TIDM56WD
RNS Number : 0619Y
Northern Electric Finance PLC
03 May 2019
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Northern
Electric Finance plc for the year ended 31 December 2018.
Pursuant to LR 17.3.1, the document has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
www.hemscott.com
The 2018 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Registered number: 03070482 (England and Wales)
Northern Electric Finance plc
Annual Report and Financial Statements
for the Year Ended 31 December 2018
Northern Electric Finance plc
Contents
Company Information 1
Strategic Report 2
3 to
Directors' Report 5
6 to
Independent Auditor's Report 10
Statement of Profit or Loss 11
Statement of Comprehensive Income 12
Statement of Financial Position 13
Statement of Changes in Equity 14
Statement of Cash Flows 15
16 to
Notes to the Financial Statements 32
Northern Electric Finance plc
Company Information
Directors
T E Fielden
T H France
P A Jones
S J Lockwood
Company secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
Registered number
03070482 (England and Wales)
Auditor
Deloitte LLP
Statutory auditor
Newcastle upon Tyne
United Kingdom
Northern Electric Finance plc
Strategic Report for the Year Ended 31 December 2018
The directors present the annual reports and financial
statements for the year ended 31 December 2018 of Northern Electric
Finance plc (the "Company"), which have been drawn up and presented
in accordance with the Companies Act 2006.
PRINCIPAL ACTIVITY AND RESULT FOR THE YEAR
The Company is part of the Northern Powergrid Holdings Company
group of companies (the "Northern Powergrid Group") and acts as a
financing company. The principal activity of the Company is to meet
its obligations to make the interest payments required by the 2020
8.875% bonds and the 2035 5.125% bonds. Those payments were made on
16 October 2018 and 4 May 2018 respectively.
The Company made a loss after tax for the year of GBP160,000
(2017: loss GBP144,000) mainly due to interest expenses exceeding
interest income.
KEY PERFORMANCE INDICATORS
The directors manage the Company's operations on a group basis.
The development, performance and position of Northern Powergrid
Holdings Company, which include those of the Company, are discussed
in the annual report and financial statements of Northern Powergrid
Holdings Company.
BUSINESS REVIEW
The principal risks and uncertainties are integrated with the
principal risks of the Northern Powergrid Group and are not managed
separately. Accordingly, the principal risks and uncertainties,
which include those of the Company, are discussed in the annual
reports and financial statements of Northern Powergrid Holdings
Company. Details of financial risks can be found on page 3 of the
Report of the Directors.
Approved by the Board on 15 April 2019 and signed on its behalf
by:
P A Jones
Director
Northern Electric Finance plc
Directors' Report for the Year Ended 31 December 2018
The directors present their report together with the auditor's
report and the financial statements for the year ended 31 December
2018.
Dividends
During the year no interim dividend was paid (2017: GBPnil). The
directors recommend that no final dividend be paid in respect of
the year (2017: GBPnil).
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.
Directors of the Company
The directors, who held office during the year and up to the
date of signing, were as follows:
T E Fielden
T H France
P A Jones
S J Lockwood
There are no contracts in this entity which the directors held
any interest during and as at the end of the year which were
significant in relation to the business of the Company.
During the year and up to the date of approval of the Report of
the Directors, an indemnity contained in the Company's Articles of
Association was in force for the benefit of the directors of the
Company and as directors of associated companies, which was a
qualifying indemnity provision for the purposes of the Companies
Act 2006.
Future development
The financial position of the Company, as at the year end, is
shown in the Statement of Financial Position on page 13. There have
been no significant events since the year end. There are no plans
to change the existing business model.
Research and development
The Company does not undertake research and development.
Financial Risk Management
Financial Derivatives
As at 31 December 2018 and during the year it was the Company's
policy not to hold any derivative financial instruments (2017:
GBPnil).
Liquidity risk
The principal risk facing the Company is not having sufficient
liquidity to enable the Company to meet its liabilities as they
fall due. In this respect, borrowing facilities are made available
to the Company by other companies in the Northern Powergrid Group,
if required. The Company continues to maintain its investment grade
issuer credit rating.
Interest rate risk
The Company 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 2018, 100% of the Company's
borrowings were at fixed rates and the average maturity of these
borrowings was 11 years.
Trading risk
Throughout the year under review, the Company's policy was that
no trading in financial instruments should be undertaken.
Northern Electric Finance plc
Directors' Report for the Year Ended 31 December 2018
(continued)
Credit risk
The Company and those that it provides finance to it are
supported by the Northern Powergrid Group which maintains an
investment grade credit rating.
Political donations
During the year, no contributions were made to political
organisations (2017: GBPnil).
CORPORATE GOVERNANCE STATEMENT
The directors have elected to apply the exception set out in
Section 1B.1.6R of the Disclosure and Transparency Rules
("DTR").
Audit committee
The board of Northern Powergrid Holdings Company has established
an audit committee for the Northern Powergrid Group under delegated
terms of reference which carries out the functions required by DTR
7.1.3 R.
Committee members:
-- J Reynolds - Non-executive Director - Northern Powergrid Holdings
Company (Chairman)
-- T E Fielden - Finance Director
-- M Knowles - Independent member - Northern Powergrid Holdings Company
(appointed on 17 July 2018)
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors acknowledge their responsibilities for preparing
the Annual Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the directors are required
to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and accounting estimates that are reasonable and
prudent;
-- state whether applicable International Financial Reporting Standards
(IFRSs) as adopted by the European Union have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
-- prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in
business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Directors' responsibility statement pursuant to DTR 4
Each of the directors as at the date of the annual reports and
financial statements, whose names and functions are set out on page
3 in the Report of the Directors confirms that, to the best of
their knowledge:
-- the financial statements, prepared in accordance with applicable
UK law and in conformity with IFRS, give a true and fair view of
the assets, liabilities, financial position and loss of the Company
and the undertakings included in the consolidation taken as a whole;
and
-- the management report (which is comprised of the Strategic Report
and the Report of the Directors) includes a fair review of the development
and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
it faces.
