TIDMBC39
RNS Number : 5975X
Northern Powergrid (Yorkshire) plc
30 April 2019
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Northern
Powergrid (Yorkshire) 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/nsm.do
The 2018 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Enquiries:
Jenny Riley 01977 605155
Registered number: 04112320 (England and Wales)
Northern Powergrid (Yorkshire) plc
Annual Report and Financial Statements
for the Year Ended 31 December 2018
Northern Powergrid (Yorkshire) plc
Contents
Company Information 1
2 to
Strategic Report 11
12 to
Directors' Report 15
16 to
Independent Auditor's Report 21
Statement of Profit or Loss 22
Statement of Comprehensive Income 23
Statement of Financial Position 24
Statement of Changes in Equity 25
Statement of Cash Flows 26
27 to
Notes to the Financial Statements 64
Northern Powergrid (Yorkshire) plc
Company Information
Directors
T E Fielden
T H France
N M Gill
P A Jones
A J Maclennan
A R Marshall
P C Taylor
Company secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
Registered number
04112320 (England and Wales)
Auditor
Deloitte LLP
Statutory auditor
Statutory Auditor
Newcastle upon Tyne
United Kingdom
Northern Powergrid (Yorkshire) 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
Powergrid (Yorkshire) plc (the "Company"), which have been drawn up
and presented in accordance with the Companies Act 2006.
BUSINESS MODEL
The principal activity of the Company is as an authorised
distributor under the Electricity Act 1989 and holds an electricity
distribution licence granted by the Secretary of State. As a
distribution network operator ("DNO"), the Company distributes
electricity to approximately 2.3 million customers connected to its
electricity distribution network throughout the areas of West
Yorkshire, East Yorkshire, almost all of South Yorkshire, together
with parts of North Yorkshire, Derbyshire, Nottinghamshire,
Lincolnshire and Lancashire. Some 21,101 gigawatt-hours of
electricity were distributed to those customers during the
year.
The Company's distribution network includes over 54,000
kilometres of overhead and underground cables and over 35,000
substations. Electricity is received from National Grid's
transmission system and from generators connected directly to the
network, and then distributed at voltages of up to 132 kilovolts
("kV").
The majority of revenue generated by the Company is controlled
by a distribution price control formula which is set out in the
electricity distribution licence. The price control formula does
not directly constrain profits from year to year, but is a control
on revenue that operates independently of a significant portion of
the Company's costs. Allowed revenue is recovered from electricity
suppliers via the application of Distribution use of System
charges. These charges account for approximately 15% of the
electricity end users overall electricity bill.
In common with Northern Powergrid Holdings Company and its
subsidiaries (the "Northern Powergrid Group"), the Company operates
a business model and strategy based on six core principles (the
"Core Principles"), which are:
Core Principle Strategic objective Key Performance Indicators ("KPI")
Financial strength Strong finances Operating profit
that enable improvement Maintenance of investment grade
and growth. credit ratings
Cash flow measures
------------------------ --------------------------------------
Customer service Delivering exceptional Broad measure of customer satisfaction
customer service. (BMCS)
Stakeholder Engagement rank (SECV)
------------------------ --------------------------------------
Operational excellence High-quality, efficient Customer Minutes Lost
operators running Customer Interruptions
a smart reliable Network investment
energy system. High voltage restoration time
------------------------ --------------------------------------
Employee commitment High-performing Occupational Safety and Health
people doing rewarding Administration Rate
jobs in a safe and Preventable Vehicle Accidents
secure workplace. Lost time accidents
Restricted duty accidents
Medical treatment accidents
Operational incidents
Absence rate
------------------------ --------------------------------------
Environmental Leaders in environmental Total Oil/Fluid Lost
respect respect and low SF6 Gas discharges
carbon technologies. Environmental Incidents
Carbon Footprint
------------------------ --------------------------------------
Regulatory integrity Trustworthy, fair Quarterly certification process
and balanced, creating
win-win outcomes.
------------------------ --------------------------------------
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
The Core Principles (which are applied by the Northern Powergrid
Group's parent company, Berkshire Hathaway Energy Company
("Berkshire Hathaway Energy")), set out the basis on which the
Company generates shareholder value over the longer-term and also
define the Northern Powergrid Group's values and vision. Each core
principle is defined by a number of strategic objectives which
correspond to the Company's 2015 to 2023 regulatory well justified
business plan and are measured through financial and non-financial
KPIs. The report focuses on each core principle and the performance
of each KPI throughout the financial year in order to provide a
summary of the success in achieving each strategic objective.
FINANCIAL STRENGTH
Strategic objective: Strong finances that enable improvement and
growth.
KPI 2018 2017
GBP 188.6 GBP 187.6
Operating profit million million
GBP 246.0 GBP 225.9
Cash from operating activities million million
GBP 180.5 GBP 158.3
Cash used in investing activities million million
Credit Rating (Standard & Poor's) A A
Strategic focus: To provide the financial resources to support
long-term corporate stability.
Performance during the year: The Company continued to maintain
good control in respect of both its capital and operating costs by
effectively managing the financial risks that could have had an
adverse impact on its business. The ED1 price control has been set
for eight years (1 April 2015 to 31 March 2023). The ED1 price
control provides the Company with some stability in terms of its
income until 31 March 2023.
Revenue: The Company's revenue at GBP426.7 million was GBP13.2
million higher than the prior year due to higher distribution use
of system revenues, higher amortisation of deferred revenue and
implementation of assessment and design fees..
Operating profit and position at the year-end: The Company's
operating profit of GBP188.6 million was GBP1.0 million more than
the previous year, primarily reflecting higher revenues offset by
higher depreciation, higher business rates and higher pension
deficit payments. The statement of financial position on page 24
shows that, as at 31 December 2018 the Company had total equity of
GBP1,405.1 million (2017: GBP1,322.7 million). The directors
consider the Company to have a strong financial position which,
when coupled with the preference of its parent company, Berkshire
Hathaway Energy, for operating with lower levels of debt than
equivalent companies in the sector, creates a stable base for
continued strong performance during the ED1 period.
Finance costs and investments: Finance costs net of investment
income at GBP48.8 million were broadly in line with the prior
year.
Taxation: The effective tax rate in the year was 18.7%.
Corporation tax for the year was GBP26.2 million, this was in line
with the prior year. Details of the income tax expense are provided
in Note 11 to the financial statements.
Cash flow: The Company aims to collect from customers and pay
suppliers within contracted terms. Any surplus cash held is
remitted to Yorkshire Electricity Group plc ("YEG"), a company in
the Northern Powergrid Group, and invested accordingly, generating
a market rate of return for the Company. Movements in cash flows
were as follows:
-- Cash flow from operating activities at GBP246.0 million was GBP20.1
million higher than the previous year due to favourable movements
in working capital and lower tax paid.
-- The net cash used in investing activities at GBP180.5 million was
GBP22.2 million higher than the previous year, reflecting higher
purchases of plant, property and equipment and lower customer contributions.
-- The net cash outflow from financing activities at GBP66.7 million
was GBP13.4 million lower than the previous year mainly due to movements
in short-term loans.
Pensions: The Company is a participating employer in the
Northern Powergrid Group of the Electricity Supply Pension Scheme
(the "Scheme"), a defined benefit scheme. Further details of the
Company's commitments to the Scheme and the associated deficit
repair payments are provided in Note 24 to the financial
statements. The Company also participates in the Northern Powergrid
Pension Scheme, which is a defined contribution scheme.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Insurance: As part of its insurance and risk strategy, the
Northern Powergrid Group has in place insurance policies, which
cover risks associated with employees, third party motor and public
liability. The Northern Powergrid Group carries appropriate
excesses on those policies and is effectively self-insured up to
the level of those excesses. Consequently, the risk management
programmes are viewed as extremely important, given the
contribution they make to the elimination or reduction of exposure
to such risks.
CUSTOMER SERVICE
Strategic objective: Delivering exceptional customer
service.
KPI 2018 2017
BMCS 85.8% 85.4%
BMCS Rank (out of 14) 13 12
BMCS Power Cuts 87.1% 87.6%
BMCS General Enquiries 88.4% 87.8%
BMCS Connections 84.1% 83%
SECV rank (out of 6) (combined with Northern Powergrid
(Northeast) Limited) 2 3
Strategic focus: To improve the service delivered to
customers.
Performance during the year: Under the broad measure of customer
satisfaction ("BMCS"), an independent market research company
carried out telephone surveys with the Company's customers to find
out how satisfied they were with services related to unplanned or
planned power cuts, quotations and subsequent connections, and
general enquiries. The Company recorded overall satisfaction scores
that were comparable to the prior year (2018: 85.8% versus 2017:
85.4%). The BMCS rank achieved of 13 declined marginally in
comparison to the prior year (2017: 12). The change was
predominantly attributed to a reduction in the BMCS Power Cuts
scores which accounted for approximately one quarter of the overall
score.
To address the decline in BMCS rank and to further enhance the
service provided to customers, a number of initiatives from the
Company's customer service improvement plan were implemented during
the year. This included the continued development of the customer
relationship management system, enhancement of pro-active customer
communications via text, interactive voice response and social
media, as well as focus on improving self-service offerings to
customers.
The Quality Framework (developed to deliver exceptional customer
service) was further enhanced and an additional communication with
customers was introduced to confirm satisfaction with the service
provided and confirmation that the work in question had been
completed.
Connections to the network
Strategic focus: To further implement customer service
improvements in support of the commitment to reduce routine, small
works end-to-end connections lead times by 30% during the ED1
period, actively facilitate the development of competition from
independent connections providers ("ICPs") and deliver the major
works service improvement plan as part of the Ofgem Incentive on
Connections Engagement ("ICE").
Performance during the year: Reducing end-to-end connections
lead times continues to pose a challenge. The Company has invested
more time at the start of the quotations process (including
offering customers the option of a site visit) to avoid delays
later on, and remains confident it will achieve the 30% reduction
by the end of the ED1 period. Within connections services (the
performance of which is measured by the BMCS connections KPI), work
to improve the level of customer service within the small works
connections business continued. In support of this, the processes
implemented during 2017, which introduced a single point of
customer contact for the delivery of small works connections and
the online service alteration quotation facility, were further
embedded during 2018.
The Company continued to comply with the processes introduced by
the Competition in Connections Code of Practice. This included the
provision of dual quotations, enabling ICPs to self-determine and
approve points of connection to the network and simplifying the
authorisation process for ICPs' operational staff.
In relation to the Company's ICE commitments for the 2017/18
regulatory period, the 26 actions included in the service
improvement plan were successfully delivered.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Corporate responsibility
Strategic focus: To build effective relationships with
stakeholders whilst maximising the value of contact with customers,
especially those who are vulnerable and hard to reach.
Performance during the year: The Company continued to work
closely with key partners such as local authorities, local
enterprise partnerships, Members of Parliament and local resilience
forums, particularly during periods of severe weather.
Collaboration with stakeholders in the wider energy industry
included consultations on the emerging plans for the transition to
Distribution System Operator ("DSO").
In April 2018, the Company (with Northern Powergrid (Northeast)
Limited) put forward its Stakeholder Engagement and Customer
Vulnerability ("SECV") submission to Ofgem in respect of work
undertaken during the previous year. The submission provided an
overview of activities and case studies, which included a series of
roundtable events with key stakeholders to gather feedback on
priorities in areas such as safety, environment, customer service,
reliability and availability to inform the annual strategic
planning process.
Following the submission to Ofgem's panel, the position of
Northern Powergrid in the context of the wider DNO group increased
from third place to second. The improvement demonstrated the
effectiveness of comprehensive, open dialogue with stakeholders on
key issues which formed part of the refreshed engagement strategy
updated in 2018.
Throughout the year a number of tailored education and safety
programmes were also delivered including, 'Look up - It's live', a
campaign to promote safety messages to the rural community; Make
the Grade in Energy, an education, skills and employability
programme, Energy Heroes, targeted at the primary school pupils to
promote awareness of energy costs and ways of saving energy whilst
developing their mathematical skills; and attendance at The Big
Bang Fair, which encourages young people to pursue science,
technology, engineering and maths subjects.
