TIDM56WD
RNS Number : 5573D
Northern Electric Finance PLC
27 April 2017
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 2016.
Pursuant to LR 17.3.1, the document has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
www.hemscott.com/nsm.do
The 2016 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Enquiries:
Jenny Riley 01977 605155
REGISTERED NUMBER: 03070482 (England and Wales)
STRATEGIC REPORT, REPORT OF THE DIRECTORS AND
FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER 2016
FOR
NORTHERN ELECTRIC FINANCE PLC
NORTHERN ELECTRIC FINANCE PLC
CONTENTS OF THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2016
Page
Company Information 1
Strategic Report 2
Report of the Directors 5
Report of the Independent
Auditor 9
Statement of Profit or Loss 11
Statement of Profit or Loss
and Other Comprehensive Income 12
Statement of Financial Position 13
Statement of Changes in Equity 14
Statement of Cash Flows 15
Notes to the Financial Statements 16
NORTHERN ELECTRIC FINANCE PLC
COMPANY INFORMATION
FOR THE YEARED 31 DECEMBER 2016
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
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
NORTHERN ELECTRIC FINANCE PLC
STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2016
The directors present the annual reports and accounts of
Northern Electric Finance plc (the "Company") for the year ended 31
December 2016, which includes the Strategic Report, the Report of
the Directors, Statement of Directors' Responsibilities and the
audited financial statements for that year. Pages 2 to 4 of this
annual report comprise the Strategic Report and pages 5 to 9
comprise the Report of the Directors, which have been drawn up and
presented in accordance with the Companies Act 2006.
Cautionary statement regarding forward-looking statements
This annual report has been prepared for the members of the
Company only. The Company, its directors, employees or agents do
not accept or assume responsibility to any other person in
connection with this document and any such responsibility or
liability is expressly disclaimed. This annual report contains
certain forward-looking statements, which can be identified by the
fact that they do not relate only to historical or current facts.
In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in
results of operations, business prospects, the availability of
financing to the Company and anticipated cost savings are
forward-looking statements.
By their nature, these forward-looking 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.
REVIEW OF BUSINESS
BUSINESS MODEL
The Company is a wholly-owned subsidiary of Northern Powergrid
(Northeast) Limited ("Northern Powergrid"), which is part of the
Northern Powergrid Holdings Company group of companies (the
"Northern Powergrid Group"). During the year, the Company continued
to be the issuer of long-term bonds.
The Northern Powergrid Group operates a business model and
strategy based on its six core principles (the "Core Principles"),
which are financial strength, customer service, operational
excellence, employee commitment, environmental respect and
regulatory integrity. The core principles of the Northern Powergrid
Group that are applicable to the Company are as follows:
Principle Strategy Indicator
Financial strength Effective stewardship Profitability, cash
of the Company's flow and maintenance
financial resources, of investment grade
investing in assets credit ratings.
and focusing on
long-term opportunities,
which contribute
to the Company's
future strength.
Regulatory integrity Adhering to a Strong internal
policy of strict controls, regulatory
compliance with engagement and industry
applicable laws, influence.
regulations, standards
and policies.
STRATEGIC OBJECTIVES
The Company's objective is to ensure that it has sufficient
funds to cover the interest charges that arise from the finance
raised on behalf of Northern Powergrid as they fall due.
NORTHERN ELECTRIC FINANCE PLC
STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2016
REVIEW OF BUSINESS - continued
REVIEW OF THE YEAR
The Company's sole activity during the year was 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
17 October 2016 and 4 May 2016 respectively. The nature of the
business of the Company is not sufficiently large or complex for
analysis of key performance indicators to be required for an
understanding of the development, performance or position of that
business.
Details of the operations and activities of and the key
performance indicators used in the Northern Powergrid Group can be
found in the Strategic Report in the Northern Powergrid Holdings
Company annual reports and accounts. The Company undertakes its
activities through employees of other companies in the Northern
Powergrid Group and has no employees of its own.