Northern Electric Finance plc
Directors' Report for the Year Ended 31 December 2018
(continued)
Going Concern
The Company's business activities, together with details
regarding its future development, performance and position are set
out in the Strategic Report and in the Report of the Directors. In
addition, the Company's objectives, policies and processes for
managing its capital, its financial risk management objectives,
details of its financial instruments and its exposures to credit
risk and liquidity risk are included in the Financial Risk
Management section of 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
account of a number of factors that arise due to the Company being
a wholly-owned subsidiary of Northern Powergrid (Northeast)
Limited, including the following:
-- Northern Powergrid (Northeast) Limited, 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 their 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 Powergrid (Northeast) Limited, is profitable with strong
underlying cash flows resulting in low gearing and holds investment
grade credit ratings; and
-- Northern Powergrid (Northeast) Limited, has access to considerable
financial resources, in the form of short-term borrowings made available
by Yorkshire Electricity Group plc, a fellow company in the Northern
Powergrid Group, and an overdraft facility provided by Lloyds Bank
plc which is reviewed annually. In addition, Northern Powergrid
(Northeast) Limited, has committed revolving credit facilities in
place from Lloyds Bank plc, Royal Bank of Scotland plc and Abbey
National Treasury Services plc until 30 April 2020.
-- A letter of support was received from Northern Powergrid Holdings
Company, a member of the Northern Powergrid Group.
Statement as to disclosure of information to auditor
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
-- so far as he is aware, there is no relevant audit information of
which the Company's auditor is unaware; and
-- he has taken all the steps he ought to have taken as a director
in order to make himself aware of any relevant audit information
and to establish that the auditor is aware of that information.
Reappointment of auditor
Deloitte LLP will continue in office in accordance with the
provisions in Section 487 of the Companies Act 2006 and has
indicated its willingness to do so.
Approved by the Board on 15 April 2019 and signed on its behalf
by:
P A Jones
Director
Northern Electric Finance plc
Independent Auditor's Report to the Members of Northern Electric
Finance plc
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's affairs
as at 31 December 2018 and of its loss for the year then ended;
-- have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) and
-- have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of Northern Electric
Finance plc (the 'Company') which comprise:
-- the statement of profit or loss;
-- the statement of other comprehensive income;
-- the statement of financial position;
-- the statement of changes in equity;
-- the statement of cash flows;
-- the related accounting policies; and
-- the related notes 1 to 18.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs(UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC's Ethical Standard were
not provided to the company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Summary of audit approach
-- Key audit matter - The key audit matter that we identified in the
current year was valuation of borrowings and the associated interest.
Following a reassessment of matters that had the most significance
in our audit in the current year, we no longer consider management
override of controls as a key audit matter.
-- Materiality - the materiality that we used in the current year was
GBP324k which was determined on the basis of 1.9% of interest receivable
as at 31 December 2018.
-- Scoping - Audit work to respond to the risks of material misstatement
was performed directly by the audit engagement team.
-- Significant changes in our approach - There have been no significant
changes to our audit scope from the prior year apart from the change
in key audit matter as described above.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report where:
-- the directors' use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate; or
-- the directors have not disclosed in the financial statements any
identified material uncertainties that may cast significant doubt
about the company's ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months from
the date when the financial statements are authorised for issue.
Northern Electric Finance plc
Independent Auditor's Report to the Members of Northern Electric
Finance plc (continued)
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Valuation of loans and the associated interest
Key audit matter description
The company acts as a financing company within the group,
therefore, the largest balances in the financial statements relate
to the borrowings and the associated interest. As disclosed in note
13 to the financial statements, borrowings as at 31 December 2018
totalled GBP255 million and consist of the 2020 8.875% bonds and
the 2035 5.125% bonds. The associated interest payable on these
loans for the year ended 31 December 2018 is disclosed in note 5 to
the financial statements.
The key inputs into the calculation of the value of the loan and
associated interest include the amortisation of initial costs and
the effective interest rate.
How the scope of the audit responded to the key audit matter
In response to this key audit matter, we have completed the
following procedures:
-- analysis of the original loan agreements to assess whether the value
of the loan is in compliance with IFRS requirements; and
-- recalculation of amortised costs and analysis of the effective interest
rate, comparing it to prior year and reviewing whether the base
calculation was correct.
Key observations
Based on the work performed, no material differences were
identified. We have therefore concluded that the valuation of
borrowings and associated interest are appropriate and in line with
IFRS requirements.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
-- Materiality: GBP324k (2017: GBP266k)
-- Basis for determining materiality: 1.90% (2017: 1.56%) of interest
receivable during the current year.
-- Rationale for the benchmark applied: the company is a wholly owned
subsidiary used as a financing Company for the group. This entity,
therefore, manages group financing (borrowing and lending) which
are the key areas of interest for the group company. Interest receivable
is the main source of income for the entity which allows the entity
to pay off their liabilities. Therefore, the income stream is key
to the users and to management.