The stakeholder summit was successfully launched during the year
to broaden the range of stakeholders engaging with the Company and
to provide an annual update of the Company's progress in delivering
the well justified business plan.
OPERATIONAL EXCELLENCE
Strategic objective: High-quality, efficient operators running a
smart reliable energy system.
2018 2017
KPI Actual Target Actual Target
Customer minutes lost 36.4 <60.2 38 <61.6
Customer interruptions 48.1 <66.4 48.5 <67.5
2018 2017
Network investment GBP211.7 million GBP213.9 million
High voltage restoration time 54.0 minutes 51.0 minutes
Strategic focus: To enhance the reliability of the network in
support of the commitment to achieve 8% fewer unplanned power cuts
and reduce the average length of unplanned power cuts by 20% during
the ED1 period.
Performance during the year: Customer minutes lost ("CML") and
customer interruptions ("CI") are the KPIs set by Ofgem and used by
the Company to measure the quality of supply and system
performance. Both CML and CI are measured on a regulatory year
basis which commences on 1 April of any given year and concludes on
31 March of the subsequent year. CML measures the average number of
supply minutes lost for every connected customer due to both
planned and unplanned power cuts that last for three minutes or
longer. CI measures the average number of supply interruptions per
every 100 connected customers due to planned and unplanned power
cuts that last for three minutes or longer. Performance during the
year was better than Ofgem's target for both CML and CI.
The Company invested GBP211.7 million during the year through
its approved network investment strategy (2017: GBP213.9 million),
which has been designed to deliver improvements and increase the
network's resilience. Various major projects were undertaken to
reinforce the primary network, refurbish transformers, rebuild
overhead lines, remove and replace oil-filled cables, change
deteriorated poles, replace switchgear and install and commission
new remote control points.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Enhancements to the network also continued through investment in
the use of technology. This included the deployment of over 800
smart fuses to restore supplies in under three minutes to customers
affected by intermittent faults, and the roll out of 100 next
generation innovative low-voltage technology devices to perform
multiple restorations of customers' supplies, again in under three
minutes. In addition, the Company continued to further expand the
automated power restoration system, designed to restore power to
the network in a safe manner in under three minutes. In relation to
high-voltage restoration, the Company's high-voltage restoration
performance during the calendar year 2018 averaged 54 minutes
(2017: 51.0 minutes), after allowing for severe weather incidents
and other exemptions.
EMPLOYEE COMMITMENT
Strategic objective: High-performing people doing rewarding jobs
in a safe and secure workplace.
2018 2017
KPI Actual Target Actual Target
Northern Powergrid Group occupational
safety and health administration
rate 0.26 0.26 0.44 0.26
Preventable vehicle accidents 13 9 17 9
Lost time accidents 2 2 5 2
Restricted duty accidents - 1 1 1
Medical treatment accidents 1 1 - 1
Operational incidents 4 5 6 6
2018 2017
Northern Powergrid Group absence
rate 3.3% 2.9%
Health and safety
Strategic focus: To deliver a comprehensive safety and health
improvement plan ("SHIP") resulting in world class safety
performance and to achieve the Northern Powergrid commitment of
halving its accident rate during the ED1 period.
Performance during the year: In common with the Berkshire
Hathaway Energy group, the Northern Powergrid Group measures its
safety performance in terms of the Occupational Safety and Health
Administration ("OSHA") rate, which is a measure used in the United
States ("US") to capture safety incidents down to minor levels of
medical treatment. The Northern Powergrid Group achieved its OSHA
rate of 0.26 (2017: 0.44) recording a total of six recordable
incidents against a target of six or fewer. The Company failed to
meet the Preventable Vehicle Accidents target but improved on the
prior year's performance. The failure was primarily the result of a
series of relatively minor driving incidents. The Company continues
to take action to seek to improve driving standards.
Improving safety performance remains a priority and the way in
which this is achieved is set out in the Company's SHIP. The SHIP
focuses on leadership engagement, supervisory oversight, and
workplace risk management. These three areas are supported by
driver training, operational safety seminars, stand-down briefings
and regular safety reports and newsflashes.
The health and wellbeing of staff, is a key priority of the
Northern Powergrid Group and forms an integral part of the SHIP.
Existing support includes the availability of an independent
employee assistance service, which is a confidential, self-referral
counselling and information service to assist with personal or
work-related problems and access to services including counselling
and physiotherapy referrals. A number of new initiatives focused
specifically on mental health and wellbeing were launched during
the year. These included the recruitment of mental health first aid
volunteers, providing mental health awareness training and a series
of mental health campaigns in conjunction with the United Kingdom
mental health awareness week.
The Company's OHSAS 18001 health and safety management systems
successfully retained certification.
Employees
Strategic focus: To emphasise the importance of leadership and
high standards of performance by engaging, collaborating and
working with employees and their trade union representatives.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Performance during the year: The Company conducted an externally
facilitated employee survey to benchmark the level of employee
engagement against top performing organisations and to identify
areas for improvement. In response to feedback from the most recent
survey, a number of commitments were made in respect of
communication and to enhance the quality and quantity of time spent
discussing personal objectives and development.
During the year, 82 new recruits (2017: 68) joined the Company
and Northern Powergrid (Northeast) Limited's workforce renewal
programme.
The Company has adopted the Berkshire Hathaway Energy code of
business conduct, which details the commitment to ethics and
compliance with the law, provides reporting mechanisms for known or
suspected ethical or legal violations, and establishes minimum
standards of behaviour expected of all employees. In support of
this, a "speaking up" process is in place enabling all employees to
raise concerns of unethical acts, malpractice or impropriety
(including bribery or corruption), and an anonymous help line
operated by an independent company is also available.
At 31 December 2018, the Company had 1,148 employees (2017:
1,191).
ENVIRONMENTAL RESPECT
Strategic objective: Leaders in environmental respect and low
carbon technologies.
2018 2017
KPI Actual Target Actual Target
Total oil/fluid lost (litres) 20,988 <18,500 18,101 <18,900
SF6 gas discharges (kg) 41.78 <70.00 68.78 <78.00
Environmental incidents 8 <5 8 <5
2018 2017
Carbon footprint (tonnes) 19,421 21,556
Strategic focus: Deliver Environmental "RESPECT"
(Responsibility, Efficiency, Stewardship, Performance, Evaluation,
Communication and Training) and in doing so reduce oil and fluid
loss by 15% and our business carbon footprint by 10% during the ED1
period.
Performance during the year: The Company operates a United
Kingdom Accreditation Service scheme for environmental management
and is certified to the environmental management systems standard
ISO 14001:2015. The ISO 14001 standard is designed to enhance
environmental performance, fulfil compliance obligations and
achieve environmental objectives, all of which contribute to the
achievement of the Company's KPIs. A full recertification
assessment was carried out in March 2017 and surveillance audits
are carried out twice per year, the last one being conducted in
November 2018. Continued certification was confirmed following each
audit.
The Company's carbon footprint reporting framework is certified
under the Certified Emissions Measurement and Reduction Scheme for
compliance with ISO 14064-1:2006. The last full audit was
undertaken in November 2018, where continued certification was
confirmed. Initiatives including the implementation of telematics
in fleet vehicles facilitated a further improvement in reducing the
Company's carbon footprint during the year to 19,421 tonnes (2017:
21,556 tonnes).
In support of the target to further reduce oil and fluid loss,
the 2018 annual environmental improvement plan included replacing
fluid-filled cables and locating cable fluid leaks more quickly
which resulted in a total fluid loss of 20,988 litres (2017:
18,101). The total oil and fluid loss target was missed due to a
number of leaks from underground cables. The Company continues to
take steps and implement innovative solutions to minimise oil and
fluid loss across the network. Additional activity to minimise the
Company's impact on the environment included placing overhead lines
underground in National Parks and Areas of Outstanding Natural
Beauty and protecting wildlife and habitat.
Sustainability
Strategic focus: To help facilitate the United Kingdom's
transition to a low-carbon economy in the Company's capacity as a
major participant in the United Kingdom energy industry and in
terms of its own carbon footprint.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Performance during the year: As the country takes action to make
significant reductions in its carbon emissions, the way in which
electricity is produced and used is expected to have a substantial
impact on the electricity network over time. This has already been
seen through the number of low-carbon technology installations such
as photovoltaic solar panels, electric vehicles and heat pumps. The
volume and total capacity of decentralised energy generation has
also been growing steadily and, given the greater range of load and
generation technologies now connected to the network, the Company
is taking action to develop innovative solutions that will reduce
the need for traditional and potentially expensive reinforcement of
the network.
From an innovation perspective, the Company is running a
portfolio of projects in the priority areas of smart meters,
digital-enabled customer service and affordability.
A partnership with Nissan is supporting new electric vehicle
projects for the trialling of 'vehicle to grid' technology to
enable car users to supply power to the electricity network. In
addition, a new project is developing hybrid battery technology to
expedite the restoration of the electricity supply following a
power cut. Collaboration with Northern Gas Networks at the Integrel
demonstrator site continues to assess the potential future benefits
of integrating both gas and electricity energy systems. The Company
is also scoping the role of DSO with a new project to explore the
value of the transition for customers and to understand the
business changes that are required to realise those benefits.
The Company's climate change adaptation strategy recognises the
impact that climate change is anticipated to have on the business,
the risks this poses and the proposed actions to mitigate these
risks including vegetation management, network specifications for
changing temperatures and improved weather prediction. The
installation of flood defences is one such key activity that is
already underway and the delivery of the committed programme in the
ED1 period remains on track.
REGULATORY INTEGRITY
Strategic objective: Trustworthy, fair and balanced, creating
win-win outcomes.
KPI: Completion of a quarterly regulatory compliance affirmation
process.
Strategic focus: To manage the Company's business to the highest
behavioural standards and adhere to a policy of strict compliance
with all relevant standards, legislation and regulatory
conditions.
Performance during the year: Under the RIIO (revenue =
incentives + innovation + outputs) model for regulation, price
controls are set for a fixed period. The ED1 price control became
effective on 1 April 2015 and is due to end on 31 March 2023. The
Company's opening base allowed revenue (excluding the effects of
incentive schemes and any deferred revenues from the prior price
control) has been set to remain constant for each year from 2016/17
through to 31 March 2023. Nominal opening base allowed revenues
will increase in line with inflation (as measured by the United
Kingdom's Retail Prices Index).
In order to assure compliance with licence and other regulatory
obligations, the Company operates a regulatory compliance
affirmation process, under which ownership of approximately 2,000
regulatory obligations are assigned to around 80 responsible
managers. Those responsible managers are required to review
compliance with the relevant obligations on a quarterly basis and
report on any identified non-compliances or perceived risks which
are then addressed by members of the executive team. To minimise
the risk of the Company breaching its licence conditions and other
statutory requirements (which could lead to financial penalties),
the board of directors review the outcome of each quarter's
exercise.
The Company submitted a risk-based data-assurance plan to Ofgem
for the regulatory year ahead, together with a report detailing the
assurance work actually carried out in the regulatory year just
ended and the findings of that work.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
PRINCIPAL RISKS AND UNCERTAINTIES
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk as part of its
overall risk management policy and in support of its financial
reporting practices. A robust system is in place to facilitate the
identification of new risks, including those associated with the
achievement of the Northern Powergrid Group's strategic objectives
and Core Principles. Once identified, key risks and their
respective controls and mitigation plans are continually assessed
and formally reviewed by the Governance and Risk Management Group
("GRMG"), which reports to the Audit Committee.
Supported by the internal audit function, the risk management
programme includes regular reviews of the crisis management,
disaster recovery and major incident plans. To determine the level
of disaster preparedness and responsiveness against threats to
business continuity, risk management plans and processes are
periodically tested. This self-evaluation approach is reinforced by
that of the Berkshire Hathaway Energy group, which benchmarks risk
management activities across its business units and shares
significant lessons learned.
