TIDMBD49
RNS Number : 6891E
Electricity North West Limited
06 June 2012
Electricity North West Limited (the "Company") is pleased to
announce its Annual Financial Report for the year ended 31 March
2012.
The Annual Financial Report is available to view on the
Company's website: www.enwl.co.uk.
In accordance with the requirements of Listing Rule 17.3.1, a
copy of the annual financial report has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at: http://www.hemscott.com/nsm.do.
In accordance with Disclosure and Transparency Rule 6.3.5 the
Annual Financial Report is here reproduced in full unedited text
(the Company has not taken advantage of the exemption afforded in
6.3.5 (2)).
For further information please contact Electricity North West's
press office on 0844 2091957 or email
jonathan.morgan@enwl.co.uk.
Electricity North West Limited
Registered number 2366949
Annual Report and Consolidated Financial Statements
for the year ended 31 March 2012
Electricity North West plays a vital role in the North West
region. We own, operate and maintain the electricity network;
delivering energy to our 2.4 million customer premises and we have
a strong track record in safety and reliability.
In the five year period to March 2015 we are planning to invest
over GBP1.4 billion in the network; supporting the North West's
economic growth, providing jobs and apprenticeships to the region's
young people and supporting the move to a low carbon economy.
We are pleased to present our Annual Report to shareholders for
the year ended 31 March 2012. Further information on our Company
can also be found by visiting our website: www.enwl.co.uk.
Notice regarding limitations on Director Liability under English
Law
The information supplied in the Directors' Report has been drawn
up and presented in accordance with English company law. The
liabilities of the Directors in connection with that Report shall
be subject to the limitations and restrictions provided by such
law.
Business Review
The Directors in preparing the Business Review have complied
with s417 of the Companies Act 2006. The Business Review has been
prepared for the Electricity North West Group as a whole and
therefore gives greater emphasis to those matters which are
significant to the Group when viewed as a whole.
Cautionary statement regarding forward-looking statements
The Chairman's Statement, Chief Executive Officer's Statement
and Business Review section of the Annual Report and Consolidated
Financial Statements ('the Annual Report') has been prepared solely
to provide additional information to the shareholders to assess the
Company and the Group's strategies and the potential for those to
succeed. These sections and other sections of the Annual Report
contain certain forward looking statements that are subject to
factors associated with, amongst other matters, the economic and
business circumstances occurring within the region and country in
which the Group operates. It is believed that the expectations
reflected in these statements are reasonable but they may be
affected by a wide range of variables which could cause actual
results to differ materially from those anticipated at the date of
the Annual Report. The Company does not undertake any obligation to
update or revise these forward-looking statements, except as may be
required by law or regulation.
Regulatory reporting and regulatory audits of 2011/12 year
end
Certain regulatory performance data contained in this Annual
Report remains subject to regulatory audit by Ofgem. The final
regulatory reporting pack and regulatory financial statements for
the year ended 31 March 2012 are not due for submission to Ofgem
until July 2012, and will be reviewed by Ofgem thereafter.
Website and Investor Relations
Electricity North West's website www.enwl.co.uk gives additional
information on the Group. Notwithstanding the references we make in
this Annual Report to Electricity North West's website, none of the
information made available on the website constitutes part of this
Annual Report or shall be deemed to be incorporated by reference
herein. Interested institutional debt investors can also gain
access to additional financial information by contacting the Head
of Treasury and Investor Relations (contact details at our
website).
Chairman's Statement
Dear Shareholders
The electricity industry continues to be both a challenging and
exciting industry in which to operate. I mentioned in last year's
report how the sector is dominated by a number of challenges -
responding to a low carbon future, delivering security of supply,
society's increasing reliance on electricity and delivering
efficiently for our customers. These are still very real challenges
and challenges that as a company we are addressing.
As part of our next price review for 2015 to 2023 (RIIO-ED1),
Ofgem is expecting us to develop a business plan that takes into
account the views and opinions of all our customers and
stakeholders. Only by talking about the challenges we all face,
explaining the difficulties and advising on potential solutions
will we as a society be able to meet the challenges of the future.
I am extremely proud of the role that our company is playing in
these discussions and already we are able to make more informed
decisions on how and where we invest money in the future.
Electricity North West continues to make sound financial
progress, building a strong and adaptable company ready to meet the
challenges of the future. Much work has been carried out over the
past year in preparation for the RIIO-ED1 price review and good
progress is being made.
We continue to scrutinise the performance, operation and
efficiency of all that we do in order that customers get the best
and most efficient service available. It is important that we are
able to demonstrate the highest levels of performance in delivering
against these areas; particularly customer service and a safe and
efficient operation. Whilst good progress has been made in some
areas, there is still an opportunity to build on recent successes.
The company vision, to be the leading energy delivery business is
deliberately stretching, and there is still much work to do to
achieve this.
The past year has also been characterised by investment: in
reinforcing infrastructure to meet the changing demands of the
network; and investment in building a strong, skilled and
professional workforce. Electricity North West is still on course
for GBP1.4 billion to be invested in our network between 2010 and
2015.
We recognise the important role our valued workforce contribute
in building a strong and successful company and the need to plan
ahead to ensure we can continue to provide great customer service
well in to the future. With this in mind, our graduate and
apprentice program continues to go from strength to strength. Over
the past year a specific A-level training scheme has also been
added to our training programmes with a plan to recruit and
up-skill a significant number of apprentices, graduates and
trainees between 2010 and 2015 as part of our overall workforce
renewal initiative
I'd like to take this opportunity to thank Steve Johnson and his
team for their hard work and commitment over the past year. There
has been much work to do over the past 12 months in delivering for
our customers and we are in a strong position to be able to meet
our target of becoming the "leading energy delivery business".
Phil White
Chairman
1 June 2012
Chief Executive Officer's Statement
Electricity North West is a dynamic and innovative company,
constantly looking ahead and planning for the future. We know from
ongoing engagement with our customers and other stakeholders that
their key priority is for us to provide a safe, reliable and
constant source of electricity - and this is exactly what we aim to
do.
Engaging with our key stakeholders - understanding their views
and concerns, listening to their ideas and opinions and truly
getting to know what's important to them - is incredibly important
to Electricity North West. Equally important is our ability to
react to this feedback and directly integrate stakeholder views in
the way we run our business and how and where we invest their
money. Fundamentally we want to deliver great value for our
customers and give them what they want.
2011/12 has been a successful and challenging year for the
Company. This report looks back at the year, and although this is
only the second year of the current price review, we're already
planning and looking ahead to the next price review period up to
2023. Whilst we are aware that we've made strong progress in key
areas, for example around continuous improvement of our
availability and reliability of the network (CIs and CMLs) there is
still much work to be done. In order to deliver for our customers
in RIIO-ED1, there is a need to focus on our performance efficiency
and business costs. We are keen to also demonstrate our commitment
to giving the best customer service to achieve our aim of being the
leading energy delivery business.