Northern Electric Finance plc
Independent Auditor's Report to the Members of Northern Electric
Finance plc (continued)
We agreed with the Board of Directors that we would report to
the Board all audit differences in excess of GBP16k (2017: GBP5k),
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the
Board of Directors on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the
Company and its environment, including internal control, and
assessing the risks of material misstatement. Audit work to respond
to the risks of material misstatement was performed directly by the
audit engagement team. There have been no material changes in the
scope from prior year.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the Statement of Directors'
Responsibilities (set out on page 4), the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Northern Electric Finance plc
Independent Auditor's Report to the Members of Northern Electric
Finance plc (continued)
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud are set out below. A
further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting
irregularities, including fraud
We identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, and then
design and perform audit procedures responsive to those risks,
including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
-- enquiring of management and the Board, including obtaining and reviewing
supporting documentation, concerning the company's policies and
procedures relating to:
-- identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-compliance;
-- detecting and responding to the risks of fraud and whether they
have knowledge of any actual, suspected or alleged fraud;
-- the internal controls established to mitigate risks related to
fraud or non-compliance with laws and regulations;
-- discussing among the engagement team and involving relevant internal
specialists, including tax and IT specialists, regarding how and
where fraud might occur in the financial statements and any potential
indicators of fraud. As part of this discussion, we considered management
override of controls and the possibility of any significant unusual
transactions or significant related party transactions not in the
ordinary course of business; and
-- obtaining an understanding of the legal and regulatory framework
that the company operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had
a fundamental effect on the operations of the company. The key laws
and regulations we considered in this context included the UK Companies
Act and tax legislation.
Audit response to risks identified
As a result of performing the above, we did not identify any
further key audit matters related to the potential risk of fraud or
non-compliance with laws and regulations. Our procedures to respond
to risks identified included the following:
-- reviewing the financial statement disclosures and testing to supporting
documentation to assess compliance with relevant laws and regulations
discussed above;
-- enquiring of management, the Board and legal counsel concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or unexpected
relationships that may indicate risks of material misstatement due
to fraud;
-- reading minutes of meetings of those charged with governance, reviewing
internal audit reports and reviewing correspondence with HMRC; and
-- in addressing the risk of fraud through management override of controls,
testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates
are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside
the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members, including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Northern Electric Finance plc
Independent Auditor's Report to the Members of Northern Electric
Finance plc (continued)
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the Strategic Report and Directors' Report
for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
-- the Strategic Report and Directors' Report have been prepared in
accordance with applicable legal requirements.
In the light of our knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified material misstatements in the Strategic Report and
the Directors' Report.
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, or returns adequate
for our audit have not been received from branches not visited by
us; or
-- the financial statements are not in agreement with the accounting
records and returns; 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.
Other matters
Following the recommendation of the Board of Directors, we were
appointed by the Board of Northern Powergrid Holdings Company in
1998 to audit the financial statements for the year ending 31
December 1998 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is 21 years, covering the years ending
31 December 1998 to 31 December 2018.
Consistency of the audit report with the additional report to
the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance with
ISAs (UK).
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
David M Johnson FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP, Statutory Auditor
Newcastle upon Tyne
United Kingdom
26 April 2018
Northern Electric Finance plc
Statement of Profit or Loss for the Year Ended 31 December
2018
2018 2017
Note GBP 000 GBP 000
Revenue - -
Administrative expenses (9) (9)
-------- --------
Operating loss (9) (9)
Finance costs 5 (17,219) (17,195)
Finance income 5 17,034 17,030
-------- --------
Loss before tax (194) (174)
Income tax receipt 8 34 30
-------- --------
Loss for the year (160) (144)
======== ========
Northern Electric Finance plc
Statement of Comprehensive Income for the Year Ended 31 December
2018
2018 2017
GBP 000 GBP 000
Loss for the year (160) (144)
-------- --------
Total comprehensive income for the year (160) (144)
======== ========
Northern Electric Finance plc
(Registration number: 03070482)
Statement of Financial Position as at 31 December 2018
31 December 31 December
2018 2017
Note GBP 000 GBP 000
Assets
Non-current assets
Trade and other receivables 9 248,178 248,100
Current assets
Trade and other receivables 9 3,419 3,419
Income tax asset 39 34
Cash and cash equivalents 10 1,476 1,503
----------- -----------
4,934 4,956
----------- -----------
Total assets 253,112 253,056
=========== ===========
Equity and liabilities
Equity
Share capital 11 (50) (50)
Retained earnings 1,619 1,459
----------- -----------
Total equity 1,569 1,409
----------- -----------
Non-current liabilities
Loans and borrowings 13 (247,846) (247,600)
Deferred tax liabilities 8 (57) (86)
----------- -----------
(247,903) (247,686)
Current liabilities
Loans and borrowings 13 (6,778) (6,779)
----------- -----------
Total liabilities (254,681) (254,465)
----------- -----------
Total equity and liabilities (253,112) (253,056)
=========== ===========
Approved by the Board of Directors on 15 April 2019 and signed
on its behalf by:
P A Jones
Director
Northern Electric Finance plc
Statement of Changes in Equity for the Year Ended 31 December
2018
Share capital Retained earnings Total
GBP 000 GBP 000 GBP 000
At 1 January 2018 50 (1,459) (1,409)
Loss for the year - (160) (160)
------------- ----------------- --------
Total comprehensive loss - (160) (160)
------------- ----------------- --------
At 31 December 2018 50 (1,619) (1,569)
============= ================= ========
Share capital Retained earnings Total
GBP 000 GBP 000 GBP 000
At 1 January 2017 50 (1,315) (1,265)
Loss for the year - (144) (144)
------------- ----------------- --------
Total comprehensive loss - (144) (144)
------------- ----------------- --------
At 31 December 2017 50 (1,459) (1,409)
============= ================= ========
Northern Electric Finance plc
Statement of Cash Flows for the Year Ended 31 December 2018
2018 2017
Note GBP 000 GBP 000
Cash flows from operating activities
Loss for the year (160) (144)
Adjustments to cash flows from non-cash items
Finance income 5 (17,034) (17,030)
Finance costs 5 17,219 17,195
Income tax expense 8 (34) (30)
-------- --------
Cash generated from operations (9) (9)
Income taxes received 8 - 4
-------- --------
Net cash flow from operating activities (9) (5)
Cash flows from investing activities
Interest received 16,956 16,954
Cash flows from financing activities
Interest paid (16,974) (16,967)
-------- --------
Net decrease in cash and cash equivalents (27) (18)
Cash and cash equivalents at 1 January 1,503 1,521
-------- --------
Cash and cash equivalents at 31 December 1,476 1,503
======== ========
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018
1 General information
The company is a public company limited by share capital,
incorporated under the Companies Act and domiciled in England and
Wales.