Principal Risks
Cyber Security
Unauthorised access or compromise of the Information Technology
or Operational Technology networks, resulting in loss of network
control and availability.
Mitigation
-- Robust cyber security risk mitigation programme is in place.
-- Accreditation under the ISO 27001 Information Security (process
security) standard for certain discrete business areas.
-- Compliance with the Centre for Internet Security Critical Security
Controls.
-- Monitored by the Information Security Executive Committee and the
board.
Regulatory and policy positioning
Decisions taken resulting in negative impacts to our business
model.
Mitigation
-- Northern Powergrid's policy position supporting the expanded role
of DSO is being set out.
-- Innovation projects in place to develop and demonstrate future technologies
and commercial practices.
-- The Company engages in a robust regulatory and stakeholder engagement
programme.
-- The Company is actively involved in consultations on the RIIO-2
price controls.
Network resilience
Loss of the operational network due to significant weather
events, targeted physical attack or catastrophic asset failure
resulting in sustained or widespread loss of essential supply.
Mitigation
-- Major incident and crisis management policies, plans and governance
arrangements are in place.
-- An industry mutual aid agreement exists.
-- Network investment ensures grid resilience.
-- Grid resilience programme and audits.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Safety
Fatality or serious harm caused to an employee or a third
party.
Mitigation
-- Overseen by the Health and Safety Committee.
-- Clear policies and procedures exist that comply with legislation
to ensure the safety of the employees and customers.
-- Health and safety training is provided to employees on a continuous
basis.
-- Audit programme and inspection regimes are in place.
-- ISO18001 safety management system in place.
Environment
Failure to prevent network assets from having a significant
negative impact on the environment.
Mitigation
-- Incident response process and robust policies and procedures in
place.
-- Programme to reduce fluid loss and the Company's business carbon
footprint.
-- Investment in technology to minimise environmental incidents and
'self-heal' the network.
-- Asset inspection programme.
-- ISO14001 environmental management system in place.
Information security
Unauthorised access or loss of large volumes of data or
sensitive data.
Mitigation
-- Robust cyber security risk mitigation programme is in place.
-- Accreditation under the ISO 27001 Information Security (process
security) standard for certain discrete business areas.
-- Compliance with the Centre for Internet Security Critical Security
Controls.
-- Monitored by the Information Security Executive Committee and the
board.
Efficiency and output performance
Failure to maintain cost and output performance competiveness in
the industry.
Mitigation
-- Robust business planning process.
-- Financial controls in place including detailed review of actuals
against budget, competitive tendering process, and capital expenditure
approvals process.
-- Monthly executive business performance review.
-- Comprehensive "Efficient Output Delivery" programme.
Financial risks
The exposure to interest rate, tax, liquidity and treasury
risks.
Mitigation
-- Monitored by the Treasury Committee quarterly.
-- 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 long-term borrowings
were at fixed rates and the average maturity for these borrowings
was 11 years.
-- Financial covenant monitoring is in place.
Northern Powergrid (Yorkshire) plc
Strategic Report for the Year Ended 31 December 2018
(continued)
Resource availability
Access to and availability of skilled resource resulting in an
inability to deliver work programmes during the ED1 period.
Mitigation
-- Mix of direct labour and contracted resource is used.
-- Workforce renewal programmes in place to recruit and retain employees.
-- On-going training and development builds internal capability.
-- Employee engagement and health and well-being initiatives are in
place.
Brexit
The Brexit negotiations are not considered a principal risk to
the Company.
Internal control
A rigorous internal control environment exists within the
Company to support the financial reporting process, the key
features of which include regular reporting, a series of
operational and financial policies, investigations undertaken by
internal audit and a stringent process for ensuring the
implementation of internal audit recommendations. In addition, the
Company utilises comprehensive business planning procedures,
regularly reviews KPIs to assess progress towards its goals, and
has a strong internal audit function to provide independent
scrutiny. Financial controls include a centralised treasury
operations and established procedures for the planning, approving
and monitoring of major capital expenditure.
In accordance with Berkshire Hathaway Energy's requirements to
comply with the US Sarbanes-Oxley Act, the Company undertakes a
quarterly risk control assessment confirming that the effectiveness
of the system of internal controls have been reviewed during the
year. A self-certification process is in place, in support of this
review, whereby certain senior managers are required to confirm
that the system of internal control in their area of the business
is operating effectively. Consequently, the directors believe that
a robust system of risk assessment and management is in place.
The Northern Powergrid Group does not have a specific human
rights policy. However, in accordance with the Core Principles, it
remains fully committed to operating ethically and responsibly and
with fairness and integrity. This is implemented through the
policies and procedures it has in place which are applicable to all
stakeholder groups and encompasses employees' health, safety and
welfare, dealings with customers, particularly those who are
vulnerable, the impact of the Northern Powergrid Group on the
environment and the contribution to sustainability.
The Northern Powergrid Group is committed to maintaining the
highest ethical standards in the conduct of its business and,
implements Berkshire Hathaway Energy's code of business conduct,
details of which can be found on page 7. The Northern Powergrid
Group has robust procedures in place to meet the requirements of
the Bribery Act 2010. Every employee must undertake the code of
business conduct training each year, which includes training in
respect of the Northern Powergrid Group's anti-corruption and
anti-bribery policy.
Approved by the Board on 20 March 2019 and signed on its behalf
by:
P A Jones
Director
Northern Powergrid (Yorkshire) 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, an interim dividend of GBP31.2 million was paid
(2017: GBP29.8 million). 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, were as
follows:
T E Fielden
J M France (Resigned 5 April 2018)
T H France
N M Gill
P A Jones
A J Maclennan
A R Marshall
P C Taylor
During the year, none of the directors had an interest in any
contract which was material 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 developments
The financial position of the Company, as at 31 December 2018,
is shown in the statement of financial position on page 24. There
have been no significant events since the year end. The directors
intend that the Company will continue to implement its
well-justified business plan during the remainder of the ED1 price
control and by delivering the strategic objectives linked to the
Core Principles, the Company will continue to develop its business
by efficiently investing in the network and improving the quality
of supply and service provided to customers. There are no plans to
change the existing business model.
Future development
The financial position of the Company, as at 31 December 2018,
is shown in the consolidated statement of financial position on
pages 24. There have been no significant events since the year end
and the directors intend that the Company will continue to
implement its well justified business plan during the remainder of
the ED1 price control and by delivering the strategic objectives
linked to the Core Principles, the Company will continue to develop
its business by efficiently investing in the network and improving
the quality of supply and service provided to customers. There are
no plans to change the existing business model.
Research and development
The Company supports a programme of research that is expected to
contribute to higher standards of performance and a more
cost-effective operation of its business. The new projects
initiated during the year have been detailed in the
'sustainability' section on page 7.
During the year, the Company invested GBP3.0 million (2017:
GBP1.5 million) (Note 6 to the financial statements) in its
research and development activities.
Northern Powergrid (Yorkshire) plc
Directors' Report for the Year Ended 31 December 2018
(continued)
Financial instruments
Details of financial risks are included in the Principal Risks
and Uncertainties on page 10 of the Strategic Report and note to
the financial statements on page 28.
As at 31 December 2018 and during the Year it was the Company's
policy not to hold any derivative financial instruments.
Employment of disabled persons
The Company is committed to equality at work and, as such, its
policy is to provide all protected groups, including disabled
people, with equality at work in respect of employment, training,
career development and promotion, having regard to their aptitudes
and abilities. Should any member of staff become disabled during
their employment, the Company will make reasonable adjustments,
wherever possible.
In accordance with Section 414c of the Companies Act 2006
disclosures concerning relations with employees and greenhouse gas
emissions can be found on pages 7 and 8 of the Strategic
Report.
Employee involvement
A constitutional framework agreed with trade union
representatives exists in respect of employee consultation. The
management team keep employees and trade union representatives
informed of and involved as appropriate in developments that may
impact them now or in the future.
Employee engagement continues to show improvement with local
action plans augmented by routine communication channels including
regular staff briefings, meetings with staff and their
representatives, and utilising the Northern Powergrid Group's
intranet.
During the year, the President and Chief Executive Officer of
the Northern Powergrid Group continued to provide employees with
updates on the Northern Powergrid Group's financial,
organisational, safety and customer service performance through
regular electronic briefings.
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:
-- T E Fielden - Finance Director
-- M Knowles - Independent member (appointed on 17 July 2018)
-- J Reynolds - Non-executive Director (Chairman)
Non-financial information statement
The non-financial reporting information pursuant to Section
414CB of the Companies Act 2006 has been reported throughout the
Strategic Report and principle risks and uncertainties. Detail in
respect of the relevant policies, risks and associated mitigations
and non-financial KPIs can be found on the pages referenced
below:
-- Environmental: pages 7 and 8
-- Employee: pages 6 and 7
-- Respect for human rights: page 7
-- Anti-corruption and anti-bribery matters: page 7
-- Business model: page 2
Northern Powergrid (Yorkshire) plc
Directors' Report for the Year Ended 31 December 2018
(continued)
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:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
-- provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity's financial position and financial performance; and
-- make an assessment of the 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 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.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Going Concern
A review of the Company's business activities during the year,
together with details regarding its future development, performance
and position, its objectives, policies and processes for managing
its capital, its financial risk management objectives and details
of its exposures to trading risk, credit risk and liquidity risk
are set out in the Strategic Report, the Report of the Directors
and the appropriate notes to the financial statements.
When considering continuing to adopt the going concern basis in
preparing the annual reports and financial statements, the
directors have taken into account a number of factors, including
the following:
-- The Company is a stable electricity distribution business operating
an essential public service and is regulated by GEMA. In carrying
out its functions, GEMA has a statutory duty under the Electricity
Act 1989 to have regard to the need to secure that licence holders
are able to finance the activities, which are the subject of obligations
under Part 1 of the Electricity Act 1989 (including the obligations
imposed by the electricity distribution licence) or by the Utilities
Act 2000;
-- The Company is profitable with strong underlying cash flows and
holds investment grade credit ratings;
-- The Company is financed by long-term borrowings with an average
maturity of 11 years and has access to borrowing facilities provided
by Lloyds Bank plc, Royal Bank of Scotland plc and Abbey National
Treasury Services plc;
-- The Northern Powergrid Group plans to issue long-term borrowings
within the next 12 months and early indications from our relationship
banks suggest there is an active market with appetite to invest;
and
-- The Company has prepared forecasts which taking into account reasonable
possible changes in trading performance, show that the Company has
sufficient resources to settle its liabilities as they fall due.
The directors have had discussions with the bank who have indicated
that they would continue to provide the short term facilities to
the group for the foreseeable future on acceptable terms.
Northern Powergrid (Yorkshire) plc
Directors' Report for the Year Ended 31 December 2018
(continued)
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
12 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 profit 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.
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 20 March 2019 and signed on its behalf
by:
P A Jones
Director
Northern Powergrid (Yorkshire) plc
Independent Auditor's Report to the Members of Northern
Powergrid (Yorkshire) 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 profit for the year then ended;
-- have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union; and
-- have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of Northern Powergrid
(Yorkshire) 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 30.
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.
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 accounting for capital spend - overhead allocation
model.
-- Materiality - The materiality that we used in the current year was
GBP7.2m which was determined on the basis of 5% of profit before
tax.
-- 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.
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 to you
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 Powergrid (Yorkshire) plc
Independent Auditor's Report to the Members of Northern
Powergrid (Yorkshire) 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.
Overhead allocation
Key audit matter description
Total additions to property, plant and equipment in the year in
Northern Powergrid (Yorkshire) plc were GBP214m (2017: GBP217m)
with the majority of the additions to the company's electricity
distribution system, as disclosed in note 12 to the financial
statements. These additions include capitalised overheads. A
portion of overheads are capitalised to the extent that they are
considered to relate to capital additions that have taken place
during the year.
The calculation of capitalised overheads remains an area at risk
of potential bias due to the level of subjectivity in the
percentage of overheads capitalised, which also creates a potential
fraud risk. In particular, the key risk is that management's
judgement in the percentage amounts capitalised are not reflective
of the capital spend, as disclosed in notes 2 and 3, including the
note relating to critical judgements in applying accounting
policies.