CORE PRINCIPLES
Financial strength
Results, dividends and position at the year end
The Company made a loss after tax for the year of GBP123,000
(2015: loss GBP107,000) mainly due to interest expenses exceeding
interest income. No dividends were paid during the year and the
directors recommend that no final dividend be paid in respect of
the year. The statement of financial position on page 14 shows
that, as at 31 December 2016, the Company had total equity and
liabilities of GBP253.0 million. Given that it is part of the
Northern Powergrid Group, the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Further details
of the other factors taken into account by the directors when
forming that view are included in the Going Concern statement on
pages 8 and 9 in the Report of the Directors.
Share capital and debt structure
There were no changes to the Company's share capital or debt
structure during the year.
Taxation
Full details of the Company's taxation credit are provided in
Note 6 to the accounts.
Net cash outflow from operating activities
The net cash outflow from operating activities was GBP15,000
(2015: GBP24,000).
Regulatory integrity
The Northern Powergrid 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") is the principal
risk management forum in the Northern Powergrid Group and monitors
and manages performance in risk-related and compliance areas. The
GRMG met on three occasions during the year in order to review the
mechanisms for meeting external obligations, to strengthen the
business-control-improvement environment and to consider and advise
on key strategic risks facing the Northern Powergrid Group. Further
details regarding the activities of the GRMG and the main features
of the Northern Powergrid Group's internal control and risk
management systems are included in the Corporate Governance
Statement in the Report of the Directors.
NORTHERN ELECTRIC FINANCE PLC
STRATEGIC REPORT
FOR THE YEARED 31 DECEMBER 2016
REVIEW OF BUSINESS - continued
PRINCIPAL RISKS AND UNCERTAINTIES
The Company'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.
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 2016, 100% of the Company's
borrowings were at fixed rates and the average maturity of these
borrowings was 14 years.
Foreign currency risk
No material currency risks are faced by the Company.
Details of the other financial risks faced by the Company can be
found on page 5 in the Report of the Directors.
ON BEHALF OF THE BOARD:
P A Jones
Director
24 March 2017
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2016
The directors present their report with the audited financial
statements of the Group for the financial year ended 31 December
2016.
DIVIDS
No dividends were paid during the year (2015: GBPnil) and the
directors recommend that no final dividend be paid in respect of
the year (2015: 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.
RESEARCH AND DEVELOPMENT
Given that the sole purpose of the Company is to raise finance
on behalf of Northern Powergrid, the Company does not undertake
research and development.
FUTURE DEVELOPMENTS
The financial position of the Company, as at the year end, is
shown in the statement of financial position on page 14. There have
been no significant events since the year end and it is the
intention of the directors that the Company will continue to meet
its obligations as they fall due and to raise finance on behalf of
Northern Powergrid, if required, in the future.
DIRECTORS
Directors who held office during the year and to the date of
signing the accounts were:
G E Abel Chairman (stood down from the
T E Fielden board on 15 December 2016)
Finance Director, Northern Powergrid
T H France General Counsel (appointed 15
December 2016)
P A Jones President and Chief Executive
Officer
S J Lockwood Group Financial Controller
During the year, no director was interested in any contract
which was significant in relation to the business of the
Company.
During the year and up to the date of approval of the Directors'
Report, an indemnity contained in the Company's Articles of
Association was in force for the benefit of the directors of the
Company and as directors of associated companies, which was a
qualifying third party indemnity provision for the purposes of the
Companies Act 2006.
FINANCIAL RISK MANAGEMENT
The main risks are liquidity and interest rate risk, further
details of which can be found on page 4 in the Strategic Report.
Other financial risks are:
Trading risk
Throughout the year under review, the Company's policy was that
no trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2016 and during the year it was the Company's
policy not to hold any derivative financial instruments (2015:
GBPnil).
POLITICAL DONATIONS
During the year, no contributions were made to political
organisations (2015: GBPnil).