The address of its registered office is Lloyds Court, 78 Grey
Street, Newcastle upon Tyne, NE1 6AF.
2 Accounting policies
Statement of compliance
The company financial statements have been prepared in
accordance with International Financial Reporting Standards and its
interpretations adopted by the EU ("adopted IFRS's").
Summary of significant accounting policies and key accounting
estimates
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with
adopted IFRSs and under historical cost accounting rules. The
preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the company's accounting policies.
The nature of the Company's business model, strategic
objectives, operations and activities are set out in the Strategic
Report.
Going Concern
The Company's business activities, together with details
regarding its future development, performance and position are set
out in the Strategic Report and in the Report of the Directors. In
addition, the Company's objectives, policies and processes for
managing its capital, its financial risk management objectives,
details of its financial instruments and its exposures to credit
risk and liquidity risk are included in the Financial Risk
Management section of 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
account of a number of factors that arise due to the Company being
a wholly-owned subsidiary of Northern Powergrid (Northeast)
Limited, including the following:
-- Northern Powergrid (Northeast) Limited, 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 their 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 Powergrid (Northeast) Limited, is profitable with strong
underlying cash flows resulting in low gearing and holds investment
grade credit ratings; and
-- Northern Powergrid (Northeast) Limited, has access to considerable
financial resources, in the form of short-term borrowings made available
by Yorkshire Electricity Group plc, a fellow company in the Northern
Powergrid Group, and an overdraft facility provided by Lloyds Bank
plc which is reviewed annually. In addition, Northern Powergrid
(Northeast) Limited, has committed revolving credit facilities in
place from Lloyds Bank plc, Royal Bank of Scotland plc and Abbey
National Treasury Services plc until 30 April 2020.
-- A letter of support was received from Northern Powergrid Holdings
Company, a member of the Northern Powergrid Group.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Changes in accounting policy
New standards, interpretations and amendments effective
The following have been applied for the first time from 1
January 2018 and have had an effect on the financial
statements:
IFRS 9 - Financial Instruments
A revised version of IFRS 9, Financial Instruments, was issued
in July 2014 mainly to include: a) impairment requirements for
financial assets; and b) limited amendments to the classification
and measurement requirements by introducing a 'fair value through
other comprehensive income' ("FVTOCI") measurement category for
certain simple debt instruments. IFRS 9 has not had a material
impact on amounts reported in respect of the Company's financial
assets and financial liabilities.
IFRS 15 - Revenue from contracts with customers
Revenue from Contracts with Customers establishes a single
comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. IFRS 15 supersedes the
current revenue recognition guidance including IAS 11 Construction
Contracts, IAS 18 Revenue and the related interpretations. The core
principle of IFRS 15 is that an entity should recognise revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
Under IFRS 15, an entity recognises revenue when (or as) a
performance obligation is satisfied. Apart from providing more
extensive disclosures, the application of IFRS 15 has not had a
significant impact on the financial position or performance of the
Company.
None of the other standards, interpretations and amendments
effective for the first time from 1 January 2018 have had a
material effect on the financial statements.
New standards, interpretations and amendments not yet
effective
The following newly issued but not yet effective standards,
interpretations and amendments, which have not been applied in
these financial statements, will or may have an effect on the
company financial statements in future:
IFRS 16 - Leases (1 January 2019)
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance
including IAS 17 Leases and the related interpretations when it
becomes effective. IFRS 16 distinguishes between leases and service
contracts on the basis of whether an identified asset is controlled
by a customer. Distinctions between operating leases and finance
leases are removed for lessee accounting, and are replaced by a
model where right-of-use asset and a corresponding liability have
to be recognised for all leases by lessees except for short term
leases and leases of low-value assets. As of 31 December 2018, the
Company has no non-cancellable operating leases.
None of the other standards, interpretations and amendments
which are effective for periods beginning after 1 January 2018 and
which have not been adopted early, are expected to have a material
effect on the financial statements.
Finance income and costs policy
All borrowing costs are recognised in profit or loss in the
period which they are incurred.
Tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in profit or loss, except that a change
attributable to an item of income or expense recognised as other
comprehensive income is also recognised directly in other
comprehensive income.
The current income tax charge is calculated on the basis of tax
rates and laws that have been enacted or substantively enacted by
the reporting date in the countries where the company operates and
generates taxable income.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Deferred income tax is recognised on temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements and on unused tax
losses or tax credits in the company. Deferred income tax is
determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each
reporting date and a valuation allowance is set up against deferred
tax assets so that the net carrying amount equals the highest
amount that is more likely than not to be recovered based on
current or future taxable profit.
Derecognition
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognised in the profit or
loss when the asset is derecognised.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call
deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Trade receivables
Trade receivables are amounts due from customers for merchandise
sold or services performed in the ordinary course of business. If
collection is expected in one year or less (or in the normal
operating cycle of the business if longer), they are classified as
current assets. If not, they are presented as non-current
assets.
Trade receivables are recognised initially at the transaction
price. They are subsequently measured at amortised cost using the
effective interest method, less provision for impairment. A
provision for the impairment of trade receivables is established
when there is objective evidence that the company will not be able
to collect all amounts due according to the original terms of the
receivables.