We have a clear strategy in place to meet these stretching
targets and continue to build on the progress to date. We want our
stakeholders to play an integral role in the decisions we make and
how and where we invest in the future. It is essential that we
educate and inform our diverse stakeholder groups so they
understand the many challenges that we will face in the future, not
least the move to a low carbon future and the growing reliance on
electricity.
To demonstrate this commitment, the theme of this year's report
is stakeholder engagement. Throughout the front end of the report
we have included examples and case studies from across the business
which demonstrate how
we engage with stakeholders and the way in which we respond to
this feedback.
Highlights of the Year
-- We are aware that as a relatively new name there is much work
to do in order to raise our profile amongst key stakeholders in the
North West and beyond. Our short-listing as a finalist of the 2011
MEN (Manchester Evening News) Business of the Year awards was great
recognition of our recent successes and achievements and also a
useful opportunity to raise our profile with a wide range of key
stakeholders across the North West
-- We often describe ourselves as an innovative and forward
thinking company - and this is no hollow claim. Our recent Low
Carbon Network Fund bid success could change the face of how
electricity networks are run in the UK. My chairmanship of the
Energy Network Association (ENA) and our participation in the
Smartgrids and Future Forums are further proof of the key role we
play in the future of our industry.
-- We understand that the main priority for our customers is to
'keep the lights on'. Our track record in this area is measured by
CIs (Customer Interruptions) and CMLs (Customer Minutes Lost). We
continue to make good progress here. Last year, Customer
Interruptions per 100 customers was 49.2 interruptions. In 2011/12
this has improved further to 45.9 interruptions. We continue to
invest in network availability and reliability to improve these
figures still further.
-- Safety remains our number one priority. Our aim is that
no-one is ever harmed by our operation and we have clear strategies
in place to educate employees, contractors and members of the
public in how to be safe around our infrastructure. During the year
we introduced a Behavioural Safety Programme to further promote a
zero harm safety culture amongst employees and contractors.
-- Environmental performance is a key focus for the Company as
we aim to minimise any adverse impact our operation may have on the
environment. During the past year our environmental management
system was recommended for certification to the ISO 14001 standard
following significant investment of time and resources in this
area.
-- I am pleased to report that Electricity North West has led
the way in extending competition in the new connections market;
indeed we are the first company to pass specific elements of the
Competition Test introduced by Ofgem to stimulate competition in
connections.
These highlights from the past year demonstrate the clear
progress being made across a broad range of key areas. We are clear
on the challenges facing the Company in the months and years ahead
and I am confident that with our continued hard work, commitment
and professionalism we will build on our successes in order to be
the leading energy delivery business.
Steve Johnson
Chief Executive Officer
1 June 2012
Business Review
2012 2011 2010 2009 2008
=========================================== ============= ============= ============= ============= =============
Non-Financial (Group)
=========================================== ============= ============= ============= ============= =============
Safety: RIDDOR (1) 7 5 6 9 7
Customer minutes lost ('CML') (2) 47.6 47.4 49.9 50.9 48.2
Customer interruptions
per 100 customers ('CI')(3) 45.9 49.2 50.6 48.4 50.7
Overall customer satisfaction (4) Not available 89% 87% 82% 76%
Revised overall customer satisfaction
2012-onwards(5) 77% Not available Not available Not available Not available
Quality of Response
(mean score out of 5) (6) 4.5 4.6 4.6 4.5 4.3
=========================================== ============= ============= ============= ============= =============
Financial (Group)
=========================================== ============= ============= ============= ============= =============
Revenue GBP405m GBP394m GBP324m GBP342m GBP326m
Operating profit GBP189m GBP210m GBP156m GBP181m GBP184m
Profit before tax GBP55m GBP139m GBP17m GBP142m GBP189m
Operating cash flow GBP232m GBP246m GBP218m GBP217m GBP229m
RAV Gearing (7) 61% 56% 57% 46% 42%
Interest cover (8) 5.3 times 5.7 times 4.2 times 4 times 4.9 times
Capital expenditure on tangible and
intangible assets (cash flow) GBP223m GBP177m GBP174m GBP179m GBP214m
=========================================== ============= ============= ============= ============= =============
-- Continued strong safety performance characterised by low
number of reported injuries in the year.
-- Good performance in customer service and network reliability
has been maintained in the year as we continue to out-perform
regulatory targets.
-- Revenue has increased to GBP405m as a result of the timing
and recovery of DPC5 allowed revenues. An over-recovery of revenue
in the prior year which arose due to a combination of price mix and
volume changes has been passed back to customers through reduced
pricing in the year end 31 March 2012, partially offsetting the
increase in allowed revenue. This year closed with an under
recovery of GBP12.7m and pricing will be adjusted to recover this
over the next two years. Another contributing factor to the
increase in revenue in the year is a GBP5.7m increase in non
trading rechargeable (NTR) revenue.
-- Operating profit has decreased to GBP189m (2011: GBP210m) as a result of an increase in:
-- the planned level of network maintenance activities;
-- the increasing frequency of metal theft;
-- certain costs, which under regulatory rules are allowed to be
passed through to customers. Approximately half of this increase
was factored into prices for the year ended March 2012 whilst the
remainder is to be recovered in 2012/13; and
-- depreciation charges have increased in the year due to the
commissioning of the IT refresh programme in addition to increased
network spend.
Notes to KPIs:
(1) Accidents involving employees or contractors of Electricity
North West, reportable under the Reporting of Injuries, Diseases
and Dangerous Occurrences Regulation ('RIDDOR'); we target zero
accidents per year.
(2) Customer minutes lost is calculated by taking the sum of the
customer minutes lost for all restoration stages for all incidents
and dividing by the number of connected customers as at 30
September each year. This outperforms the Ofgem target for 2012 of
55.6. The 2012 figure is yet to be audited by Ofgem.
(3) Customer interruptions per 100 customers is calculated as:
(total customers affected/total customers connected to the network)
x 100. This outperforms the Ofgem target for 2012 of 52.7. The 2012
figure is yet to be audited by Ofgem.
(4) Overall customer satisfaction in relation to the response
received from a fault enquiry is measured by an internal overall
customer experience assessment mechanism. It involves a series of
interviews with customers. Sample interviews are conducted
monthly.