How the scope of the audit responded to the key audit matter
-- We have evaluated the design and implementation of controls surrounding
accounting for capital spend.
-- We have analysed the capital spend and the overhead allocation percentages
in the year and compared these to prior year to identify any unusual
fluctuations. We have also analysed current policies in place and
assessed their suitability in line with IAS 16, along with reviewing
the approach management takes towards assessing capitalised overheads
and any changes introduced in the current year.
-- We have obtained relevant industry benchmarks for the proportions
for capitalisation, using these benchmarks to challenge management
as to the appropriateness of their judgement.
-- We have performed testing of the total overheads included within
the allocation model which are subsequently capitalised based on
management's assessment of percentage allocation.
Key observations
No material differences were identified based upon the
procedures above. We have therefore concluded management's overhead
capitalisation judgement is reasonable, with policies applied being
appropriate and consistent with prior year and IFRS
requirements.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
-- Materiality: GBP7.2m (2017: GBP7.2m).
-- Basis for determining materiality: 5% (2017: 5%) of profit before
tax during the current year.
-- Rationale for the benchmark applied: As a trading entity, profit
is a key driver of the value of the company.
Northern Powergrid (Yorkshire) plc
Independent Auditor's Report to the Members of Northern
Powergrid (Yorkshire) plc (continued)
We agreed with the Board of Directors that we would report to
the Board all audit differences in excess of GBP0.4m (2017:
GBP0.1m), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. The change in
reporting threshold has been made following our reassessment of
what matters require communicating. 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 respect of these matters.
Responsibilities of directors
As explained more fully in the Statement of Directors'
Responsibilities (set out on page 14), 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 Powergrid (Yorkshire) plc
Independent Auditor's Report to the Members of Northern
Powergrid (Yorkshire) 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 the
risk of potential bias due to the level of subjectivity in determining
the percentage of overheads capitalised to property, plant and equipment;
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. In addition, compliance with Ofgem regulations
were fundamental to the company's ability to continue as a going
concern.
Northern Powergrid (Yorkshire) plc
Independent Auditor's Report to the Members of Northern
Powergrid (Yorkshire) plc (continued)
Audit response to risks identified
As a result of performing the above, we identified accounting
for capital spend - overhead allocation model as a key audit
matter. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures
we performed in response to that key audit matters.
Our additional 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
Ofgem; 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.
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
Adequacy of explanations received and accounting records
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:
-- we have not received all the information and explanations we require
for our audit; or
-- adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited by
us; or
-- the financial statements are not in agreement with the accounting
records and returns.
Directors' remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors' remuneration have
not been made and we have nothing to report in respect of this
matter.
Northern Powergrid (Yorkshire) plc
Independent Auditor's Report to the Members of Northern
Powergrid (Yorkshire) plc (continued)
Other matters
Audit tenure
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 2019
Northern Powergrid (Yorkshire) plc
Statement of Profit or Loss for the Year Ended 31 December
2018
2018 2017
Note GBP 000 GBP 000
Revenue 4 426,669 413,477
Cost of sales (18,540) (16,709)
--------- ---------
Gross profit 408,129 396,768
Distribution costs (151,274) (147,225)
Administrative expenses (68,301) (61,954)
--------- ---------
Operating profit 6 188,554 187,589
Other gains 5 62 388
Finance costs 7 (50,034) (48,853)
Finance income 7 1,230 621
--------- ---------
Profit before tax 139,812 139,745
Income tax expense 11 (26,189) (26,137)
--------- ---------
Profit for the year 113,623 113,608
========= =========
Northern Powergrid (Yorkshire) plc
Statement of Comprehensive Income for the Year Ended 31 December
2018
2018 2017
GBP 000 GBP 000
Profit for the year 113,623 113,608
-------- --------
Total comprehensive income for the year 113,623 113,608
======== ========
Northern Powergrid (Yorkshire) plc
(Registration number: 04112320)
Statement of Financial Position as at 31 December 2018
31 December 31 December
2018 2017
Note GBP 000 GBP 000
Assets
Non-current assets
Property, plant and equipment 12 3,278,080 3,170,616
Intangible assets 13 16 -
----------- -----------
3,278,096 3,170,616
----------- -----------
Current assets
Inventories 14 943 776
Trade and other receivables 15 67,974 72,864
Cash and cash equivalents 16 185,516 186,727
----------- -----------
254,433 260,367
----------- -----------
Total assets 3,532,529 3,430,983
=========== ===========
Equity and liabilities
Equity
Share capital 17 (290,000) (290,000)
Retained earnings (1,115,127) (1,032,704)
----------- -----------
Total equity (1,405,127) (1,322,704)
----------- -----------
Non-current liabilities
Loans and borrowings 19 (1,024,109) (1,023,449)
Provisions 21 (675) (1,129)
Deferred revenue 23 (789,678) (780,039)
Deferred tax liabilities 11 (127,174) (127,963)
----------- -----------
(1,941,636) (1,932,580)
----------- -----------
Current liabilities
Trade and other payables 22 (90,121) (96,252)
Loans and borrowings 19 (48,339) (33,346)
Income tax liability (17,120) (17,285)
Deferred revenue 23 (29,177) (27,941)
Provisions 21 (1,009) (875)
----------- -----------
(185,766) (175,699)
----------- -----------
Total liabilities (2,127,402) (2,108,279)
----------- -----------
Total equity and liabilities (3,532,529) (3,430,983)
=========== ===========
Approved by the Board of Directors on 20 March 2019 and signed
on its behalf by:
P A Jones
Director
Northern Powergrid (Yorkshire) plc
Statement of Changes in Equity for the Year Ended 31 December
2018
Share capital Retained earnings Total
Note GBP 000 GBP 000 GBP 000
At 1 January 2018 290,000 1,032,704 1,322,704
Profit for the year - 113,623 113,623
------------- ----------------- ---------
Total comprehensive income - 113,623 113,623
Dividends 25 - (31,200) (31,200)
------------- ----------------- ---------
At 31 December 2018 290,000 1,115,127 1,405,127
============= ================= =========
Share capital Retained earnings Total
GBP 000 GBP 000 GBP 000
At 1 January 2017 290,000 948,896 1,238,896
Profit for the year - 113,608 113,608
------------- ----------------- ---------
Total comprehensive income - 113,608 113,608
Dividends 25 - (29,800) (29,800)
------------- ----------------- ---------
At 31 December 2017 290,000 1,032,704 1,322,704
============= ================= =========
Northern Powergrid (Yorkshire) plc
Statement of Cash Flows for the Year Ended 31 December 2018
2018 2017
Note GBP 000 GBP 000
Cash flows from operating activities
Profit for the year 113,623 113,608
Adjustments to cash flows from non-cash items
Depreciation and amortisation 6 106,563 101,252
Amortisation of Deferred Revenue (28,244) (26,623)
Profit on disposal of property plant and
equipment 5 (62) (388)
Finance income 7 (1,230) (621)
Finance costs 7 50,034 48,853
Income tax expense 11 26,189 26,137
--------- ---------
266,873 262,218
Increase in inventories 14 (167) (511)
Decrease/(increase) in trade and other receivables 15 4,616 (4,524)
Increase/(decrease) in trade and other payables 22 2,141 (2,472)
Decrease in provisions 21 (320) (199)
--------- ---------
Cash generated from operations 273,143 254,512
Income taxes paid 11 (27,143) (28,649)
--------- ---------
Net cash flow from operating activities 246,000 225,863
--------- ---------
Cash flows used in investing activities
Acquisitions of property plant and equipment (217,867) (214,733)
Proceeds from sale of property plant and
equipment 62 388
Acquisition of intangible assets 13 (23) -
Receipt of Customer Contributions 36,051 55,416
Interest received 7 1,158 567
Dividend income 7 72 54
--------- ---------
Net cash flows used in investing activities (180,547) (158,308)
--------- ---------
Cash flows used in financing activities
Interest paid 7 (50,464) (50,326)
Proceeds from short term borrowings 15,000 -
Dividends paid 25 (31,200) (29,800)
--------- ---------
Net cash flows used in financing activities (66,664) (80,126)
--------- ---------
Net decrease in cash and cash equivalents (1,211) (12,571)
Cash and cash equivalents at 1 January 186,727 199,298
--------- ---------
Cash and cash equivalents at 31 December 185,516 186,727
========= =========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018
1 General information
The Company is a private 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
A review of the Company's business activities during the year,
together with details regarding its future development, performance
and position, its objectives, policies and processes for managing
its capital, its financial risk management objectives and details
of its exposures to trading risk, credit risk and liquidity risk
are set out in the Strategic Report, the Report of the Directors
and the appropriate notes to the financial statements.
When considering continuing to adopt the going concern basis in
preparing the annual reports and financial statements, the
directors have taken into account a number of factors, including
the following:
-- The Company is a stable electricity distribution business operating
an essential public service and is regulated by GEMA. In carrying
out its functions, GEMA has a statutory duty under the Electricity
Act 1989 to have regard to the need to secure that licence holders
are able to finance the activities, which are the subject of obligations
under Part 1 of the Electricity Act 1989 (including the obligations
imposed by the electricity distribution licence) or by the Utilities
Act 2000;
-- The Company is profitable with strong underlying cash flows and
holds investment grade credit ratings;
-- The Company is financed by long-term borrowings with an average
maturity of 11 years and has access to borrowing facilities provided
by Lloyds Bank plc, Royal Bank of Scotland plc and Abbey National
Treasury Services plc;
-- The Northern Powergrid Group plans to issue long-term borrowings
within the next 12 months and early indications from our relationship
banks suggest there is an active market with appetite to invest;
and
-- The Company has prepared forecasts which taking into account reasonable
possible changes in trading performance, show that the Company has
sufficient resources to settle its liabilities as they fall due.
The directors have had discussions with the bank who have indicated
that they would continue to provide the short term facilities to
the group for the foreseeable future on acceptable terms.
Northern Powergrid (Yorkshire) 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
In the current year, the Company has applied IFRS 9 Financial
Instruments (as revised in July 2014) and the related consequential
amendments to other IFRSs in advance of their effective dates. IFRS
9 introduces new requirements for 1) the classification and
measurement of financial assets and financial liabilities, 2)
impairment for financial assets and 3) general hedge accounting.
Details of these new requirements as well as their impact on the
Company's financial statements are described below.
The Company has applied IFRS 9 in accordance with the transition
provisions set out in IFRS 9.
(a) Classifications and measurement of financial assets
The date of initial application (i.e. the date on which the
Company has assessed its existing financial assets and financial
liabilities in terms of the requirements of IFRS 9) is 1 January
2018. Accordingly, the Company has applied the requirements of IFRS
9 to instruments that have not been derecognised as at 1 January
2018 and has not applied the requirements to instruments that have
already been derecognised as at 1 January 2018. Comparative amounts
in relation to instruments that have not been derecognised as at 1
January 2018 have been restated where appropriate.
All recognised financial assets that are within the scope of
IFRS 9 are required to be subsequently measured at amortised cost
or fair value on the basis of the entity's business model for
managing the financial assets and the contractual cash flow
characteristics of the financial assets, specifically:
-- debt investments that are held within a business model whose objective
is to collect the contractual cash flows, and that have contractual
cash flows that are solely payments of principal and interest on
the principal amount outstanding, are subsequently measured at amortised
cost;
-- debt investments that are held within a business model whose objective
is both to collect the contractual cash flows and to sell the debt
instruments, and that have contractual cash flows that are solely
payments of principal and interest on the principal amount outstanding,
are subsequently measured at fair value through other comprehensive
income (FVTOCI); and
-- all other debt investments and equity investments are subsequently
measured at fair value through profit or loss (FVTPL).