Borrowings
All borrowings are initially recorded at the amount of proceeds
received, net of transaction costs. Borrowings are subsequently
carried at amortised cost, with the difference between the
proceeds, net of transaction costs, and the amount due on
redemption being recognised as a charge to the income statement
over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective
interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the
company has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
Share capital
Ordinary shares are classified as equity. Equity instruments are
measured at the fair value of the cash or other resources received
or receivable, net of the direct costs of issuing the equity
instruments. If payment is deferred and the time value of money is
material, the initial measurement is on a present value basis.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Financial instruments
Initial recognition
Financial assets and financial liabilities comprise all assets
and liabilities reflected in the statement of financial position,
although excluding property, plant and equipment, investment
properties, intangible assets, deferred tax assets, prepayments,
deferred tax liabilities and employee benefits plan.
The company recognises financial assets and financial
liabilities in the statement of financial position when, and only
when, the company becomes party to the contractual provisions of
the financial instrument.
Financial assets are initially recognised at fair value.
Financial liabilities are initially recognised at fair value,
representing the proceeds received net of premiums, discounts and
transaction costs that are directly attributable to the financial
liability.
All regular way purchases and sales of financial assets and
financial liabilities classified as fair value through profit or
loss ("FVTPL") are recognised on the trade date, i.e. the date on
which the company commits to purchase or sell the financial assets
or financial liabilities. All regular way purchases and sales of
other financial assets and financial liabilities are recognised on
the settlement date, i.e. the date on which the asset or liability
is received from or delivered to the counterparty. Regular way
purchases or sales are purchases or sales of financial assets that
require delivery within the time frame generally established by
regulation or convention in the market place.
Subsequent to initial measurement, financial assets and
financial liabilities are measured at either amortised cost or fair
value.
Classification and measurement
Financial instruments are classified at inception into one of
the following categories, which then determine the subsequent
measurement methodology:
Financial assets are classified into one of the following three
categories:
-- financial assets at amortised cost;
-- financial assets at fair value through other comprehensive
income (FVTOCI); or
-- financial assets at fair value through the profit or loss
(FVTPL).
Financial liabilities are classified into one of the following
two categories:
-- financial liabilities at amortised cost; or
-- financial liabilities at fair value through the profit or
loss (FVTPL).
The classification and the basis for measurement are subject to
the company's business model for managing the financial assets and
the contractual cash flow characteristics of the financial assets,
as detailed below:
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
-- the assets are held within a business model whose objective
is to hold assets in order to collect contractual cash flows;
and
-- the contractual terms of the financial assets give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
If either of the above two criteria is not met, the financial
assets are classified and measured at fair value through the profit
or loss (FVTPL).
If a financial asset meets the amortised cost criteria, the
company may choose to designate the financial asset at FVTPL. Such
an election is irrevocable and applicable only if the FVTPL
classification significantly reduces a measurement or recognition
inconsistency.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Financial assets at fair value through other comprehensive
income (FVTOCI)
A financial asset is measured at FVTOCI only if it meets both of
the following conditions and is not designated as at FVPTL:
-- the asset is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling
financial assets; and
-- the contractual terms of the financial assets give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investments that is not held
for trading, the company may irrevocably elect to present
subsequent changes in fair value in OCI. This election is made on
an investment-by-investment basis.
If an equity investment is designated as FVTOCI, all gains and
losses, except for dividend income, are recognised in other
comprehensive income and are not subsequently included in the
statement of income.
Financial assets at fair value through the profit or loss
(FVTPL)
Financial assets not otherwise classified above are classified
and measured as FVTPL.
Financial liabilities at amortised cost
All financial liabilities, other than those classified as
financial liabilities at FVTPL, are measured at amortised cost
using the effective interest rate method.
Financial liabilities at fair value through the profit or
loss
Financial liabilities not measured at amortised cost are
classified and measured at FVTPL. This classification includes
derivative liabilities.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Derecognition
Financial assets
The company derecognises a financial asset when;
- the contractual rights to the cash flows from the financial
asset expire;
- it transfers the right to receive the contractual cash flows
in a transaction in which substantially all of the risks and
rewards of ownership of the financial asset are transferred; or
- the company neither transfers nor retains substantially all of
the risks and rewards of ownership and it does not retain control
of the financial asset.
On derecognition of a financial asset, the difference between
the carrying amount of the asset and the sum of the consideration
received is recognised as a gain or loss in the profit or loss.
Any cumulative gain or loss recognised in OCI in respect of
equity investment securities designated as FVTOCI is not recognised
in profit or loss on derecognition of such securities. Any interest
in transferred financial assets that qualify for derecognition that
is created or retained by the company is recognised as a separate
asset or liability.
The company enters into transactions whereby it transfers assets
recognised on its statement of financial position, but retains
either all or substantially all of risks and rewards of the
transferred assets or a portion of them. In such cases, the
transferred assets are not derecognised.
When the company derecognises transferred financial assets in
their entirety, but has continuing involvement in them then the
entity should disclose for each type of continuing involvement at
the reporting date:
(a) The carrying amount of the assets and liabilities that are
recognised in the entity's statement of financial position and
represent the entity's continuing involvement in the derecognised
financial assets, and the line items in which those assets and
liabilities are recognised.
(b) The fair value of the assets and liabilities that represent
the entity's continuing involvement in the derecognised financial
assets;
(c) The amount that best represents the entity's maximum
exposure to loss from its continuing involvement in the
derecognised financial assets, and how the maximum exposure to loss
is determined; and
(d) The undiscounted cash outflows that would or may be required
to repurchase the derecognised financial assets or other amounts
payable to the transferee for the transferred assets.
Financial liabilities
The company derecognises a financial liability when its
contractual obligations are discharged, cancelled, or expire.