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2016
CORPORATE GOVERNANCE STATEMENT
In accordance with Disclosure and Transparency Rule (DTR) 7.2.9,
the directors have elected to set out the information required by
DTR 7.2.1 to DTR 7.2.7 R in the Group annual report and audited
consolidated financial statements of Northern Powergrid Holdings
Company, a copy of which can be found on Northern Powergrid's
corporate website. The Company has sought to apply a number of
provisions in the UK Corporate Governance Code 2014 (the "Code") in
so far as it considers them to be appropriate.
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 include monitoring the financial reporting
process, the effectiveness of internal controls, internal audit and
risk management systems, the statutory audit of the accounts, and
the independence of and the provision of non-audit services by the
auditor.
The audit committee comprises three members, two of whom are
considered as independent and one who has competence in accounting.
At its meetings, the committee receives reports from the GRMG and
from the Northern Powergrid Group's Head of Internal Audit on the
internal audits undertaken during the year and the audit plan for
the following year.
Committee members:
R Dixon Non-Executive Director (Chairman)
J Reynolds Non-Executive Director (appointed
20 January 2016)
T E Fielden Finance Director
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2016
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic
Report, the Report of the Directors and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union. Under company law, the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company 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 financial position and financial performance;
and
- Make an assessment of the Company's ability to
continue as a going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions, 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. The directors are responsible
for the maintenance and integrity of any corporate and financial
information relating to the Company, which is included on the
Northern Powergrid Group's website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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 Principal Risks and
Uncertainties section of the Strategic Report, the Report of the
Directors and the appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
account of a number of factors that arise due to the Company being
a wholly-owned subsidiary of Northern Powergrid, including the
following:
a) 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 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;
b) Northern Powergrid is profitable with strong
underlying cash flows resulting in low gearing
and holds investment grade credit ratings; and
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEARED 31 DECEMBER 2016
GOING CONCERN - continued
c) Northern Powergrid 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 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.
Consequently, after making enquiries, the directors have a
reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
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 auditor is
unaware; and
b) he has taken all the steps he ought to have taken
as a director in order to make himself aware of
any relevant audit information and to establish
that the auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITOR
A resolution to re-appoint Deloitte LLP as the Company's auditor
and authorise the directors to determine their remuneration will be
proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
P A Jones
Director
24 March 2017
REPORT OF THE INDEPENT AUDITOR TO THE MEMBERS OF
NORTHERN ELECTRIC FINANCE PLC
We have audited the financial statements of Northern Electric
Finance plc ("the Company") for the year ended 31 December 2016,
which comprise the Statement of Profit or Loss, the Statement of
Profit or Loss and Other Comprehensive Income, the Statement of
Financial Position, the Statement of Changes in Equity, the
Statement of Cash Flows and related notes 1 to 15. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
a Report of the Auditor and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities, 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 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
Strategic Report and the Report of the Directors to identify
material inconsistencies with the audited financial statements and
to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the
Company's affairs as at 31 December 2016 and of
its loss for the year then ended;
- have been properly prepared in accordance with
IFRSs as adopted by the European Union; and
- have been prepared in accordance with the requirements
of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In my opinion the information given in the Strategic Report and
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 INDEPENT AUDITOR TO THE MEMBERS OF
NORTHERN ELECTRIC FINANCE 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,
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.