Despite the aforegoing, the Company may make the following
irrevocable election / designation at initial recognition of a
financial asset:
-- the Company may irrevocably elect to present subsequent changes
in fair value of an equity investment that is neither held for trading
nor contingent consideration recognised by an acquirer in a business
combination to which IFRS 3 applies in other comprehensive income;
and
-- the Company may irrevocably designate a debt investment that meets
the amortised cost or FVTOCI criteria as measured at FVTPL if doing
so eliminates or significantly reduces an accounting mismatch.
In the current year, the Company has not designated any debt
investments that meet the amortised cost or FVTOCI criteria as
measured at FVTPL.
When a debt investment measured at FVTOCI is derecognised, the
cumulative gain or loss previously recognised in other
comprehensive income is reclassified from equity to profit or loss
as a reclassification adjustment. In contrast, for an equity
investment designated as measured at FVTOCI, the cumulative gain or
loss previously recognised in other comprehensive income is not
subsequently reclassified to profit or loss.
Debt instruments that are subsequently measured at amortised
cost or at FVTOCI are subject to impairment. See (b) below.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
The directors of the Company reviewed and assessed the Company's
existing financial assets as at 1 January 2018 based on the facts
and circumstances that existed at that date and concluded that the
initial application of IFRS 9 has had the following impact on the
Company's financial assets as regards their classification and
measurement:
-- financial assets classified as held-to-maturity and loans and receivables
under IAS 39 that were measured at amortised cost continue to be
measured at amortised cost under IFRS 9 as they are held within
a business model to collect contractual cash flows and these cash
flows consist solely of payments of principal and interest on the
principal amount outstanding; and
Note (e) below tabulates the change in classification of the
Company's financial assets upon application of IFRS 9. None of the
reclassifications of financial assets have had any impact on the
Company's financial position, profit or loss, other comprehensive
income or total comprehensive income for both years.
(b) Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9
requires an expected credit loss model as opposed to an incurred
credit loss model under IAS 39. The expected credit loss model
requires the Company to account for expected credit losses and
changes in those expected credit losses at each reporting date to
reflect changes in credit risk since initial recognition of the
financial assets. In other words, it is no longer necessary for a
credit event to have occurred before credit losses are
recognised.
Specifically, IFRS 9 requires the Company to recognise a loss
allowance for expected credit losses on i) debt investments
subsequently measured at amortised cost or at FVTOCI, ii) lease
receivables, iii) contract assets and iv) loan commitments and
financial guarantee contracts to which the impairment requirements
of IFRS 9 apply. In particular, IFRS 9 requires the Company to
measure the loss allowance for a financial instrument at an amount
equal to the lifetime ECL if the credit risk on that financial
instrument has increased significantly since initial recognition,
or if the financial instrument is a purchased or originated
credit-impaired financial asset. On the other hand, if the credit
risk on a financial instrument has not increased significantly
since initial recognition (except for a purchased or originated
credit-impaired financial asset), the Company is required to
measure the loss allowance for that financial instrument at an
amount equal to 12m ECL. IFRS 9 also provides a simplified approach
for measuring the loss allowance at an amount equal to lifetime ECL
for trade receivables, contract assets and lease receivables in
certain circumstances.
As at 1 January 2018, the directors of the Company reviewed and
assessed the Company's existing financial assets, amounts due from
customers and financial guarantee contracts for impairment using
reasonable and supportable information that is available without
undue cost or effort in accordance with the requirements of IFRS 9
to determine the credit risk of the respective items at the date
they were initially recognised, and compared that to the credit
risk as at 1 January 2018 and 1 January 2017. The result of the
assessment is as follows:
-- Trade and other receivables: The Company applies the simplified
approach and recognises lifetime ECL for these assets.
-- Cash and bank balances: All bank balances are assessed to have low
credit risk at each reporting date as they are held with reputable
international banking institutions.
-- Intercompany loan: the intercompany loan repayable on demand, expected
credit losses are based on the assumption that repayment of the
loan is demanded at the reporting date and the counterparty has
sufficient accessible highly liquid assets in order to repay the
loan if demanded at the reporting date, the expected credit loss
is likely to be immaterial.
(c) Classification and measurement of financial liabilities
One major change introduced by IFRS 9 in the classification and
measurement of financial liabilities relates to the accounting for
changes in the fair value of a financial liability designated as at
FVTPL attributable to changes in the credit risk of the issuer.
The application of the IFRS 9 impairment requirements has not
resulted in additional loss allowance to be recognised in the
current year (2017: GBPnil).
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Specifically, IFRS 9 requires that the changes in the fair value
of the financial liability that is attributable to changes in the
credit risk of that liability be presented in other comprehensive
income, unless the recognition of the effects of changes in the
liability's credit risk in other comprehensive income would create
or enlarge an accounting mismatch in profit or loss. Changes in
fair value attributable to a financial liability's credit risk are
not subsequently reclassified to profit or loss, but are instead
transferred to retained earnings when the financial liability is
derecognised. Previously, under IAS 39, the entire amount of the
change in the fair value of the financial liability designated as
at FVTPL was presented in profit or loss.
This change in accounting policy has not affected the
Company.
Profit and other comprehensive income reported for 2018 and 2017
have not been affected as the Company did not have any financial
liabilities designated as at FVTPL in the prior year.
(d) General hedge accounting
The new general hedge accounting requirements retain the three
types of hedge accounting. However, greater flexibility has been
introduced to the types of transactions eligible for hedge
accounting, specifically broadening the types of instruments that
qualify for hedging instruments and the types of risk components of
non-financial items that are eligible for hedge accounting. In
addition, the effectiveness test has been overhauled and replaced
with the principle of an 'economic relationship'. Retrospective
assessment of hedge effectiveness is also no longer required.
Enhanced disclosure requirements about the Company's risk
management activities have also been introduced. The Company does
not have any hedged instruments.
(e) Disclosures in relation to the initial application of IFRS
9
The below illustrates the classification and measurement of
financial assets and financial liabilities under IFRS 9 and IAS 39
at the date of initial application, 1 January 2018.
-- Trade receivables (note 15) - basic loans and receivables where
the objective of the entity's business model for realising these
assets is collecting contractual cash flows are recognised at amortised
cost under both IFRS 9 and as loans and receivables under IAS 39,
there was no change in carrying value;
-- Cash and bank balances - these were classified as financial assets
at amortised cost under IFRS 9 and loans and receivables under IAS
39, there has been no change in carrying value.
-- Investments in equity instruments (note ) - Investments in equity
instruments are designated as at FVTPL under IFRS 9 and IAS 39,
there has been no change in carrying value.
-- Intercompany treasury account - the objective of the entity's business
model for realising these assets is collecting contractual cash
flows, as such they are recognised at amortised cost under IFRS
9 and as loans and receivables under IAS 39, there has been no change
in carrying value; and
-- Trade and other payables (note 22) - were recognised as financial
liabilities at amortised cost under both IFRS 9 and IAS 39, there
has been no change in carrying value.
-- Borrowings (note 19) - were recognised as financial liabilities
at amortised cost under both IFRS 9 and IAS 39, there has been no
change in carrying value.
There were no financial assets or financial liabilities which
the Company had previously designated as at FVTPL under IAS 39 that
were subject to reclassification, or which the Company has elected
to reclassify upon the application of IFRS 9. There were no
financial assets or financial liabilities which the Company has
elected to designate as at FVTPL at the date of initial application
of IFRS 9.
(f) Financial impact of initial application of IFRS 9
There has been no adjustment to financial statement line items
because of the application of IFRS 9 for the current and prior
years.
Amendments to IFRS 7
The consequential amendments to IFRS 7 have had no impact to the
comparatives and therefore no restatement is required, they have
resulted in more extensive disclosures in relation to the Group's
exposure to credit risk in the financial risk review note 28.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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 non-cancellable operating lease commitments of GBP24.5
million, IAS 17 does not require recognition of any right-of-use
asset or liability for future payments for these leases. A
preliminary assessment indicates that these arrangements will meet
the definition of a lease under IFRS 16, and hence the Company will
recognise a right-of-use asset and corresponding liability in
respect of all these leases unless they qualify for low-value or
short-term leases upon the application of IFRS 16.
None of the other standards, interpretations and amendments that
are listed below, which are effective for periods beginning after 1
January 2019 and which have not been adopted early, are expected to
have a material effect on the financial statements:
Effective for periods beginning or after 1 January 2019
-- Amendments to IAS 28 - Long-term interests in associates and joint
ventures;
-- Amendments to IAS 19 - Plan amendment, curtailment or settlement;
-- Annual improvements to IFRS 2015-2017 cycle
Effective for periods beginning or after 1 January 2020
-- Amendments to IFRS 3 - Definition of a business;
-- Amendments to IAS 1 and IAS 8 - Definition of material; and
-- Amendments to References to the Conceptual Framework in IFRS Standards.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Revenue recognition
Recognition
The company earns revenue from the provision of services
relating to Revenue from a contract to provide services is
recognised by the following means:
- Distribution use of system income is recognised on a per GWh
basis;
- Customer contributions for connections are amortised over the
life of the corresponding asset;
- Meter asset provision are recognised over time;
- Intercompany recharges for services provided are based on
costs incurred; and
- Other revenue includes assessment and design fees and
disconnections from the network, these are recognised by reference
to the proportion of total costs of providing the service.
This revenue is recognised in the accounting period when the
services are rendered at an amount that reflects the consideration
to which the entity expects to be entitled in exchange for
fulfilling its performance obligations to customers.
The principles in IFRS are applied to revenue recognition
criteria using the following 5 step model:
1. Identify the contracts with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
in the contract
5. Recognise revenue when or as the entity satisfies its
performance obligations
Fee arrangements
Below are details of fee arrangements and how these are measured
and recognised, for revenue from the provision of services:
-- For regulated fees the revenue for the service is recognised on
the basis of agreed charging methodologies on a per GWh basis.
-- For fixed fee for connection the revenue is recognised over the
life of the corresponding asset.
-- For fixed fee arrangements from services revenue is recognised based
on the stage of completion and performance obligations met for actual
services provided as a proportion of the total fixed fee agreed
in the contract.
-- For fee for service (time) revenue is recognised by time performed
on the contract to the year end date using contractual rates specified
in the contract.
Performance obligations
The main performance obligations in contracts consist of the
provision of a distribution network to electricity suppliers. For
these contracts, through the distribution and connection use of
system agreement (DCUSA) the delivery of performance obligations
are measured at the balance sheet date by the number of GWh
distributed by the system.
Finance income and costs policy
Finance income from a financial asset is recognised when it is
probable that the economic benefits will flow to the Company and
the amount of income can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying
amount on initial recognition.
Finance costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use are added to the cost of those assets, until
such time as the assets are substantially ready for their intended
use.
All other borrowing costs are recognised in profit or loss in
the period which they are incurred.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
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.
Property, plant and equipment
Property, plant and equipment is stated in the statement of
financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly
attributable incremental costs incurred in their acquisition and
installation.
Assets in the course of construction are carried at cost, less
any recognised impairment loss. Costs include professional fees,
and, for qualifying assets, borrowing costs capitalised in
accordance with the Company's accounting policy. Such assets are
classified to the appropriate categories of property, plant and
equipment when completed and ready for intended use. Depreciation
on these assets, on the same basis as other assets, commences when
the assets are commissioned. Assets are derecognised when they are
disposed of profit or loss on disposal is recognised in other gains
on the statement of profit or loss.
Depreciation
Depreciation is charged so as to write off the cost of assets,
other than land and properties under construction over their
estimated useful lives. Depreciation is recognised on a straight
line basis as follows:
Asset class Depreciation rate
Distribution system assets 45 years
Distribution generation assets 15 year
Metering equipment included in distribution up to 5 years
system assets
Information technology equipment included in up to 10 years
distribution system assets
Buildings - freehold up to 60 years
Buildings - leasehold lower of lease period
or 60 years
Fixtures and fittings up to 10 years
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Intangible assets
An internally generated intangible asset arising from
development is recognised if the conditions set out in IAS 38
relating to the recognition of intangible assets are met. The
amount initially recognised for internally-generated intangible
asset is the sum of expenditure incurred from the date when the
intangible asset first meets the recognition criteria. Amortisation
is recognised on a straight-line basis over their estimated useful
lives..