(5) At 31 March 2011, Ofgem discontinued the above customer
satisfaction measure; instead a new broader measure is being
piloted. The new broader measure still involves a series of sample
interviews with customers conducted monthly. However up until the
year ended 31 March 2011 the survey was only of individuals who had
lost supply and spoken to an agent. The new measure is expanded and
includes customers with different service types, including
interruptions, connections and general enquiries. The internal
target for the measure was 76% (there is at present no Ofgem target
for this measure as it is still in the pilot stage).
(6) Quality of response assesses the speed and quality of
telephone response, measuring customer satisfaction on a scale of 1
to 5. We target a minimum of 4.4 (the level above which Ofgem
consider good practice and incentivise).
(7) RAV Gearing is measured as borrowings, including accretion,
at nominal value net of cash and short-term deposits divided by the
allowed Regulatory Asset Value ('RAV') of GBP1,519m (2011:
GBP1,403m) based on March closing prices. Distribution restrictions
are enforced by lenders once 65% is surpassed, default level is
70%.
(8) Interest cover is the number of times the adjusted net
interest expense is covered by adjusted operating profit from
continuing operations, both being calculated in accordance with the
defined terms of the financing agreement. Target is to have higher
interest cover than 1.1 (level before distribution restrictions are
enforced by lenders). Default level is 1.0.
Business Overview
Electricity North West Limited ('Electricity North West' or
'ENWL' or 'the Company') is a private limited company registered in
England and Wales. The Company is owned by a consortium of funds
controlled by the Commonwealth Bank of Australia and IIF
International Holding GP Limited which is a constituent of JP
Morgan Infrastructure Investments Fund.
ENWL and its subsidiaries (the Group) play a vital role in the
North West region. We own, operate and maintain the electricity
network, delivering energy to 5 million customers in 2.4 million
households and business premises safely and reliably.
In the five year period to 2015, we are planning to invest over
GBP1.4 billion in the network - supporting the North West's
economic growth, providing jobs and apprenticeships to the region's
young people, and supporting the move to a low carbon future.
Industry Structure
The electricity industry in Great Britain is divided into four
main sectors:
-- Generators include the large power stations and smaller
renewable generators. The generators produce electricity from a
variety of fuel sources.
-- Transmission companies own and operate the 400kV and 275kV
transmission networks that link the major power stations and
transport electricity in bulk across the country. National Grid
Electricity Transmission is responsible for the transmission
network in England and Wales.
-- Distribution companies own and operate the lower voltage
electricity networks, connecting the smaller power stations and the
national grid to every electricity customer in Britain. Originally
there were fourteen regional Distribution Network Operators (DNOs),
but these have been joined by a number of smaller Independent
Distribution Network Operators (IDNOs). The fourteen DNOs are
currently owned by six different companies.
-- Electricity suppliers, who buy the electricity produced by
the generators, sell that electricity to their customers and pay
the network operators for the transportation of that electricity
across their networks.
The electricity market is regulated by the Gas and Electricity
Markets Authority which governs and acts through the Office of Gas
and Electricity Markets (Ofgem). Distribution operators are
directly regulated by Ofgem and their charges for use of their
networks are subject to a price control mechanism.
Electricity North West is one of the fourteen regional DNOs,
operating in the North West of England.
Our assets and key facts
In simple terms our network is made up of overhead lines,
underground cables and items of plant, such as switchgear and
transformers, which are used to distribute electricity to
consumers' premises.
The bulk of electricity enters our network from the National
Grid at Grid Supply Points. It then travels through our 132kV
network to a substation where the voltage is transformed to enter
our 33kV network. Similar transformations take place from 33kV to
HV (high voltage) and from HV to LV (low voltage).
Through this network we deliver over 25 terawatt hours of
electricity each year to more than 2.4 million customer premises
across an area of 12,500 square kilometres. Our network covers a
diverse range of terrain and customer range from isolated farms in
rural areas, to areas of heavy industry, urban populations and city
centres.
The network performs such that on average a customer will
experience a power cut once every two years and on average is
without electricity for less than one hour every year. This
represents a reliability of over 99.99%.
Our network comprises the following key assets:
-- 12,923 km of overhead lines
-- 44,193 km of underground cables
-- 84,313 items of switchgear
-- 34,488 transformers
Economic Regulation
The electricity market is regulated by the Gas and Electricity
Markets Authority (GEMA) which governs and acts through the Office
of Gas and Electricity Markets (Ofgem).
The amount of income that we receive from suppliers is governed
by a price control framework which is subject to review every five
years. The electricity distribution price control for the five year
period from 1 April 2010 (DPC5) was agreed with Ofgem in January
2010. Electricity North West is permitted to increase prices by an
average of 8.5% plus inflation (RPI) in each of the five years of
DPC5. The cost of capital has been set at 4.0% post-tax for
DPC5.
These revenues fund our ability to operate and maintain the
network, to replace existing assets and to build new ones. This is
undertaken whilst at all times focusing on the industry-wide
challenges of securing a low carbon future, security of energy
supply and efficient delivery for our customers
Future economic regulation - RIIO
Since privatisation in 1990, distribution companies such as
Electricity North West have been subject to an 'RPI-X' form of
regulation, which is designed to encourage efficiency. The amount
of revenue that companies are allowed to recover from customers is
increased by RPI less an efficiency factor 'X' each year,
encouraging them to reduce costs, although in recent years the
emphasis has changed and DNOs have been allowed to increase their
prices to reflect the need for greater investment in the
network.
From April 2015 the regulatory framework will change so that
DNOs are incentivised to invest in greater innovation and to
deliver specific outputs which will form a contract with the
regulator for a period lasting eight years rather than five.
This model, known as RIIO (setting Revenue using Incentives to
deliver Innovation and Outputs) is designed to put a much greater
emphasis on companies playing a full role in developing a more
sustainable energy sector and delivering value for money network
services for customers today and in the future.
As we prepare for our new price review, (RIIO-ED1) we continue
to work closely with Ofgem to develop the RIIO framework and to
monitor the transmission (RIIO-T1) and gas distribution (RIIO-GD1)
price controls - the first price controls to use the new RIIO
methodology.
Engaging with Ofgem on our initial thoughts for RIIO-ED1 and how
we move from DPC5 has been a key feature of the last year.
Significant achievements include:
-- Ensuring delivery of DPC5 contract including outputs and customer service;
-- Capacity 2 Customers: Secured funding from Ofgem under the
Low Carbon Network Fund for an ambitious GBP10m trial which could
double the capacity of power networks without the need to install
new cables or overhead lines;
Future economic regulation - RIIO (continued)
-- Submitted a competition notice to Ofgem and secured
unregulated margins in three of our connection markets. This
demonstrates that customers in the North West are benefiting from
effective competition in these markets;
-- Preparation for 2015 and RIIO - investment analysis,
understanding customer priorities, understanding the long term
implications of RIIO principles; and
-- Responded to the Ofgem RIIO-ED1 scoping document - working
with Ofgem to ensure the RIIO-ED1 policy paper is fit for
purpose.