David M Johnson FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
24 March 2017
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF PROFIT OR LOSS
FOR THE YEARED 31 DECEMBER 2016
2016 2015
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue - -
Administrative expenses (8) (7)
OPERATING LOSS (8) (7)
Finance costs 4 (17,182) (17,173)
Finance income 4 17,030 17,026
LOSS BEFORE INCOME
TAX 5(160) (154)
Income tax 6 37 47
LOSS FOR THE YEAR (123) (107)
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2016
2016 2015
GBP'000 GBP'000
LOSS FOR THE YEAR (123) (107)
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE (123) (107)
INCOME FOR THE YEAR
NORTHERN ELECTRIC FINANCE PLC (REGISTERED NUMBER: 03070482)
STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2016
2016 2015
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Trade and other receivables 7 248,024 247,951
CURRENT ASSETS
Trade and other receivables 7 3,419 3,419
Tax receivable 34 33
Cash and cash equivalents 8 1,521 1,536
4,974 4,988
TOTAL ASSETS 252,998 252,939
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 9 50 50
Retained earnings 10 (1,315) (1,192)
TOTAL EQUITY (1,265) (1,142)
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings
Interest bearing loans
and borrowings 11 247,372 247,158
Deferred tax 12 112 144
247,484 247,302
CURRENT LIABILITIES
Borrowings
Interest bearing loans
and borrowings 11 6,779 6,779
TOTAL LIABILITIES 254,263 254,081
TOTAL EQUITY AND LIABILITIES 252,998 252,939
The financial statements were approved by the Board of Directors
on 24 March 2017 and were signed on its behalf by:
P A Jones - Director
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2016
Called up
share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
Balance at 1 January 2015 50 (1,085) (1,035)
Changes in equity
Total comprehensive income - (107) (107)
Balance at 31 December 2015 50 (1,192) (1,142)
Changes in equity
Total comprehensive income - (123) (123)
Balance at 31 December 2016 50 (1,315) (1,265)
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2016
2016 2015
GBP'000 GBP'000
Cash flows used in operating activities
Cash used in operations 14 (81) (78)
Interest paid (16,968) (16,972)
Interest received 17,030 17,026
Tax paid 4 -
Net cash used in operating activities (15) (24)
Decrease in cash and cash equivalents (15) (24)
Cash and cash equivalents
at beginning of year 1,536 1,560
Cash and cash equivalents
at end of year 1,521 1,536
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2016
1. GENERAL INFORMATION
Northern Electric Finance plc (the "Company") is a company
incorporated in England and Wales and is part of the Northern
Powergrid Holdings Company group of companies (the "Northern
Powergrid Group"). The address of the registered office is Lloyds
Court, 78 Grey Street, Newcastle-upon-Tyne, NE1 6AF.
The nature of the Company's business model, strategic
objectives, operations and activities are set out in the Strategic
Report.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
financial statements have also been prepared in accordance with
IFRSs as adopted by the European Union, and with those parts of the
Companies Act 2006 (the "Act") that are applicable to companies
reporting under IFRS.
The financial statements have been prepared under the historical
cost convention.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these consolidated financial statements is determined
on such a basis, except for leasing transactions which are in the
scope of IAS 17, and measurements that have some similarities to
fair value but are not fair value, such as net realisable value in
IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities
that the entity can access at the measurement
date;
- Level 2 inputs are inputs, other than quoted
prices included within Level 1, that are observable
for the asset or liability, either directly
or indirectly; and
- Level 3 inputs are unobservable inputs for the
asset or liability.
The principal accounting policies are set out below.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2016
2. ACCOUNTING POLICIES- continued
Adoption of new or revised standards
Amendments to IFRSs made by the International Accounting
Standards Board ("IASB") that are effective mandatorily for an
accounting period that begins on or after 1 January 2016:
- Annual Improvements to IFRSs 2012-2014 Cycle.
The Annual Improvements to IFRSs 2012-2014 Cycle include a
number of amendments to various IFRSs. The application of these
amendments has had no material impact on the Company's financial
statements.
The Company has not applied the new and revised IFRSs that have
been issued but are not yet effective for the year ending 31
December 2016, the directors of the Company do not anticipate that
the application of the new and revised IFRSs will have significant
impact on the Company's financial statements.
Finance income Interest income is accrued on a time basis by
reference to the principal outstanding and at the effective
interest rate applicable.
Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition.
Taxation
The income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from 'profit before tax' as reported
in the statement of profit or loss because of items of income or
expense that are taxable or deductible in other years and items
that are never taxable or deductible. The Company's current tax is
calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation
of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax
assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits
will be available against which those deductible temporary
differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit. In addition, deferred tax liabilities are not
recognised if the temporary difference arises from the initial
recognition of goodwill.