Amortisation
Amortisation is provided on intangible assets so as to write off
the cost, less any estimated residual value, over their expected
useful economic life as follows:
Amortisation method and
Asset class rate
Software development costs up to 10 years
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.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is determined using the first-in, first-out (FIFO)
method.
The cost of finished goods and work in progress comprises direct
materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to
their present location and condition. At each reporting date,
inventories are assessed for impairment. If inventory is impaired,
the carrying amount is reduced to its selling price less costs to
complete and sell; the impairment loss is recognised immediately in
profit or loss.
Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Trade payables are recognised initially at the transaction price
and subsequently measured at amortised cost using the effective
interest method.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
Provisions
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the reporting date
and are discounted to present value where the effect is
material.
Leases
Leases in which substantially all the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to profit
or loss on a straight-line basis over the period of the lease.
Impairment of non-financial assets
At the balance sheet date, the Company reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of the
impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the group estimates
the recoverable amount of the cash-generating unit to which the
asset belongs.
An intangible asset with an indefinite useful life is tested for
impairment at least annually and whenever there is an indication
that the asset may be impaired.
Where the recoverable amount is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is recognised immediately in
profit or loss.
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.
Dividends
Dividend distribution to the Company's shareholders is
recognised as a liability in the Company's financial statements in
the period in which the dividends are approved by the company's
shareholders.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
Defined benefit pension obligation
The Company contributes to the Northern Powergrid Group of the
Electricity Supply Pension Scheme (the "DB Scheme"), a defined
benefit scheme that shares risk between various entities under
common control. There is no contractual agreement or stated policy
for charging the net defined benefit cost for the plan as a whole
to individual group entities and accordingly the Company financial
statements account for the Northern Powergrid Group of the ESPS as
if it were a defined contribution scheme.
Contributions to the Northern Powergrid Group of the ESPS are
charged to the statement of profit or loss. The capital costs of
ex-gratia and supplementary pensions are normally charged to the
statement of profit or loss in the period in which they are
granted.
The Company also participates in a defined contribution scheme.
Contributions payable to the defined contribution scheme are
charged to the statement of profit or loss in the year. Differences
between contributions payable in the year and contributions
actually paid are shown as either accruals or prepayments in the
statement of financial position.
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.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
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.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
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
(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.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
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.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
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.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
2 Accounting policies (continued)
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.
Definition of default
The Company considers the following as constituting an event of
default for internal credit risk management purposes as historical
experience indicates that financial assets that meet either of the
following criteria are not recoverable:
-- when there is a breach of financial covenants by the debtor; and
-- information developed internally or obtained from external sources
indicates that the debtor is unlikely to pay its creditors, including
the Company, in full.
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 Powergrid (Yorkshire) 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
The following are the critical judgements, apart from those
involving estimations, that the directors have made in the process
of applying the Group's accounting policies and that have the most
significant effect on amounts recognised in the consolidated
financial statements:
Split of operating and capital expenditure and the allocation of overheads
to property, plant and equipment
The allocation of overheads to capital is derived from a detailed
analysis of the costs and their cost drivers which is reviewed on
annual basis. The percentage allocation of overheads across the workstream
categories are obtained from section managers who are asked to provide
reasoning and supporting evidence for the allocation. Finance then
undertake a financial impact assessment review and the rationale to
ensure it complies with IFRS:
-It is probable that future economic benefits associated with the
asset will flow to the enterprise; and
-The cost of the item can be reliably measured.
The amount of overheads capitalised in the year was GBP47.9m (2017:
GBP50.9m)
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 Revenue
The analysis of the Company's revenue for the year from
continuing operations is as follows:
2018 2017
GBP 000 GBP 000
Distribution use of system revenue 376,885 364,579
Amortisation of deferred revenue 28,244 26,623
Work for related parties 12,124 13,318
Other revenue 9,416 8,957
-------- --------
426,669 413,477
======== ========
Segmental analysis
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 and Northern Powergrid (Northeast) Ltd, another
distribution network operator in the Northern Powergrid Group,
suggesting that no segmental reporting is required.
Revenue, profit before tax and net assets are attributable to
electricity distribution. Revenue is all in respect of sales to
United Kingdom customers.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
5 Other gains and losses
The analysis of the Company's other gains and losses for the
year is as follows:
2018 2017
GBP 000 GBP 000
Gain on disposal of property, plant and equipment 62 388
========== ==========
6 Operating profit
Arrived at after charging/(crediting)
2018 2017
GBP 000 GBP 000
Depreciation expense 106,556 101,252
Amortisation expense 7 -
Amortisation of deferred revenue (28,244) (26,623)
Research and development cost 2,954 1,732
Operating lease expense - other 4,898 4,954
Loss allowance on trade and other receivables 1,207 659
======== ========
Amortisation expense is included in adminstration costs in the
statement of profit or loss on page 22.
7 Finance income and costs
2018 2017
GBP 000 GBP 000
Finance income
Interest income on financial assets measured
at amortised cost 3 4
Dividend income from equity investments designated
at FVTPL 72 54
Other finance income 1,155 563
---------- ----------
Total finance income 1,230 621
---------- ----------
Finance costs
Interest on bank overdrafts and borrowings (51,268) (51,129)
Borrowing costs included in cost of qualifying
asset 1,234 2,276
---------- ----------
Total finance costs (50,034) (48,853)
---------- ----------
Net finance costs (48,804) (48,232)
========== ==========
Borrowing costs included in the costs of qualifying assets
during the year arose on the general borrowing pool and are
calculated by applying a capitalisation rate of 4.79% (2017: 4.87%)
to expenditure on such assets.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
8 Staff costs
2018 2017
GBP 000 GBP 000
Salaries 57,384 57,407
Social security costs 6,551 6,513
Defined benefit pension costs 16,450 15,679
Defined contribution pension costs 3,188 2,702
---------- ----------
83,573 82,301
Less charged to plant, property and equipment (47,846) (49,179)
---------- ----------
35,727 33,122
========== ==========
A large proportion of the Company's employees are members of the
DB Scheme, most of the remaining employees are members of the
Northern Powergrid Pension Scheme, details of both are given in the
employee benefits note 24.
The average number of persons employed by the company (including
directors) during the year, analysed by category was as
follows:
2018 2017
No. No.
Technical 387 382
Industrial 561 581
Administration and support 92 90
Other departments 114 115
---------- ----------
1,154 1,168
========== ==========
9 Directors and other key personnel remuneration
The directors' remuneration for the year was as follows:
2018 2017
GBP 000 GBP 000
Remuneration 1,452 1,519
======== ========
During the year the number of directors who were receiving
retirement benefits was as follows:
2018 2017
No. No.
Accruing benefits under defined benefit pension
scheme 1 1
Accruing benefits under money purchase pension
scheme 2 2
==== ====
In respect of the highest paid director:
2018 2017
GBP 000 GBP 000
Short-term employee benefits 364 368
Long-term benefits 475 435
-------- --------
839 803
======== ========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
9 Directors and other key personnel remuneration (continued)
In respect of other key personnel:
2018 2017
GBP 000 GBP 000
Short-term employee benefits 406 439
Post retirement benefits - defined contribution 31 45
Post retirement benefits - defined contribution 40 52
Long-term benefits 206 233
-------- --------
683 769
======== ========
Other key personnel includes a number of senior functional
managers who, whilst not board directors, have authority and
responsibility for planning, directing and controlling the
activities of the Company.
The directors and key personnel are remunerated for their
services to the Northern Powergrid Group, of which the Company is a
subsidiary. The figures above represent the share of the costs
borne by the Company.
Long-term benefits relate to deferred bonus plan vested over the
period of the plan.
10 Auditor's remuneration
2018 2017
GBP 000 GBP 000
Audit of the financial statements 121 121
Other audit services 45 45
Non-audit services 31 -
---------- ----------
Total fees payable to the Company's auditor 197 166
========== ==========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
11 Income tax
Tax charged/(credited) in the income statement
2018 2017
GBP 000 GBP 000
Current taxation
UK corporation tax 26,908 26,340
UK corporation tax adjustment to prior periods 70 (493)
-------- --------
26,978 25,847
-------- --------
Deferred taxation
Arising from origination and reversal of temporary
differences (264) 828
Deferred tax adjustment to prior periods (328) (63)
Effect of changes in legislation (197) (475)
-------- --------
Total deferred taxation (789) 290
-------- --------
Tax expense in the income statement 26,189 26,137
======== ========
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
Profit before tax 139,812 139,745
======== ========
Corporation tax at standard rate 26,564 26,901
Increase/(decrease) in current tax from adjustment
for prior periods 70 (493)
Deferred tax credit due to over provision for
prior years (328) (63)
Effect of income and expenses not deductible
for determining taxable profit 54 (100)
Deferred tax credit relating to lower tax rates 72 297
Decrease in deferred tax due to changes in legislation (197) (475)
Other (46) 70
-------- --------
Total tax charge 26,189 26,137
======== ========
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 Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
11 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
Accelerated tax depreciation 128,177 (705) 127,472
Other (214) (84) (298)
Net tax liabilities 127,963 (789) 127,174
============ ========== ============
Deferred tax movement during the prior year:
At
At 1 January Recognised 31 December
2017 in income 2017
GBP 000 GBP 000 GBP 000
Accelerated tax depreciation 127,770 407 128,177
Other (97) (117) (214)
Net tax liabilities 127,673 290 127,963
============ ========== ============
Other comprises provisions and employee expenses deductible for
tax on a paid basis and claims for hold over relief.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
12 Property, plant and equipment
Furniture,
Distribution fittings and
Land and buildings system equipment Total
GBP 000 GBP 000 GBP 000 GBP 000
Cost or valuation
At 1 January 2017 4,505 3,882,000 34,496 3,921,001
Additions - 213,868 3,355 217,223
Disposals - (9,019) (631) (9,650)
------------------ ------------ ------------- ---------
At 31 December 2017 4,505 4,086,849 37,220 4,128,574
------------------ ------------ ------------- ---------
At 1 January 2018 4,505 4,086,849 37,220 4,128,574
Additions - 211,650 2,370 214,020
Disposals - (13,330) (230) (13,560)
------------------ ------------ ------------- ---------
At 31 December 2018 4,505 4,285,169 39,360 4,329,034
------------------ ------------ ------------- ---------
Depreciation
At 1 January 2017 2,415 839,837 24,104 866,356
Charge for year 178 97,552 3,522 101,252
Eliminated on disposal - (9,019) (631) (9,650)
------------------ ------------ ------------- ---------
At 31 December 2017 2,593 928,370 26,995 957,958
------------------ ------------ ------------- ---------
At 1 January 2018 2,593 928,370 26,995 957,958
Charge for the year 177 102,736 3,643 106,556
Eliminated on disposal - (13,330) (230) (13,560)
------------------ ------------ ------------- ---------
At 31 December 2018 2,770 1,017,776 30,408 1,050,954
------------------ ------------ ------------- ---------
Carrying amount
At 31 December 2017 1,912 3,158,479 10,225 3,170,616
================== ============ ============= =========
At 31 December 2018 1,735 3,267,393 8,952 3,278,080
================== ============ ============= =========
Included within the net book value of land and buildings above
is GBP983,000 (2017 - GBP1,104,000) in respect of freehold land and
buildings and GBP752,000 (2017 - GBP808,000) in respect of long
leasehold land and buildings.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
12 Property, plant and equipment (continued)
Expenditure recognised in the carrying amount of property, plant
and equipment in the course of construction:
31 December 31 December
2018 2017
GBP 000 GBP 000
Distribution system 163,969 191,670
Contractual commitments for the acquisition of property, plant
and equipment:
31 December 31 December
2018 2017
GBP 000 GBP 000
Distribution system 32,500 20,000
13 Intangible assets
Internally
generated
software development
costs
GBP 000
Cost or valuation
At 1 January 2017 29,497
-----------------------
At 31 December 2017 29,497
-----------------------
At 1 January 2018 29,497
Additions 23
-----------------------
At 31 December 2018 29,520
-----------------------
Amortisation
At 1 January 2017 29,497
-----------------------
At 31 December 2017 29,497
-----------------------
At 1 January 2018 29,497
Amortisation charge 7
-----------------------
At 31 December 2018 29,504
-----------------------
Carrying amount
At 1 January 2017 -
=======================
At 31 December 2017 -
=======================
At 31 December 2018 16
=======================
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
14 Inventories
31 December 31 December
2018 2017
GBP 000 GBP 000
Work in progress 943 776
=========== ===========
15 Trade and other receivables
31 December 31 December
2018 2017
GBP 000 GBP 000
Distribution use of system receivables 59,546 60,487
Trade receivables 5,862 8,425
Loss allowance (2,315) (1,177)
----------- -----------
Net trade receivables 63,093 67,735
Accrued income 248 371
Prepayments 4,633 4,758
----------- -----------
67,974 72,864
=========== ===========
The average credit period on receivables is 30 days. No interest
is charged on outstanding trade receivables.