Where our income comes from and what we use it for
Other than charges for new connections to our network, we have
no direct financial relationship with customers connected to our
network. We charge electricity suppliers for the use of our network
and the suppliers pass these costs on to their customers.
Typically, distribution charges account for 20% of the final
electricity bill for domestic consumers.
At each price review, we submit our business plan for the period
to our regulator, Ofgem. Ofgem analyses our submission and compares
it to those of the 13 other DNOs, together with data from other
comparable industries. Based on this analysis they then decide how
much revenue we are allowed to recover from customers in each year
of the price review period under discussion.
Using these revenues we raise the finance to operate and
maintain the network, to replace existing assets and to build
new.
Our income in each year is largely fixed but we can earn extra
revenue by outperforming targets in incentive schemes. However, if
we fail to meet our targets our revenue may be reduced.
We are incentivised to minimise the number of interruptions that
our customers suffer and to reduce the average length of
interruptions. We are also incentivised to decrease the amount of
electrical losses from our network.
We also have a responsibility to look after our network in the
long term. Since 2010, we have reported on the condition of our
network (using Health Indices - HI) and the network loading (using
Load Indices - LI). Through the monitoring of these indices we
ensure that the overall condition of our network is being
maintained in such a state that we can continue to provide a high
quality service to our customers.
In order to ensure that we have a network with the appropriate
technology for the 21(st) Century we are also spending significant
sums on research and development. We are permitted to recover some
of our additional spending on research and development, either
through the Innovation Funding Incentive (IFI) or the Low Carbon
Network Fund (LCNF).
Strategy and objectives
Our Company vision is 'to be the leading energy delivery
business', measured against the following strategic objectives:
-- Understanding and influencing the market;
-- Understanding and delivering for our customers and stakeholders;
-- Developing a high performance organisation; and
-- Delivering sustainable growth with robust financial performance.
In order to support these strategic objectives, we need to
ensure we have the right people using the right systems and
processes aligned to a clear vision and targets.
Our plan includes investment in excess of GBP20m over the
regulatory period in renewing our workforce, through retraining our
workforce and recruiting apprentices and graduates. The plan also
includes enabling initiatives in the areas of capital delivery,
process transformation and capital delivery to ensure more
efficient targeting and delivery of network investment.
Operational Performance
Health and Safety
The Group is committed to achieving the highest standards of
health and safety for all our customers, employees and contractors.
Electricity North West has continued to drive a health and safety
zero harm culture to meet our performance targets, whilst
developing our safety culture and improving our processes and
systems.
Underpinning the business' drive to achieving the highest
standards of health and safety is our health and safety management
system, which is certified to OHSAS 18001, together with robust
health and safety leadership being demonstrated at every level of
management.
Electricity North West continues to support both the Health and
Safety Executive's UK five year strategy and the ENA's 'Powering
Improvement' health and safety strategy. As a clear demonstration
of the Group's commitment to health and safety, a Board committee
for health and safety exists with the remit of; setting our health
and safety strategy, objectives and targets; reviewing and
monitoring performance; and reporting to the main Board.
In the year, Electricity North West embarked on a major
programme to support employees in protecting themselves, their
colleagues and members of the public when working. The programme is
built on robust training that provides employees with the knowledge
to analyse why accidents occur and identify drivers of behaviours
and the skills to positively influence safety on site.
Environment
The Group is committed to achieving excellence in environmental
performance, minimising any adverse impacts our operations might
have and fulfilling our obligation to improve the environment we
operate in. Underpinning the business' drive to achieving
excellence is our environmental management system.
Following a final stage external audit in the year, the system
was recommended for certification to the ISO 14001 standard. This
has been achieved through significant investment of resources into
environmental management. It has been achieved after the completion
of a number of stringent audits across all Group operations and
implementation of recommendations made.
Customer satisfaction
A key focus throughout the year has been to continually improve
customer satisfaction across all areas of the business in line with
our Customer Strategy. This has enabled us to focus on the key
areas that are important to our customers on an everyday basis and
has led to the development of our Customer Commitments. These
commitments are underpinned by our corporate values and our
dedication to exceeding customer expectations in everything that we
do.
Satisfaction amongst customers who receive a supply interruption
is high at 84% for planned interruption and 82% for unplanned
interruption. 47% of interrupted customers gave us a 10/10 score
for the service that we provided. We recognise that we have more to
do if we are to be upper quartile for customer satisfaction and we
are continuing to focus on improvement plans to improve
service.
We carry out a monthly customer satisfaction survey with Impact
Research, which provides qualitative as well as quantitative data,
and from which we have developed customer satisfaction improvement
plans across the business. In addition we have established an
"Engaged Consumer Panel" which provides feedback to us on what
customers view as important services for us to deliver. The message
from this panel is very clear - they expect us to keep electricity
flowing to their homes and businesses, but on the odd occasion that
it does go off they expect us to restore their supply as quickly as
possible.
We have developed our company website to make it customer
focused and we continue to develop this in line with feedback from
our customers about the things that they would expect to be able to
find on our website.
We have also improved the services that we provide to vulnerable
customers during the year, by entering into a trial partnership
with the Women's Royal Voluntary Service, to offer extra care to
those customers who need assistance during power outages. This
partnership has been very well received by our customers and we
will be taking the learning from this trial into a longer term
partnership with an additional supplier.
Customer complaints
We have focused on a number of areas of improvement in dealing
with customer complaints. The first of these has been to focus on
the causes of complaints and reduce the number that we receive. We
have received 461 written complaints during the year, which is a
significant improvement from the 829 we recorded last year.
Secondly, we have focused on better management of complaints when
we receive them, attempting to resolve as many as possible within
24 hours, handle all but the most complex cases within 31 days and
wherever possible avoid repeat complaints or referrals to the
Ombudsman. 54% of all of the complaints that we receive (written or
verbal) are handled to a conclusion within 24 hours, with 5% taking
longer than 31 days to resolve. We have had 11 Ombudsman cases
found against us this year and we have set ourselves a target of
zero going forward. We have had seven (0.19%) repeat
complaints.
Case Study: Stakeholder Engagement
Switched on: North West
As we plan for the future, and decide where to invest money, it
is vital that we incorporate all our stakeholders' views and
ideas.
Should we spend more money on fixing power cuts more quickly? Or
invest money to protect our network against flooding . . . or
thieves?
"It's your network and your view that counts."