Deferred tax liabilities recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the Group
is able to control the reversal of the temporary difference and it
is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and
interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting period and reduced to the extent that that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2016
2. ACCOUNTING POLICIES - continued
Financial assets
Financial assets, including trade and other receivables and cash
and cash equivalents, are classified as loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment.
The effective interest method is a method of calculating the
amortised cost of an instrument and of allocating income over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts through the
expected life of the instrument to the net carrying amount on
initial recognition.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the effect of
discounting is immaterial.
Cash and cash equivalents (which are presented as a single class
of assets on the face of the statement of financial position)
comprise loans advanced to the parent company, having a maturity of
less than three months on the basis that they are readily
convertible to known amounts of cash and are subject to
insignificant risk of changes in value.
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are considered
to be impaired where there is objective evidence that, as a result
of one or more events that occurred after the initial recognition
of the financial asset, the estimated future cash flows of the
investment have been affected.
For certain categories of financial assets, such as trade
receivables, assets are assessed for impairment on a collective
basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables
could include the Company's past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past
the average credit period of 30 days, as well as observable changes
in national or local economic conditions that correlate with
default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
statement of profit or loss.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the financial statements. Further detail is contained
within the Going Concern Statement in the Report of the
Directors.
3. EMPLOYEES AND DIRECTORS
No directors' or key personnel remuneration was charged for the
year (2015: GBPnil). There are no directors' emoluments that are
required to be disclosed under the Act (2015: GBPnil).
There were no employees of the Company during the year (2015:
nil).
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2016
4. NET FINANCE COSTS
2016 2015
GBP'000 GBP'000
Finance income:
Interest receivable on loans
to Group undertakings 17,030 17,026
2016 2015
GBP'000 GBP'000
Finance costs:
Interest payable on other loans 17,167 17,152
Interest payable on loans from Group
Interest payable on other loans 17,167 17,152 undertakings 15 21
17,182 17,173
Net finance costs 152 147
5. LOSS BEFORE INCOME TAX
Analysis of auditor's remuneration is as follows:
2016 2015
GBP'000 GBP'000
Fees payable to the Company's auditor
for the audit of the Company's annual 7 7
accounts
Total fees payable to the Company's
auditor 7 7
6. INCOME TAX
Analysis of tax income
2016 2015
GBP'000 GBP'000
Current tax:
Tax (5) (5)
Deferred tax (32) (42)
Total tax income in statement of
profit or loss (37) (47)
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2016
6. INCOME TAX - continued
Factors affecting the tax expense
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2016 2015
GBP'000 GBP'000
Loss before income tax (160) (154)
Loss multiplied by the standard
rate of corporation tax in the (32) (31)
UK of 20% (2015 - 20.25%)
Effects of:
Changes in legislation (6) (16)
Other 1 -
Tax income (37) (47)
2016 2015
GBP'000 GBP'000
Tax expense comprises:
Current tax expense:
Corporation tax credit for the year (5) (5)
Total current tax charge (5) (5)
Deferred tax:
Deferred tax expenses relating to
the origination and reversal of temporary
differences (26) (26)
Effect of changes in legislation (6) (16)
Total deferred tax charge (32) (42)
Tax on profit before tax (37) (47)
The Finance No2 Act 2015 reduced the rate of corporation tax to
19% effective from 1 April 2017 and to 18% effective from 1 April
2020. The Finance Act 2016, which was substantively enacted on 6
September, 2016 further reduced the rate of corporation tax
effective from 1 April 2020 to 17%. Accordingly deferred tax assets
and liabilities have been calculated at the tax rates which will be
in force when the underlying temporary differences are expected to
reverse.
7. TRADE AND OTHER RECEIVABLES
2016 2015
GBP'000 GBP'000
Current:
Prepayments and accrued income 3,419 3,419
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2016
7. TRADE AND OTHER RECEIVABLES - continued
2016 2015
GBP'000 GBP'000
Non-current:
Amounts due from group undertakings 248,024 247,951
Aggregate amounts 251,443 251,370
The fair value of the trade and other receivables as at 31
December 2016 is estimated to be GBP338 million (2015: GBP311
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. The valuation is based on Level 1 inputs.