The Company always measures the loss allowance for trade
receivables at an amount equal to lifetime expected credit loss.
The expected credit losses on trade receivables are estimated using
a provision matrix by reference to past default experience of the
debtor and an analysis of the debtor's current financial position,
adjusted for factors that are specific to the debtors, general
economic conditions of the industry in which the debtors operate
and an assessment of both the current as well as the forecast
direction of conditions at the reporting date.
There has been no change in the estimation techniques or
significant assumptions made during the current reporting
period.
The Group writes off a trade receivable when there is
information indicating that the debtor is in severe financial
difficulty and there is no realistic prospect of recovery, e.g.
when the debtor has been placed under liquidation or has entered
into bankruptcy proceedings. None of the trade receivables that
have been written off is subject to enforcement activities.
As the Company's historical credit loss experience does shows
significantly different loss patterns for different customer
segments, the provision for loss allowance based on past due status
is not distinguished between DUoS receivables, non-damages
receivables, and damages receivables.
Movement in the loss allowance
31 December 31 December
2018 2017
GBP 000 GBP 000
At 1 January 1,177 1,465
Amounts utilised/written off in the year (69) (947)
Amounts recognised in the statement of profit
or loss 1,207 659
----------- -----------
At 31 December 2,315 1,177
=========== ===========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
15 Trade and other receivables (continued)
Distribution use of system receivables
The customers served by the Company's distribution network are
supplied predominantly by a small number of electricity supply
businesses with RWE NPower plc accounting for approximately 19% of
distribution revenues in 2018 (2017: 21%) and British Gas pic
accounting for approximately 13% of distribution revenues in 2018
(2017: 16%). Ofgem has determined a framework which sets credit
limits for each supply business based on its credit rating or
payment history and requires them to provide credit cover if their
value at risk (measured as being equivalent to 45 days usage)
exceeds the credit limit. Acceptable credit typically is provided
in the form of a parent company guarantee, letter of credit or an
escrow account.
Ofgem has indicated that, provided the Company has implemented
credit control, billing and collection processes in line with best
practice guidelines and can demonstrate compliance with the
guidelines or is able to satisfactorily explain departure from the
guidelines, any losses arising from supplier default will be
recovered through an increase in future allowed income. Losses
incurred to date have not been material therefore no ECL has been
made on DUoS balances.
The following table details the age of DUoS receivables:
2018 Not due Current 1-3 months 3-6 months
GBP 000 GBP 000 GBP 000 GBP 000
Total balance 34,823 24,179 19 473
Less specific provisions - (277) (14) (468)
-------- -------- ---------- ----------
Balance on which ECL made 34,823 23,902 5 5
-------- -------- ---------- ----------
Expected credit loss - - - -
======== ======== ========== ==========
2017 Not due Current 1-3 months 3-6 months
GBP 000 GBP 000 GBP 000 GBP 000
Total balance 34,366 27,983 1 255
Less specific provisions - (1) (1) (252)
-------- -------- ---------- ----------
Balance on which ECL made 34,366 27,982 - 3
-------- -------- ---------- ----------
Expected credit loss - - - -
======== ======== ========== ==========
Other trade receivables
Sales of goods and services comprise all income streams which
are not classified as UoS income. Examples of non-UoS income
streams would be service alterations/disconnections, assessment and
design fees, and recovery of amounts for damage caused by third
parties to the distribution system. The average credit period on
sales of goods and services is 30 days. Interest is not generally
charged on the tradereceivables paid after the due date.
Included in the allowance for doubtful debts are specific trade
receivables, with a balance of GBP1.2m (2017: GBP0.5m), which have
been placed in administration. The impairment represents the
difference between the carrying amount of the specific trade
receivable and the present value of the expected liquidation
dividend.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
15 Trade and other receivables (continued)
Non-damages
2018 Not due Current 1-6 months 6-12 months Over 1 year
GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Total balance 1,052 978 2,966 771 1,715
Less other balances (663) (751) (2,570) (685) (1,350)
-------- -------- ---------- ----------- -----------
Balance on which ECL made 389 227 396 86 365
-------- -------- ---------- ----------- -----------
Lifetime ECL 0% 0% 0% 15% 20%
-------- -------- ---------- ----------- -----------
Expected credit loss - - - 13 73
======== ======== ========== =========== ===========
2017 Not due Current 1-6 months 6-12 months Over 1 year
GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Total balance 1,199 2,295 1,438 789 3,520
Less other balances (1,155) (2,115) (1,245) (746) (3,311)
-------- -------- ---------- ----------- -----------
Balance on which ECL made 44 180 193 43 209
-------- -------- ---------- ----------- -----------
Lifetime ECL 0% 0% 0% 15% 20%
-------- -------- ---------- ----------- -----------
Expected credit loss - - - 6 42
======== ======== ========== =========== ===========
Damages
2018 1-6 months 6-12 months 1-2 years 2-3 years Over 3 years
GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Total balance 1,189 1,038 936 504 37
Less specific provisions - (122) (162) (424) -
---------- ----------- --------- --------- ------------
Balance on which ECL made 1,189 916 774 80 37
---------- ----------- --------- --------- ------------
Lifetime ECL 10% 10% 15% 30% 60%
---------- ----------- --------- --------- ------------
Expected credit loss 119 92 116 24 22
========== =========== ========= ========= ============
2017 1-6 months 6-12 months 1-2 years 2-3 years Over 3 years
GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Total balance 1,556 365 704 90 21
Less specific provisions (14) (131) (461) (38) -
---------- ----------- --------- --------- ------------
Balance on which ECL made 1,542 234 243 52 21
---------- ----------- --------- --------- ------------
Lifetime ECL 10% 10% 15% 30% 60%
---------- ----------- --------- --------- ------------
Expected credit loss 154 23 36 16 13
========== =========== ========= ========= ============
There has been no significant change in the gross amounts of
trade receivables that has affected the estimation of loss
allowance.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
15 Trade and other receivables (continued)
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument
has increased significantly since initial recognition, the Company
compares the risk of a default occuring on a financial instrument
at the reporting date with the risk of a default occuring on the
financial instrument at the date of initial recognition. In making
this assessment the Company considers historical experience as well
as forward-looking information that is available without undue cost
or effort. Forward-looking information includes the future
prospects of the industries in which the Company's debtors operate
obtained from economic expert reports, financial analysts,
government bodies, relevant think-tanks and other similar
organisations. In particular the following information is taken
into account when assessing whether credit risk has increased
significantly since initial recognition:
-- existing or forecast adverse changes in business, financial or economic
conditions that are expected to cause a significant decrease in
the debtor's ability to meet its debt obligations;
-- an actual or expected significant deterioration in the operating
results of the debtor;
-- significant increases in credit risk on other financial instruments
of the same debtor; and
-- an actual or expected significant adverse change in the regulatory,
economic, or technological environment of the debtor that results
in a significant decrease in the debtor's ability to meet its debt
obligations.
16 Cash and cash equivalents
31 December 31 December
2018 2017
GBP 000 GBP 000
Other cash and cash equivalents 185,516 186,727
============ ============
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. Other cash and cash
equivalents include intercompany loans that are highly liquid and
repayable on demand.
17 Share capital
Allotted, called up and fully paid shares
31 December 31 December
2018 2017
No. GBP No. GBP
Ordinary Share Capital of
GBP1 each 200,000,100 200,000,100 200,000,100 200,000,100
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
18 Reserves
Retained earnings
GBP 000
At 1 January 2018 1,032,704
Profit for the year 113,623
-----------------
Total comprehensive income 113,623
Dividends (31,200)
-----------------
At 31 December 2018 1,115,127
=================
Retained earnings
GBP 000
At 1 January 2017 948,896
Profit for the year 113,608
-----------------
Total comprehensive income 113,608
Dividends (29,800)
-----------------
At 31 December 2017 1,032,704
=================
19 Loans and borrowings
31 December 31 December
2018 2017
GBP 000 GBP 000
Non-current borrowings 1,024,109 1,023,449
Current borrowings 48,339 33,346
----------- -----------------
1,072,448 1,056,795
=========== =================
Book value Fair value
31 December 31 December 31 December 31 December
2018 2017 2018 2017
GBP 000 GBP 000 GBP 000 GBP 000
Short-term loan 15,011 10 15,011 10
2020 - 9.25% bonds 217,523 217,377 233,150 250,130
2035 - 5.125% bonds 204,140 204,037 262,853 276,655
2032 - 4.375% bonds 150,783 150,654 179,120 187,384
2022 - European Investment Bank
4.133% 153,728 153,711 168,187 175,056
2025 - 2.5% bonds 151,038 150,781 155,236 159,661
2027 - European Investment Bank
2.564% 130,139 130,139 137,324 140,055
2025 - European Investment Bank
2.073% 50,086 50,086 49,616 50,776
----------- ----------- ----------- -----------
1,072,448 1,056,795 1,200,497 1,239,727
=========== =========== =========== ===========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
19 Loans and borrowings (continued)
The fair value of liabilities set out above is based on Level 1
inputs.
The fair value of the bonds is determined with reference to
quoted market prices. The directors' estimates of the fair value of
bank loans and internal borrowings are determined in accordance
with generally accepted pricing models based on discounted cash
flow analysis using prices from observable current market
transactions or dealer quotes for similar instruments. The fair
value of short-term borrowings is equal to their book value. All
loans are non-secured and are denominated in sterling.
The company's exposure to market and liquidity risk; including
maturity analysis, in respect of loans and borrowings is disclosed
in financial risk review note 28.
20 Obligations under leases and hire purchase contracts
Operating leases
Leases primarily relate to the hire of fleet vehicles and the
rental of operational land. The vehicle leases have terms between 2
and 7 years. The Company does not have the option to purchase the
vehicles at the end of the lease term.
The operational land lease are between 10 and 999 years, but in
the majority are between 20 and 60 years. As the leases are
regarded as a business tenancy, the Company has the option to renew
the lease under the 1954 Landlord and Tenant Act unless a landlord
is to redevelop or has grounds to recover land as prescribed under
the Act, and may acquire the freehold at any time by agreement. The
Company also has the ability to compulsory purchase the
freehold.
The total future value of minimum lease payments is as
follows:
31 December 31 December
2018 2017
GBP 000 GBP 000
Within one year 3,057 2,664
In two to five years 7,337 5,820
In over five years 700 442
----------- -----------
11,094 8,926
=========== ===========
The amount of non-cancellable operating lease payments
recognised as an expense during the year was GBP4,898,000 (2017 -
GBP4,954,000).
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
21 Other provisions
Claims Other provisions Total
GBP 000 GBP 000 GBP 000
At 1 January 2018 448 1,558 2,006
Additional provisions 1,337 766 2,103
Provisions used (1,269) (1,156) (2,425)
---------- ---------------- ----------
At 31 December 2018 516 1,168 1,684
========== ================ ==========
Non-current liabilities - 675 675
========== ================ ==========
Current liabilities 516 493 1,009
========== ================ ==========
Claims: Provision has been made to cover costs arising from
damages, public liability, and third party motor claims, which are
not externally insured. Settlement is expected substantially within
12 months.