Modification of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, the company
evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially
different, then the contractual rights to the cash flows from the
original financial asset are deemed to expire. In this case the
original financial asset is derecognised and a new financial asset
is recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the
modification does not result in derecognition of the financial
asset. In this case, the company recalculates the gross carrying
amount of the financial asset and recognises the amount arising
from adjusting the gross carrying amount as a modification gain or
loss in the statement of income.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Financial liabilities
If the terms of a financial liabilities are modified, the
company evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially
different, then the contractual obligations from the cash flows
from the original financial liabilities are deemed to expire. In
this case the original financial liabilities are derecognised and
new financial liabilities are recognised at either amortised cost
or fair value.
If the cash flows are not substantially different, then the
modification does not result in derecognition of the financial
liabilities. In this case, the company recalculates the gross
carrying amount of the financial liabilities and recognises the
amount arising from adjusting the gross carrying amount as a
modification gain or loss in the statement of income.
Impairment of financial assets
Measurement of Expected Credit Losses
The company recognises loss allowances for expected credit
losses (ECL) on financial instruments that are not measured at
FVPTL, namely:
- Financial assets that are debt instruments
- Accounts and other receivables
- Financial guarantee contracts issued; and
- Loan commitments issued.
The company classifies its financial instruments into stage 1,
stage 2 and stage 3, based on the applied impairment methodology,
as described below:
Stage 1: for financial instruments where there has not been a
significant increase in credit risk since initial recognition and
that are not credit-impaired on origination, the company recognises
an allowance based on the 12-month ECL.
Stage 2: for financial instruments where there has been a
significant increase in credit risk since initial recognition but
they are not credit-impaired, the company recognises an allowance
for the lifetime ECL.
Stage 3: for credit-impaired financial instruments, the company
recognises the lifetime ECL.
The company measures loss allowances at an amount equal to the
lifetime ECL, except for the following, for which they are measured
as a 12-month ECL:
- debt securities that are determined to have a low credit risk
(equivalent to investment grade rating) at the reporting date;
and
- other financial instruments on which the credit risk has not
increased significantly since their initial recognition.
The company considers a debt security to have low credit risk
when their credit risk rating is equivalent to the globally
understood definition of 'investment grade'.
A 12-month ECL is the portion of the ECL that results from
default events on a financial instrument that are probable within
12 months from the reporting date.
Provisions for credit-impairment are recognised in the statement
of income and are reflected in accumulated provision balances
against each relevant financial instruments balance.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Evidence that the financial asset is credit-impaired include the
following:
- Significant financial difficulties of the borrower or
issuer;
- A breach of contract such as default or past due event;
- The restructuring of the loan or advance by the company on
terms that the company would not consider otherwise;
- It is becoming probable that the borrower will enter
bankruptcy or other financial reorganisation;
- The disappearance of an active market for the security because
of financial difficulties; or
- There is other observable data relating to a group of assets
such as adverse changes in the payment status of borrowers or
issuers in the company, or economic conditions that correlate with
defaults in the company.
For trade receivables, the company applies the simplified
approach, which requires expected lifetime losses to be recognised
from initial recognition of the receivables.
To measure the expected credit losses, trade receivables and
contract assets have been grouped based on shared credit risk
characteristics and the days past due. The contract assets relate
to unbilled work in progress and have substantially the same risk
characteristics as the trade receivables for the same types of
contracts. The company has therefore concluded that the expected
loss rates for trade receivables are a reasonable approximation of
the loss rates for the contract assets.
The expected loss rates are based on the payment profiles of
sales over a period of 36 month before 31 December 2018 and the
corresponding historical credit losses experienced within this
period. The historical loss rates are adjusted to reflect current
and forward-looking information on macroeconomic factors affecting
the ability of the customers to settle the receivables. The company
has identified the GDP and the unemployment rate of the countries
in which it sells its goods and services to be the most relevant
factors, and accordingly adjusts the historical loss rates based on
expected changes in these factors.
Accounting estimates and assumptions
The preparation of the financial statements requires management
to make estimates and assumptions that affect the reported amounts
of certain financial assets, liabilities, income and expenses.
The use of estimates and assumptions is principally limited to
the determination of provisions for impairment, the valuation of
financial instruments as explained in more detail below:
Provisions for impairment
In determining impairment of financial assets, judgement is
required in the estimation of the amount and timing of future cash
flows as well as an assessment of whether the credit risk on the
financial asset has increased significantly since initial
recognition and incorporation of forward-looking information in the
measurement of ECL.
Fair value of financial assets and liabilities
Where the fair value of financial assets and liabilities cannot
be derived from active markets, they are determined using a variety
of valuation techniques that include the use of mathematical
models. The input to these models is derived from observable
markets where available, but where this is not feasible, a degree
of judgement is required in determining assumptions used in the
models. Changes in assumptions used in the models could affect the
reported fair value of financial assets and liabilities.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
3 Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying accounting policies
In the preparation of financial statements in conformity with
IFRS the directors did not identify any critical accounting
judgements or key assumptions concerning the future and other key
sources of estimation uncertainty at the end of the reporting
period that may have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year.
Key sources of estimation uncertainty
In the preparation of financial statements in conformity with
IFRS the Directors did not identify any key assumptions concerning
the future and other key sources of estimation uncertainty at the
end of the reporting period that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
4 Segmental reporting
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Company that are
regularly reviewed by the President and Chief Executive Officer of
the Northern Powergrid Group in order to allocate resources to
these segments and to assess their performance. In practice, the
President and Chief Executive Officer allocates resources and
assesses performance based upon the aggregate results of the
Company. Revenue, loss before tax and net assets are attributable
to financing.
5 Finance income and costs
2018 2017
GBP 000 GBP 000
Finance income
Other finance income 17,034 17,030
Finance costs
Interest on bank overdrafts and borrowings (17,198) (17,181)
Interest paid to group undertakings (21) (14)
---------- ----------
Total finance costs (17,219) (17,195)
---------- ----------
Net finance costs (185) (165)
========== ==========
6 Employees and directors
No directors' or key personnel remuneration was charged for the
year (2017: GBPnil). There were no employees during the year (2017:
GBPnil).