The "Switched On: North West" campaign is all about allowing our
stakeholders to have their say in future plans for the network. We
want all our stakeholders to get involved, and have developed
detailed strategies to target all our key stakeholders ranging from
our domestic and business customers, through to MPs, councillors
and regional action groups.
Our dedicated 'switched on' website encourages all stakeholders
to be informed about the challenges of the future, and share their
views and opinions via our online stakeholder surveys. A selection
of short videos aims to educate stakeholders on the key issues we
face. Social media sites, such as Twitter, Facebook and YouTube are
being used to stimulate debate, as channels to raise our profile
and to direct stakeholders to our website and online survey.
We recognise that children and young people are an important
stakeholder group and as the bill payers of the future need to
understand and play a key role in this debate. Our school
roadshows, workshops and introduction of our new company mascot are
aimed at engaging children in a fun way but at the same time
educating them in the challenges of the future. We have a range of
roadshows scheduled to visit schools, shopping centres and business
parks right across our region to proactively talk to as many
customers as possible and collate their views and feedback to
prepare and plan for the future.
Network reliability and availability
Quality of Service
On average, our network performs such that a customer
experiences a power cut every two years and is without electricity
for less than two hours every two years (99.99% reliability).
Electricity North West continues to invest in repairing and
upgrading its network and we continue the installation of automated
technology that reduces the number of customers affected by faults
and restores the supply more quickly by fixing problems
remotely.
Under the regulatory Interruptions Incentive Scheme, Electricity
North West has been set network performance targets for the number
and duration of customer supply interruptions. The average number
of interruptions per 100 customers per annum was 45.9* (2011:
49.2), out-performing the regulatory target for the year of 52.7
(2011: 52.9).
The average number of minutes for which customers were without
supply was 47.6 minutes* (2011: 47.4), beating the regulatory
target for the year of 55.6 minutes (2011: 55.6).
* 2012 figures are draft subject to Ofgem audit and are stated
after allowed exclusions, including severe weather events, as per
2011.
Worst served customers
Quality of Service incentives have been very effective in
improving the average performance of the network, but an anomaly
arises where the network which supplies the worst served customers
may be deemed to be uneconomic to improve.
'Worst Served' customers are defined as those who experience at
least 15 higher voltage interruptions over a three-year period and
a minimum of three in each year. 1,015 of our customers meet the
qualifying criteria to be classed as among the 'Worst Served' in
the country in the year (2011: 884). 85 of these were affected in
both years.
We worked closely with Ofgem and other industry members
throughout the recent price review to develop a new incentive
mechanism which encourages investment to improve the service
afforded to the community of these 'Worst Served' Customers. This
mechanism has facilitated additional work programmes which would
previously have been considered inefficient.
This year we have developed, designed and approved an innovative
approach to improve the performance for these customers, which is
now being implemented on the circuits serving all 1,015.
Connections
In October 2010 Ofgem introduced new Guaranteed Standards of
Performance for connections. These standards apply to all types of
new connection (including generation) and cover the timescales for:
the provision of budget estimates; quotations for low voltage, high
voltage and extra high voltage connections; and timescales for
commencement and completion of works. This is supported by a new
licence condition that requires DNOs to meet the standards in at
least 90 per cent of cases. Electricity North West has met these
new standards in at least 98% of cases since they were
introduced.
As part of DPC5, Ofgem introduced the opportunity for
distribution companies to earn a margin on contestable connection
activities. Two levels of margin are possible: a regulated margin
and an unregulated margin. Successful application for a regulated
margin is subject to having systems in place for the delivery of
new standards of service in connections. Successful application for
an unregulated margin is subject to passing a competition test to
demonstrate that competition has developed in that DNO's service
area.
During 2011 we were the first DNO to pass elements of the
Competition Test, which has been introduced by Ofgem to stimulate
competition in connections in all DNO areas.
We demonstrated that, as a result of our enablement, there is
effective competition, which benefits customers in three market
segments:
-- Demand connections at extra high voltage;
-- Distributed Generation connections at high voltage and extra high voltage; and
-- Unmetered connections for PFIs.
For these market segments, Ofgem has agreed that we can charge
an unregulated margin which will be influenced by competitive
market force. For the remaining market segments we will continue to
charge the regulated margin set by Ofgem.
Going forward, we will be building on the success of our trials
as we aim to become the first company to make it business as usual
and pass the Competition Tests in other areas of connections
activities.
New Connections
New buildings require new electricity connections and, where
appropriate, enhancements to our network. Customer connections is a
competitive market with a number of different organisations
providing alternative quotations for new connections to our
network. It is therefore essential to develop close relationships
with customers in order to maintain a competitive advantage and
directly respond to customers' needs.
During 2011/12 Customer Satisfaction survey information and
analysis has played a key role in driving our strategy and ensuring
an absolute focus on consumers. The information from the survey,
combined with ongoing customer engagement has helped our
connections business to understand customer requirements.
The two case studies on page 14 with TfGM (Transport for Greater
Manchester) and on Distributed Generation illustrate how building
relationships with customers drives our strategy and grows our
business.
Competition in Connections
Electricity North West has led the way in extending competition
in the new connections market by working in partnership with
Independent Connection Providers (ICPs) on a number of
initiatives.
We were the first company in the country to begin live jointing
to our existing low voltage network by an ICP. The first trials
started with E.On Energy Services on their Private Finance
Initiative (PFI) contract with Blackpool Borough Council for the
replacement of all their street furniture in March 2011. The trials
have now been extended to cover 13 local authorities in our region
with seven ICPs being authorised to complete the connections
themselves.
The benefit of opening this work up has been that local
authorities have been able to choose a more tailored and cost
effective service from their appointed contractors.
Similar progress has been made in the metered connections market
where five ICPs are successfully completing both low voltage and
high voltage connections to our network.
The success of the trials has been summed up in the following
statements from the participating ICPs:
"ENWL have proved to be the most responsive so far and have
ensured that the barriers to entering into the trials have been
kept as low as possible whilst maintaining high standards of
workmanship and safety." GTC
"We have dealt with a number of other DNOs but ENWL has been the
most proactive and forward thinking of them all. Some of the others
are now becoming more approachable and receptive to progressing
trials in the same vein as Electricity North West were 12 months
ago."
E.On Energy Services
Connections Case Study 1
Metrolink & NTR Diversions
Transport for Greater Manchester (TfGM) has been a key
stakeholder for Electricity North West over the past few years and
this relationship will continue throughout 2012. The extension of
the Manchester Metrolink Tram Network to Ashton, Oldham, Rochdale,
East Didsbury and Manchester Airport has required diversion and
relocation of a significant number of our assets.