Amounts owed to 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. 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.
8. CASH AND CASH EQUIVALENTS
2016 2015
GBP'000 GBP'000
Cash in hand 1,521 1,536
Cash and cash equivalents represent amounts owed by companies
within the Northern Powergrid Group (see related party disclosures
note), which have a maturity date of less than three months and
which are subject to an insignificant risk of changes in value. The
fair value of cash and cash equivalents is equal to their book
value.
9. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid:
Number: Class: Nominal 2016 2015
value: GBP GBP
50,000 Ordinary shares GBP1 50,000 50,000
10. RESERVES
Retained
earnings
GBP'000
At 1 January 2016 (1,192)
Deficit for the year (123)
At 31 December 2016 (1,315)
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEARED 31 DECEMBER 2016
10. RESERVES - continued
Retained
earnings
GBP'000
At 1 January 2015 (1,085)
Deficit for the year (107)
At 31 December 2015 (1,192)
11. BORROWINGS
The directors' consideration of liquidity, interest rate and
foreign currency risk are described in the Strategic Report.
Book Value Fair Value
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Loans 254,151 253,937 337,781 311,022
254,151 253,937 337,781 311,022
The borrowings are repayable as follows:
On demand or within
one year 6,779 6,779 6,779 6,779
Between one and five
years 99,343 99,203 128,427 128,711
After five years 148,029 147,955 202,575 175,532
254,151 253,937 337,781 311,022
Analysis of borrowings:
2020 - 8.875% bonds 101,192 101,052 130,276 130,560
2035 - 5.125% bonds 152,959 152,885 207,505 180,462
254,151 253,937 337,781 311,022
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.
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.
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.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2016
11. BORROWINGS - continued
At 31 December 2016, the Company had no undrawn committed
borrowing facilities.
The following tables detail the remaining contractual maturities
for the non-derivative financial liabilities. The tables have been
drawn up based on the discounted cash flows of financial
liabilities based on the earliest possible date on which the
Company can be required to pay. The tables include both interest
and principal cash flows.
Less than 3 months
3 months to 1 year 1 to 5+ years Total
5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2016:
Fixed interest
rate liability -16,563 157,375 257,625 431,563
- 16,563 157,375 257,625 431,563
2015:
Fixed interest
rate liability -16,563 166,250 265,312 448,125
- 16,563 166,250 265,312 448,125
12. DEFERRED TAX
Total
GBP'000
At 1 January 2016 144
Credit to statement of profit
or loss (32)
At 31 December 2016 112
Total
GBP'000
At 1 January 2015 186
Credit to statement of profit
or loss (42)
At 31 December 2015 144
The balance represents deferred tax on unamortised loan issue
costs.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2016
13. RELATED PARTY DISCLOSURES
Transactions entered into and balances outstanding at the
year-end were as follows:
Interest Interest Amounts
received paid to owed (to/from
from related related related
parties parties parties)
GBP'000 GBP'000 GBP'000
Related Party
2016:
Northern Powergrid
(Northeast) Limited 17,027 - 251,443
Yorkshire Electricity
Group plc 3 15 1,521
17,030 15 252,964
2015:
Northern Powergrid (Northeast)
Limited 17,023 - 251,370
Yorkshire Electricity Group
plc 3 21 1,536
17,026 21 252,906
14. RECONCILIATION OF LOSS BEFORE INCOME TAX TO
CASH USED IN OPERATIONS
2016 2015
GBP'000 GBP'000
Loss before income tax (160) (154)
Finance costs 17,182 17,173
Finance income (17,030) (17,026)
(8) (7)
Increase in trade and other receivables (73) (71)
Cash used in operations (81) (78)
15. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Electric Finance
plc is Northern Powergrid (Northeast) Limited. The ultimate
controlling party and ultimate parent undertaking of Northern
Powergrid (Northeast) 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 Finance plc and the group accounts
of Northern Electric plc, the smallest 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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