At 31 December 2018 no directors accrued benefits under a
defined benefit scheme (2017: none).
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
7 Auditor's remuneration
2018 2017
GBP 000 GBP 000
Audit of the financial statements 8 8
========== ==========
8 Income tax
Tax charged/(credited) in the income statement
2018 2017
GBP 000 GBP 000
Current taxation
UK corporation tax (5) (4)
Deferred taxation
Arising from origination and reversal of temporary
differences (32) (29)
Effect of changes in legislation 3 3
-------- --------
Total deferred taxation (29) (26)
-------- --------
Tax receipt in the income statement (34) (30)
======== ========
The tax on profit before tax for the year is lower than the
standard rate of corporation tax in the UK (2017 - lower than the
standard rate of corporation tax in the UK) of 19% (2017 -
19.25%).
The differences are reconciled below:
2018 2017
GBP 000 GBP 000
Loss before tax (194) (174)
======== ========
Corporation tax at standard rate (37) (33)
Deferred tax expense relating to changes in tax
rates or laws 3 3
-------- --------
Total tax credit (34) (30)
======== ========
Finance Act No.2 2015 included provisions to reduce the
corporation tax to 19% with effect from 1 April 2017 and Finance
Act 2016 introduced a further reduction in the main rate of
corporation tax to 17% from 1 April 2020. Accordingly deferred tax
assets and liabilities have been calculated at the tax rates which
will be in force when the underlying temporary differences are
expected to reverse.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
8 Income tax (continued)
Deferred tax
Deferred tax assets and liabilities
Deferred tax movement during the year:
At
At 1 January Recognised 31 December
2018 in income 2018
GBP 000 GBP 000 GBP 000
Deferred tax (86) 29 (57)
Deferred tax movement during the prior year:
At
At 1 January Recognised 31 December
2017 in income 2017
GBP 000 GBP 000 GBP 000
Deferred tax (112) 26 (86)
The balance represents deferred tax on unamortised loan issue
cost
9 Trade and other receivables
31 December 31 December
2018 2017
Current trade receivables GBP 000 GBP 000
Amounts due from group undertakings 3,419 3,419
----------- -----------
3,419 3,419
Non-current trade receivables
Amounts due from group undertakings 248,178 248,100
----------- -----------
251,597 251,519
=========== ===========
The fair value of the trade and other receivables as at 31
December 2018 is estimated to be GBP311 million (2017: GBP330
million), determined in accordance with generally accepted pricing
models based on discounted cash flow analysis using prices from
observable market transactions or dealer quotes for similar
instruments.
Amounts due from group undertakings represent the value of loans
made to Northern Powergrid (Northeast) Limited, the Company's
immediate parent, and are at fixed rates of interest. Northern
Powergrid (Northeast) Limited maintains an investment grade credit
rating. Prepayments and accrued income represent the accrued
interest due on these loans. The maximum exposure to risk to the
Company is the book value of these loans.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
10 Cash and cash equivalents
31 December 31 December
2018 2017
GBP 000 GBP 000
Cash on hand 1,476 1,503
=========== ===========
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.
11 Share capital
Authorised, allotted, called up and fully paid shares
31 December 31 December
2018 2017
No. GBP No. GBP
Ordinary Share Capital of
GBP1 each 50,000 50,000 50,000 50,000
12 Reserves
Retained earnings
GBP 000
At 1 January 2018 (1,459)
Loss for the year (160)
-------------------
Total comprehensive income (160)
-------------------
At 31 December 2018 (1,619)
===================
Retained earnings
GBP 000
At 1 January 2017 (1,315)
Loss for the year (144)
-----------------
Total comprehensive income (144)
-----------------
At 31 December 2017 (1,459)
=================
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
13 Loans and borrowings
31 December 31 December
2018 2017
GBP 000 GBP 000
Non-current loans and borrowings 247,846 247,600
Current loans and borrowings 6,778 6,779
----------- -----------
254,624 254,379
=========== ===========
Book value Fair value
31 December 31 December 31 December 31 December
2018 2017 2018 2017
GBP 000 GBP 000 GBP 000 GBP 000
2020 - 8.875% bonds 101,512 101,345 114,357 122,791
2035 - 5.125% bonds 153,112 153,034 197,140 207,238
----------- ----------- ----------- -----------
254,624 254,379 311,497 330,029
=========== =========== =========== ===========
The fair value of the external borrowings is determined with
reference to quoted market prices. The fair valuation of the
borrowings is based on Level 1 inputs. At 31 December 2018, the
Company had no undrawn committed borrowing facilities.
The Company's 8.875% 2020 bonds are guaranteed by Northern
Powergrid (Northeast) Limited, its immediate parent company, and
Northern Electric plc. The Company's 5.125% 2035 bonds are
guaranteed by Northern Powergrid (Northeast) Limited and AMBAC
Assurance UK Limited. Borrowings are measured at amortised cost
using the effective interest method.
The covenants associated with the 2035 bonds issued by the
Company include restrictions on the issuance of new indebtedness
and the making of distributions dependent on the scale of the ratio
of Senior Total Net Debt to Regulatory Asset Value ("RAV") of
Northern Powergrid (Northeast) Limited. The definition of Senior
Total Net Debt excludes any subordinated debt and any debt incurred
on a non-recourse basis. In addition, it excludes interest payable,
any fair value adjustments and unamortised issue costs.
The liquidity risk, credit risk, and market risk associated with
these borrowings, and the management thereof, is covered within
Financial Risk Management on page 30 of these financial
statements.