2011 saw the completion of diversions for one phase of Metrolink
activity with work continuing on a subsequent phase. Consisting of
over 100 individual diversion sites, these works have resulted in
approximately GBP30m of cable diversion works for Electricity North
West.
An excellent working relationship with TfGM and their Principal
Contractor MPT (MPact Thales) has developed over the duration of
the works and regular liaison meetings are taking place at Senior
Management and Director level to discuss current issues and future
developments.
On the horizon for 2012/13 and beyond, Electricity North West is
in discussions with TfGM with regard to further extensions to
Metrolink and a Second City Crossing of Manchester City Centre.
Further projects involving partnerships with TfGM and other
bodies such as Manchester City Council, Stockport MBC and other
AGMA (Association of Greater Manchester Authorities) Partners are
now being developed, with Electricity North West involved at a very
early stage to help maintain best value for these stakeholders and
to ensure that all parties have a full understanding of each
other's requirements. Projects including SEMMS (Ringway Road
Highway Improvements Scheme), Airport City, The Corn Exchange and
Exchange Square redevelopment are all part of this ongoing close
working relationship.
Connections Case Study 2
Distributed Generation
In 2011/12 the Government introduced FITs (feed in tariffs) as a
financial incentive to encourage customers wishing to generate
their own electricity and connect it into our network. This has had
a significant effect on the amount of enquiries we have dealt with
for this type of connection and now equates to over 50% of our
overall enquiries. These enquiries range from wind farm developers
to local authorities, housing trusts and local businesses
installing solar panels to roofs of domestic and commercial
properties.
The impact on our network can be quite significant by way of
voltage fluctuations and Electricity North West has worked hard to
develop a set of policies that easily facilitate the connection of
such generation. We have seen the installation of small scale
generation connections rise from around 100 connections in April
2011 to over 1,600 in the month of December 2011.
In order to further support the low carbon agenda, we have
arranged forums and worked closely with local authorities, housing
associations and installers by organising educational meetings to
help our customers understand more of the complexities around
connecting generation to our network.
It is our intention to work more closely with customers in this
area to facilitate the need to connect further green technology
such as combined heat and power installations, electric vehicles
and ground source heat pumps, which all have differing impacts on
our network. Our aim is to ensure that we are not a barrier to
connecting.
Network Investment
Major projects
A number of large projects have been initiated on our network
during the year:
Major Projects Case Study 1:
Carrington to Barton 132kV overhead line
Over GBP5m was invested in replacing the 20 steel lattice towers
on this line, and placing some of the route underground. The line
was originally installed in the 1930s and goes through urban areas.
The new route will provide a less obtrusive, higher capacity
network and is planned for completion in 2013.
Ongoing engagement with the local community has been a key
feature of the project. It has been essential to maintain a
constant dialogue with key customers regarding timescales of
activity and potential disruption. The project continues to time
and budget with the valued support of the local residents.
Major Projects Case Study 2:
West Didsbury 132kV reinforcement
Nearly GBP4m was invested in this project to improve the
capacity of the network in South Manchester, following increases in
demand over recent years through installing new, larger
transformers. The scheme will also improve the inter-connection of,
and allow for, the addition of new load. This scheme is also
planned for completion in 2013.
In addition, the proposed GBP19m reinforcement scheme at Orrell
(our largest network investment scheme in the DPC5 period) has
received approval and construction is planned to start next
year.
Programmes
We have continued to make progress on delivering a number of
enhancement programmes in 2011/12, as part of our five-year
investment programme.
Over GBP6m of investment was completed in our ongoing programme
to install remote control and automation technology on the network
to minimise the effect of faults when they occur.
Case Study:
Over GBP1m was invested in undergrounding 15km of overhead lines
to improve visual amenity in designated areas within our operating
area. These sites are prioritised by representatives of the areas,
co-ordinated through a regional steering group. This kind of
stakeholder engagement illustrates how we work with community
groups to deliver and prioritise views and opinions.
Case Study:
The programme of enhanced flood defence installation at our
strategic substations is approaching completion, with a further 15
sites serving over 250,000 customers protected during 2011/12.
Major improvements to substation security were delivered in the
year as a response to the increasing incidence of metal theft in
our area. Over 50 major substations received enhanced security
arrangements during the year.
We're planning to invest GBP1.4 billion of your money over the
next few years to keep the North West powered. This is set out in
our strategic direction statement available on our website. To find
out more and to let us know what you think, visit:
Website
www.enwl.co.uk/switchedon
Corporate Social Responsibility at Electricity North West
Electricity North West is committed to Corporate Social
Responsibility (CSR). During the year we produced and published a
CSR statement, reporting against GRI (Global Reporting Initiative)
guidelines, and also became members of Business in the Community.
Whilst we understand the importance of reporting against national
and international frameworks, we also want to focus on setting
ourselves stretching and meaningful targets in areas where we
believe we can make the most difference. We have therefore
developed our own set of targets under the banner, "10 Years - 100
Commitments". We have worked with a wide range of stakeholders in
identifying 100 commitments we want to achieve by 2023. Building on
our strong CSR legacy, these commitments will focus on four key
areas:
-- Engaging our People;
-- Protecting our Environment;
-- Serious about Safety; and
-- Supporting our Communities.
People
We focus on the people who work at Electricity North West - both
current and future employees. We want to inspire and excite the
next generation of engineers as our future workforce and have a
strategy in place to engage school children and attract A Level
students and graduates. We want to recruit and retain the best
possible people and are committed to ongoing development and
training of our people. The launch of a new company mascot, Edison,
will be used in campaigns to engage children in a variety of ways,
including sparking an interest in science and educating them in
electricity and safety messages.
Environment
Protecting our environment is another key focus for Electricity
North West. Ensuring we go about our activities with the minimum
adverse effect on our environment possible and understanding and
reducing our impact on climate change is very important.
Safety
Safety lies at the heart of everything we do. We have
responsibilities to ensure the safety and well-being of both our
employees and contractors, as well as educating the public to stay
safe around our network.
Community
We want to be recognised within our community as the leading
energy delivery business, transforming the areas where we work by
providing support financially and through volunteering.
Case Study: Employee Volunteering Scheme
Electricity North West regularly supports a diverse range of
charities across our region through financial donations and matched
funding initiatives. But as well as financial support, we also
recognise how important it is to simply give our time.
In September 2011, volunteers from our Carlisle Depot took time
out of their busy schedules to transform an ugly, old cabin in the
grounds of Eden Valley Hospice in Carlisle. The amazing
transformation was only possible thanks to the time the volunteers
were able to give. A brightly coloured mural - designed by one of
the young patients at the hospice - was painted on the cabin by the
volunteers over (a very wet!) two day period. Electricity North
West encourages all employees to take up to two days paid leave
each year to work with local charities. It is our target to achieve
at least 365 volunteer days in each future year.