Other: Primarily consists of a provision for future safe
disposal of transformers which contain oil contaminated with
Polychlorinated Biphenyls (PCBs) and for an amount to cover claims
made under section 74 of the New Road and Street Works Act 1991.
Costs are expected to be incurred over the next 20 years.
22 Trade and other payables
31 December 31 December
2018 2017
GBP 000 GBP 000
Payments on Account 47,517 50,208
Trade payables 1,200 3,033
Accrued expenses 5,416 5,244
Capital Accruals 22,748 27,829
Amounts due to related parties - 520
Social security and other taxes 9,698 6,655
Other payables 3,542 2,763
----------- -----------
90,121 96,252
=========== ===========
The Company's exposure to market and liquidity risks, including
maturity analysis, related to trade and other payables is disclosed
in note 28 "Financial risk review".
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
23 Deferred revenue
31 December 31 December
2018 2017
GBP 000 GBP 000
Current 29,177 27,941
Non-current 789,678 780,039
----------- -----------
818,855 807,980
=========== ===========
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the statement of profit or loss over 45 years or 15 years on a
straight line basis, in line with the useful economic life of the
distribution system assets.
24 Pension and other schemes
Defined contribution pension scheme
The company operates a defined contribution pension scheme. The
pension cost charge for the year represents contributions payable
by the company to the scheme and amounted to GBP3.2m (2017 -
GBP2.7m). The pension cost for 2019 is expected to be GBP3.3m.
Defined benefit pension scheme
The company operates a defined benefit pension scheme. The
pension cost charge for the year represents contributions payable
by the company to the scheme and amounted to GBP16.5m (2017 -
GBP15.7m). The pension cost for 2019 is expected to be
GBP17.1m.
Detailed information on the Northern Powergrid pension schemes
is available in the Northern Powergrid Holdings Company financial
statements, available from Lloyds Court, 78 Grey Street, Newcastle
upon Tyne, Tyne and Wear, NE1 6AF.
25 Dividends
31 December 31 December
2018 2017
GBP 000 GBP 000
Interim dividend of 11.3p (2017 - 10.9p) per
ordinary share 31,200 29,800
=========== ===========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
26 Reconciliation of liabilities arising from financing activities
At 1 January Financing At 31 December
2018 cash flows Other changes 2018
GBP 000 GBP 000 GBP 000 GBP 000
Long-term borrowings 1,056,785 - 652 1,057,437
Short-term borrowings 10 15,000 1 15,011
------------ ------------ ------------- --------------
1,056,795 15,000 653 1,072,448
============ ============ ============= ==============
At 1 January At 31 December
2017 Other changes 2017
GBP 000 GBP 000 GBP 000
Long term borrowings 1,056,132 653 1,056,785
Short term borrowings 12 (2) 10
------------ ------------- --------------
1,056,144 651 1,056,795
============ ============= ==============
Other changes relate to amortisation of financing fees and
discounts.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
27 Classification of financial and non-financial assets and financial
and non-financial liabilities
The classification of financial assets and financial liabilities
by accounting categorisation for the period ending 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
Non-current assets
Property, plant and equipment - - 3,278,080
Intangible assets - - 16
---------- ------------- ---------------------
- - 3,278,096
---------- ------------- ---------------------
Current assets
Inventories - - 943
Trade and other receivables 63,493 - 4,481
Cash and cash equivalents 185,516 - -
---------- ------------- ---------------------
249,009 - 5,424
---------- ------------- ---------------------
Total assets 249,009 - 3,283,520
========== ============= =====================
Liabilities
Non-current liabilities
Loans and borrowings - (1,024,109) -
Provisions - - (675)
Deferred revenue - - (789,678)
Deferred tax liabilities - - (127,174)
---------- ------------- ---------------------
- (1,024,109) (917,527)
---------- ------------- ---------------------
Current liabilities
Trade and other payables - (90,121) -
Loans and borrowings - (48,339) -
Income tax liability - (17,120) -
Deferred revenue - - (29,177)
Provisions - - (1,009)
---------- ------------- ---------------------
- (155,580) (30,186)
---------- ------------- ---------------------
Total liabilities - (1,179,689) (947,713)
========== ============= =====================
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
27 Classification of financial and non-financial assets and financial
and non-financial liabilities (continued)
The classification of financial assets and financial liabilities
by accounting categorisation for the period ending 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
Non-current assets
Property, plant and equipment - - 3,170,616
Current assets
Inventories - - 776
Trade and other receivables 68,409 - 4,455
Cash and cash equivalents 186,727 - -
---------- ------------- ---------------------
255,136 - 5,231
---------- ------------- ---------------------
Total assets 255,136 - 3,175,847
========== ============= =====================
Liabilities
Non-current liabilities
Loans and borrowings - (1,023,449) -
Provisions - - (1,129)
Deferred revenue - - (780,039)
Deferred tax liabilities - - (127,963)
---------- ------------- ---------------------
- (1,023,449) (909,131)
---------- ------------- ---------------------
Current liabilities
Trade and other payables - (96,252) -
Loans and borrowings - (33,346) -
Income tax liability - (17,285) -
Deferred revenue - - (27,941)
Provisions - - (875)
---------- ------------- ---------------------
- (146,883) (28,816)
---------- ------------- ---------------------
Total liabilities - (1,170,332) (937,947)
========== ============= =====================
The fair value of assets classified as fair value through profit
or loss are valued using level 3 inputs.
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
28 Financial risk review
This note presents information about the company's exposure to
financial risks and the company's management of capital.
The capital structure of the Company consists of net debt
(borrowings as detailed in note 19 offset by equity of the Company
(comprising issued capital, reserves and retained earnings as
detailed in notes 17 and 18).
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 covenants associated with the 2035 bonds issued by Northern
Electric Finance plc, a wholly-owned subsidiary of 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"). 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 Company's Senior Total Net Debt as at 31 December 2018
totalled GBP860.5m. Using the RAV value as at March 2019, as
outlined by Ofgem in its electricity distribution price control
financial model published in November 2018, and adjusting for the
effects of movements in the value of the Retail Price Index gives
an approximation for the RAV value as at 31 March 2019 of
GBP1,855.8m. The Senior Total Net Debt to RAV ratio for the Company
is therefore estimated at 46.4% (2017: 47.4%).
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.
The Company's income is primarily generated from use of system
revenue from electricity suppliers; suppliers are credit checked by
independent ratings agencies. Impaired income from DUoS will be
recovered in future periods through system charges and is therefore
of no material risk to the Company. The Company's receivables are
subject to expected credit loss calculations disclosed further
within the trade receivables (note 15).
Gross carrying Net carrying
amount Loss allowance amount
2018 Notes GBP 000 GBP 000 GBP 000
Trade and other receivables 15 70,289 (2,315) 67,974
============== ============== ============
2017
Trade and other receivables 15 74,041 (1,177) 72,864
====== ======= ======
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
28 Financial risk review (continued)
For trade receivables the Company has applied the simplified
approach in IFRS 9 to measure the loss allowance at lifetime ECL.
The Company determines the expected credit losses on these items by
using a provision matrix, estimated based on historical credit loss
experience based on the past due status of the debtors, adjusted as
appropriate to reflect current conditions and estimates of future
economic conditions. Accordingly, the credit risk profile of these
assets is presented based on their past due status in terms of the
provision matrix. Note 15 includes further details on the loss
allowance for these assets.
The carrying amount of the Company's financial assets at FVTPL
as disclosed in note 27 best represents their respective maximum
exposure to credit risk. The Company holds no collateral over any
of these balances.
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.
The Company has access to GBP75 million under a five-year
committed revolving credit facility provided by Lloyds Bank plc,
The Royal Bank of Scotland plc and Abbey National Treasury Services
plc., which expires on 30 April 2020. In addition, the Company has
access to further short-term borrowing facilities provided by YEG
and to a GBP19 million overdraft facility provided by Lloyds Bank
plc, which is reviewed annually, these borrowings are repayable on
demand. At 31 December 2018, the Company had available GBP79.0m
(2017: GBP94.0m) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
Maturity analysis for financial liabilities
The following tables set out the remaining contractual
maturities of the company's financial liabilities by type.
Less than 3 months More than
2018 3 month - 1 year 1-5 years 5 years Total
Non-derivative liabilities GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Non-interest bearing 42,604 - - - 42,604
Variable interest rate
liabilities 15,000 - - - 15,000
Fixed interest rate liabilities 18,500 31,173 487,951 884,968 1,422,592
--------- --------- --------- --------- ---------
Total 76,104 31,173 487,951 884,968 1,480,196
========= ========= ========= ========= =========
Less than 3 months More than
2017 3 month - 1 year 1-5 years 5 years Total
Non-derivative liabilities GBP 000 GBP 000 GBP 000 GBP 000 GBP 000
Non-interest bearing 46,044 - - - 46,044
Variable interest rate
liabilities 10 - - - 10
Fixed interest rate liabilities 18,500 31,173 512,692 909,901 1,472,266
--------- --------- --------- --------- ---------
Total 64,554 31,173 512,692 909,901 1,518,320
========= ========= ========= ========= =========
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
28 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. Short-term loans and inter-company short term
loans is charged at a floating rate of LIBOR plus 0.35%, thus
exposing the Company to cash flow interest rate risk. A 1% movement
in interest rates would subject the Company to an approximate
change in interest costs of GBP0.2m per year. This is considered to
be an acceptable level of risk. All other loans are at fixed
interest rates and expose the Company to fair value interest rate
risk.
29 Related party transactions
Summary of transactions with joint ventures
Vehicle Lease and Service Limited is a joint venture of Northern
Electric plc and provides vehicle fleet and servicing for the
Northern Powergrid Group. Income constitutes recharges for use of
management personnel and purchases are lease and servicing payments
for fleet vehicles.
Summary of transactions with other related parties
Other subsidiaries of the Northern Powergrid Group. Included
within these amounts are:
- Integrated Utility Services and Integrated Utility Services
(Eire) that provide engineering contracting resource;
- Northern Powergrid (Northeast) Ltd that provides and receives
mutual support through use of staff and resources which are then
recharged;
- Northern Electric plc provides corporate management which are
recharged;
- Northern Powergrid Metering that is recharged for the use of
staff; and
- Yorkshire Electricity Group plc that operates the group
intercompany treasury account.
Income and receivables from related parties
Other related
Joint ventures parties
2018 GBP 000 GBP 000
Sale of goods 26 12,131
============== =============
Other related
Joint ventures parties
2017 GBP 000 GBP 000
Sale of goods 62 13,308
============== =============
Expenditure with and payables to related parties
Other related
Joint ventures parties
2018 GBP 000 GBP 000
Purchase of goods 4,704 23,982
-------------- -------------
Amounts payable to related party - 261
============== =============
Other related
Joint ventures parties
2017 GBP 000 GBP 000
Purchase of goods 4,147 25,691
-------------- -------------
Amounts payable to related party 520 804
============== =============
Northern Powergrid (Yorkshire) plc
Notes to the Financial Statements for the Year Ended 31 December
2018 (continued)
29 Related party transactions (continued)
Loans to related parties
Parent
2018 GBP 000
At start of period 186,727
Repaid (1,200)
Interest charged 1,155
Interest received (1,155)
--------
At end of period 185,527
========
Parent
2017 GBP 000
At start of period 199,298
Repaid (12,571)
Interest charged 563
Interest received (563)
--------
At end of period 186,727
========
Loans with related parties are repayable on demand.
30 Parent and ultimate parent undertaking
The Company's immediate parent is Yorkshire Electricity
Group.
The ultimate parent 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 and the ultimate controlling party 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 Powergrid Holdings Company,
incorporated in United Kingdom.
The address of Northern Powergrid Holdings Company 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 CKKDBBBKDOQN
(END) Dow Jones Newswires
April 30, 2019 08:34 ET (12:34 GMT)
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