs 9,618 10,540
Finance income (31,563) (22,469)
2,170 2,355
Increase in trade and other receivables (119) (71)
Increase/(Decrease) in trade and other payables 1,182
(1,280)
Cash generated from operations 3,233 1,004
29. OTHER RESERVES
At the Company's Annual General Meeting in August 1994, the
shareholders gave approval to on-market purchases of up to 10% of
its shares and this was given effect on 21 September 1994 when
12,370,400 shares were purchased. This transaction resulted in the
creation of a capital redemption reserve of GBP6.2m. Under section
831(4) of the Companies Act 2006 this reserve is treated as an
undistributable reserve.
NORTHERN ELECTRIC plc
REGISTERED NUMBER 2366942
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
Northern Electric plc will be held at Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF on 19 June 2012 at 10.00 am for the
following purposes:
ORDINARY RESOLUTIONS
Resolution 1
To receive and consider the directors' and auditor's reports and
the Group accounts for the year ended 31 December 2011.
Resolution 2
To declare that no final dividend be paid for the year ended 31
December 2011.
Resolution 3
To re-elect Mr G E Abel as a director.
Resolution 4
To re-elect Dr J M France as a director.
Resolution 5
To re-elect Mr T E Fielden as a director.
Resolution 7
To re-appoint Deloitte LLP as auditor and to authorise the
directors to determine their remuneration.
By order of the board Registered office:
John Elliott Lloyds Court, 78 Grey Street,
Secretary Newcastle upon Tyne, NE1 6AF
20 April 2012 Registered in England No 2366942
Note:
1. All the issued ordinary shares in the Company are held by or
on behalf of Northern Powergrid Limited.
2. Holders of preference shares have the right to receive notice
of, attend and speak at the Annual General Meeting but are only
entitled to vote if, at the date of the notice of the meeting,
payment of the dividend to which they are entitled is six months or
more in arrears or if a resolution is to be considered at the
meeting for the winding up of the Company or abrogating, varying or
modifying any of the special rights attaching to the preference
shares. As none of these circumstances apply to this Annual General
Meeting, preference shareholders should note that they do not have
the right to vote on any of the business to be considered.
3. Members are entitled to appoint a proxy to exercise all or
any of their rights on their behalf at the meeting. A shareholder
may appoint more than one proxy in relation to the Annual General
Meeting provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by the
shareholder. A proxy need not be a shareholder of the Company.
4. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a "Nominated Person") may, under an agreement
between him/her and the shareholder by whom he/she was nominated,
have a right to be appointed (or to have someone else appointed) as
a proxy for the Annual General Meeting. If a nominated person does
not have such a right or does not wish to exercise it, he/she may
have a right under such an agreement to give instructions to the
member as to the exercise of voting rights.
5. Any corporation which is a member can appoint one or more
corporate representatives who may exercise exercise on its behalf
all of its powers as a member provided that they do not do so in
relation to the same shares.
6. The current price of the Company's preference shares can be
obtained from the web site of the London Stock Exchange at
www.londonstockexchange.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEMFFWFESEFL
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