14 Reconciliation of liabilities arising from financing activities
At 1 January At 31 December
2018 Other changes 2018
GBP 000 GBP 000 GBP 000
Long-term borrowings 254,379 245 254,624
============ ============= ==============
At 1 January At 31 December
2017 Other changes 2017
GBP 000 GBP 000 GBP 000
Long term borrowings 254,151 228 254,379
============ ============= ==============
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
15 Classification of financial and non-financial assets and financial
and non-financial liabilities
The classification of financial assets and liabilities by
accounting categorisation as at 31 December 2018 was as
follows:
Financial Financial
assets at liabilities
amortised at amortised Non-financial
cost cost assets & liabilities
GBP 000 GBP 000 GBP 000
Assets
Current assets
Trade and other receivables 3,419 - -
Income tax asset 39 - -
Cash and cash equivalents 1,476 - -
---------- ------------- ---------------------
4,934 - -
========== ============= =====================
Liabilities
Non-current liabilities
Deferred tax liabilities - - (57)
Current liabilities
Loans and borrowings - (6,778) -
---------- ------------- ---------------------
Total liabilities - (6,778) (57)
========== ============= =====================
The classification of financial assets and liabilities by
accounting categorisation as at 31 December 2017 was as
follows:
Financial Financial
assets at liabilities
amortised at amortised Non-financial
cost cost assets & liabilities
GBP 000 GBP 000 GBP 000
Assets
Current assets
Trade and other receivables 3,419 - -
Income tax asset 34 - -
Cash and cash equivalents 1,503 - -
---------- ------------- ---------------------
4,956 - -
========== ============= =====================
Liabilities
Non-current liabilities
Deferred tax liabilities - - (86)
Current liabilities
Loans and borrowings - (6,779) -
---------- ------------- ---------------------
Total liabilities - (6,779) (86)
========== ============= =====================
The fair value of assets classified as fair value through profit
or loss are valued using level 3 inputs.
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
16 Financial risk review
This note presents information about the company's exposure to
financial risks and the company's management of capital.
Capital management
The Group manages its capital centrally to ensure that entities
in the Group will be able to continue as going concerns while
maximising the return to stakeholders through the optimisation of
the debt and equity balance. The Group's overall strategy remains
unchanged from 2017.
The capital structure of the Company consists of net debt
(borrowings as detailed in note 13 offset by equity of the Company
(comprising issued capital, reserves and retained earnings as
detailed in notes 11 and 12). The Company has no externally imposed
capital requirements.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. The Company has adopted a policy of only dealing with
creditworthy counterparties. The Company's exposure and the credit
ratings of its counterparties are continuously monitored and the
aggregate value of transactions concluded is spread amongst
approved counterparties. The carrying amount of financial assets
recorded in the financial statements, which is net of impairment
losses, represents the Company's maximum exposure to credit risk as
no collateral or other credit enhancements are held.
There is no expected credit loss as the receivables are with
related a related party, Northern Powergrid (Northeast) Ltd, an
investment grade company within the Northern Powergrid Group.
Liquidity risk
Ultimate responsibility of liquidity risk management rests with
the board of directors, which has established an appropriate
liquidity risk management framework for the management of the
Company's short, medium, and long-term funding and liquidity
management requirements. The Company manages liquidity by
maintaining adequate reserves, banking facilities and reserve
borrowing facilities, by continuously monitoring forecast and
actual cash flows, and by matching the maturity profiles of
financial assets and liabilities.
Maturity analysis for financial liabilities
The following tables set out the remaining contractual
maturities of the company's financial assets and financial
liabilities by type.
3 months - More than
2018 Total outflow 1 year 1-5 years 5 years
Non-derivative liabilities GBP 000 GBP 000 GBP 000 GBP 000
Fixed interest rate liability 398,438 16,563 139,625 242,250
============= ========== ========= =========
3 months - More than
2017 Total outflow 1 year 1-5 years 5 years
Non-derivative liabilities GBP 000 GBP 000 GBP 000 GBP 000
Fixed interest rate liability 415,000 16,563 148,500 249,937
============= ========== ========= =========
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
16 Financial risk review (continued)
Market risk
The Company's activities do not expose it to significant
financial risks of changes in foreign currency exchange rates and
interest rates. Materially all income and expenses are denominated
in pound sterling. All loans are at fixed interest rates and expose
the Company to fair value interest rate risk.
17 Related party transactions
Summary of transactions with other related parties
Yorkshire Electricity Group provides the intercompany treasury
account to the Northern Powergrid Group.
Loans to related parties
Other related
Parent parties
2018 GBP 000 GBP 000
At start of period 251,519 1,503
Repaid - (10)
Interest charged 17,030 4
Interest received (16,952) (21)
-------- -------------
At end of period 251,597 1,476
======== =============
Other related
Parent parties
2017 GBP 000 GBP 000
At start of period 251,443 1,521
Repaid - (6)
Interest charged 17,028 2
Interest received (16,952) (14)
-------- -------------
At end of period 251,519 1,503
======== =============
Northern Electric Finance plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
18 Parent and ultimate parent undertaking
The company's immediate parent is Northern Powergrid (Northeast)
Ltd.
The ultimate parent and controlling party is Berkshire Hathaway,
Inc. These financial statements are available upon request from
3555 Farnam Street, Omaha, Nebraska 68131.
Relationship between entity and parents
The parent of the largest group in which these financial
statements are consolidated is Berkshire Hathaway, Inc,
incorporated in United States.
The address of Berkshire Hathaway, Inc is: 3555 Farnam Street,
Omaha, Nebraska 68131.
The parent of the smallest group in which these financial
statements are consolidated is Northern Electric plc, incorporated
in United Kingdom.
The address of Northern Electric plc and location where the
Group financial statements can be obtained is: Lloyds Court, 78
Grey Street, Newcastle upon Tyne, NE1 6AF.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MMGGKMFLGLZM
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May 03, 2019 07:26 ET (11:26 GMT)
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