Employees
We recognise that one of our most important assets is our
committed and professional workforce. A primary driver for the
organisation is to ensure the future sustainability of the business
by developing the right mix of skills and resources to meet the
present and future demands of the business. Ensuring our staff have
access to structured development programmes allows us to develop
our existing workforce into the leaders of tomorrow, and allows us
to be competitive in attracting new people to the organisation.
Workforce renewal, learning and development
During 2011/12 we have developed structured training programmes
to enable us to train individuals to fulfil engineering and craft
roles across the organisation. We have been successful in
appointing seven Electrical Engineering Graduates and 14
Apprentices who have undertaken development of their technical
skills as well as on job placements, which have enabled them to
consolidate what they have learned in a training environment,
supported in part by mentors allocated to facilitate their growth
and development.
We have also extended our suite of development programmes to
cover individuals with other levels of qualifications and we are
working towards the recruitment in 2012/13 of trainee engineers
with HNC and A level/ONC qualifications.
We will also be seeking opportunities to support those
participating in the programmes to achieve further education
qualifications, as well as seeking accreditation of our programmes
with the Institution of Engineering and Technology (IET).
We are exploring opportunities to introduce structured
development programmes across other areas of the organisation, with
the aim that programmes will be in place during 2012/13.
We have also focused on supporting our existing workforce to
develop their skills to fulfil their current and future
aspirations. This has involved individuals undertaking development
of their technical skills supported by on job training and
development from existing skilled and experienced workers. In
addition, a formal up skilling programme has been developed for
launch during 2012/13.
Equality and diversity
Electricity North West sets policies and encourages a working
culture that recognises, respects, values and harnesses diversity
for the benefit of the Company and the individual, and we are
committed to integrating equality and diversity into all that we
do.
Employees with disability
The Group is committed to fulfilling its obligations in
accordance with the Disability Discrimination Act 1995 and best
practice. As an equal opportunities employer, equal consideration
is given to applicants with disabilities in the Group's employment
criteria. The business will modify equipment and practices wherever
it is safe and practical to do so and offer training and career
development, both for new employees and for those employees that
become disabled during the course of their employment.
Internal employee engagement
Keeping our workforce fully informed and up-to-date with latest
Company and local information is extremely important to Electricity
North West. An internal communications strategy ensures that
employees can find out about corporate and depot information in a
variety of different ways.
The bi-monthly company news magazine, 'NewsWire', Monthly Team
Briefs and Weekly Bulletins ensure that our people receive regular
communications. All Company and directorate scorecards are
available on our intranet, The VOLT, along with a wide range of
other Company information.
The scorecards ensure that our employees can clearly understand
Company performance and how their role and department feeds into
this success. Departmental team meetings and one-to-one meetings
with line managers is also a key way to engage with our people.
It is also important that mechanisms are in place for our
employees to be able to express their views and opinions and to ask
questions and queries. Our annual Employee Opinion Survey (EOS),
conducted on our behalf by Ipsos MORI, provides the opportunity for
our people to express their opinions.
An EOS forum has representatives from across the business who
discuss and implement action plans to address feedback from the
surveys. We hold quarterly roadshows where our Executive Leadership
Team visits all sites across the region and present key messages.
This is another opportunity for employees to direct questions to
the Executive team and senior managers and creates a two-way
dialogue.
Using technology is also important. Text messaging is used to
send key messages to those employees who work remotely. We are also
trialling video messages in order to present key messages in a
dynamic way.
Case Study:
Leadership and Development
A key element of building a sustainable organisation is
developing the capability of our leaders and people. This year we
have invested significantly in our top 70 managers, each attending
a three day transformational leadership programme designed to
develop our leaders' ability to manage change and coach for
success. Feedback from 100% of participants is that this investment
has been worthwhile and has had a positive impact on their
development.
A Management Development Programme is currently in development
for existing and aspiring managers across the organisation. This
will ensure our managers are equipped with the skills and tools
they need to carry out their roles.
We are also developing a competency framework which will define
how we expect our leaders, managers and employees to behave in
Electricity North West. This recognises that it is not only what
people achieve that it important, but also how they achieve it.
Financial Performance
Group 2012 2011
------------------------------------------------------------------ --------- ---------
Revenue GBP405m GBP394m
Operating profit GBP189m GBP210m
Profit before tax and non cash fair value movements
GBP136m GBP169m
Profit before tax GBP55m GBP139m
Operating cash flow GBP232m GBP246m
RAV Gearing 61% 56%
Interest cover 5.3 times 5.7 times
Capital expenditure on tangible and intangible assets (cash flow)
GBP223m GBP177m
------------------------------------------------------------------ --------- ---------
Revenue
Revenue has increased to GBP405m as a result of the timing and
recovery of DPC5 allowed revenues. An over-recovery of revenue in
the prior year of GBP13.5m, which arose due to a combination of
price mix and volume changes, has been passed back to customers
through reduced pricing, partially offsetting the increase in
allowed revenue in the year ended 31 March 2012. Another
contributing factor to the increase in revenue in the year is a
GBP5.7m increase in non trading rechargeable (NTR) revenue.
In July 2011, Ofgem agreed to the restatement of our losses
position for 2009/10. This resulted from the use of a revised
methodology in assessing settlement data used to determine losses.
The methodology adopted had already been approved by Ofgem in late
2010. The revised calculations have resulted in an improved losses
incentive position, uplifting the incentive revenue by GBP21m for
the 2009/10 year which will be recovered through additional revenue
in the year ending 31 March 2013. Under recovery at 31 March 2012
was GBP12.7m (2011: GBP13.5m over-recovery). This under recovery
will be recovered through increased pricing in the next two
years.
Operating profit
Operating profit has decreased to GBP189m (2011: GBP210m) as a
result of:
-- Planned level of network maintenance activities;
-- Increasing frequency of metal theft;
-- Certain costs, which under regulatory rules are allowed to be
passed through to customers, have increased. Approximately half of
this increase was factored into prices for the year ended March
2012 whilst the remainder is included within the under recovery
position noted above; and
-- Depreciation charges have increased in the year due to the
commissioning of the IT refresh programme in addition to increased
network spend.
Profit before tax and fair value movements
Profit before tax and fair value movements has fallen as a
result of reduced operating profit and increased finance expense.
The increase in finance expense principally arises from increased
RPI, and therefore increased charges on the index linked
facilities, and contracted reduced receipts on interest rate
swaps.
Profit before tax
The 2012 position reflects net fair value losses of GBP79m being
recognised in the income statement for this year (2011: GBP30m). Of
this, GBP81m has no cash flow impact and GBP2m is a cash receipt
due to close out of a swap.
Taxation
The Government announced on 21 March 2012 that the UK
corporation tax rate will reduce from 26% to 24%, effective from 1
April 2012. The reduction in corporation tax rate resulted in a
deferred tax credit to the Group's income statement of GBP21m.
The prior year corporation tax credit arises as a result of
changes between the estimated tax position in prior year Statutory
Accounts and the final tax computation position, due primarily to
work done during the year on the optimisation of capital allowance
and research and development tax claims. This is partly offset by
the prior year deferred tax charge.
Dividends and dividend policy
In the year ended 31 March 2012, the Company paid dividends of
GBP62m (2011: GBP62m). This figure represents an interim payment of
GBP25m paid in June 2011 and a further interim payment of GBP37m
paid in December 2011 (2011: This figure represented an interim
payment of GBP15m paid in June 2010 and GBP47m paid in December
2010). The Directors do not propose a final dividend for the year
ended 31 March 2012 (2011: GBPnil).
Electricity North West's dividend policy is that the Company
shall distribute the maximum amount of available cash in each
financial year at semi-annual intervals, after taking due account
of forecast business needs and the Group's treasury policy on
liquidity. Distributions are limited by the maximum amount
permitted by applicable law in any financial year and are subject
to the Company's licence obligations and financing
restrictions.
Financial Position
Property, plant and equipment
The Company's business is asset-intensive and highly regulated
both operationally (e.g. Electricity Safety & Quality
Continuity (Amendment) Regulations, 'ESQCR', legislation) and
economically. The Group allocates significant financial resources
to the renewal of its network to maintain services, improve network
reliability and customer service and to invest to meet the changing
demands of the UK energy sector. The total cost of the Group's
property, plant and equipment at 31 March 2012 was GBP3,531m (2011:
GBP3,337m), with a net book value of GBP2,431m (2011: GBP2,310m).
In the year ended 31 March 2012, the Group invested GBP224m (2011:
GBP188m) in capital expenditure. This is mainly related to a large
number of projects for the renewal and improvement of the network
as described above. New investment is financed through a
combination of operating cash flows and increased borrowing
capacity against a growing RAV.
Working capital: Inventories, Trade and other receivables and
Trade and other payables
ENWL holds inventories of GBP6.8m (2011: GBP5.6m).
Trade and other receivables have decreased to GBP54m (2011:
GBP78m) primarily as a result of timing in the collection of
billings. A greater number of billings were collected before the
year end this year than last year.
Trade and other payables stayed relatively constant from prior
year at GBP151.2m (2011: GBP151.5m).
Net Debt
2012 2011
GBPm GBPm
============================ ======= ============
Cash and deposits 84 167
Borrowings repayable:
* After one year (1,087) (1,044)
---------------------------- ------- ------------
Net debt (1,003) (877)
============================ ======= ============
Net debt has increased by GBP126m due to capital investment,
accelerated pensions payments and dividends paid exceeding the net
operating cash flows generated by the Group.
Borrowings repayable after one year include bonds with long term
maturities of GBP683m (2011: GBP647m). These bonds have nominal
value of GBP450m at 8.875% maturing in 2026 and GBP100m of 1.4746%
index-linked bonds maturing in 2046. The GBP135m long term loan
from the European Investment Bank ('EIB') is also repayable after
one year. This 1.5911% index-linked loan matures in 2024. Also
included in long-term borrowings are inter-company loans at 31
March 2012 of GBP263m (2011: GBP263m).
Pension obligations
The valuation of the Company's pension scheme under IAS 19
results in a net pension deficit at 31 March 2012 of GBP14m (31
March 2011: GBP41m). An additional company contribution of GBP23m
was made to the pension scheme in March 2012 representing an
acceleration of deficit repair payments scheduled for the years
ending March 2014 and March 2015.
The pension scheme funding valuation as at 31 March 2010 (using
assumptions agreed by the Trustee, in consultation with the Scheme
Actuary) has been agreed with the scheme's Trustee and a deficit
repair schedule agreed over 15 years to March 2025, which aligns to
Ofgem's funding assumptions. The repair schedule has been updated
to take into consideration the accelerated deficit repair payment
of GBP23m paid on 30 March 2012.
Commitments
Details of commitments and contractual obligations are provided
in notes 9, 10 and 25 of the financial statements.
Cash flow
The Group's net cash generated from operating activities after
taxation paid was GBP170m, a decrease of GBP8m from 2011,
reflecting the adverse profit position. The Group net cash outflow
from investing activities was GBP193m, an increase of GBP40m due to
the increases in property, plant and equipment purchases in the
year. Net cash outflow from financing activities was GBP45m (2011:
inflow of GBP30m) arising from equity dividends paid offset by
transfers from money market deposits in the year.
Liquidity
The Group's primary source of liquidity is retained profit plus
funding raised through external borrowings. The Company has an
agreed regulatory price control to 2015 which provides certainty
for a large majority of the Group's revenues from ongoing
operations, providing both stable and predictable cash flows.
Short-term liquidity
Short-term liquidity requirements are met from the Group's
normal operating cash flows. Further liquidity is provided by cash
and short-term deposit balances.
In total at 31 March 2012, unutilised committed facilities of
GBP55m (31 March 2011: GBP80m), together with GBP84m (31 March
2011: GBP167m) of cash and short-term deposits provide substantial
short-term liquidity for the Group and Company.
Utilisation of undrawn facilities will be with reference to RAV
gearing restrictions for the Group.
Long-term liquidity
The Group's term debt was GBP1,087m at 31 March 2012, compared
with GBP1,044m at 31 March 2011. Amounts repayable after more than
five years comprise bonds and bank and other loans.
The Group's long-term borrowings mature at dates between 2015
and 2046. Our long-term debt ratings have remained stable.
Currently ENWL is rated BBB+ with stable outlook by Standard and
Poor's, Baa1 with stable outlook by Moody's Investors Service and
A- with stable outlook by Fitch Ratings. Our short-term debt
ratings are A-2 and F2 with Standard and Poor's and Fitch Ratings
respectively.
Conclusion
The Board has reviewed the 31 March 2013 Budget, the Company's
updated DPC5 business plan and the requirements of the Company's
licence Condition 30 ('availability of resources') and considers
that the Company has sufficient liquidity to meet its anticipated
financial and operating commitments for at least the next 12
months.
Treasury Policy
The Group's treasury function operates with the delegated
authority of, and under policies approved by, the Board. The
treasury function does not act as a profit centre and does not
undertake any speculative trading activity. It seeks to ensure that
sufficient funding is available in line with policy and to maintain
the agreed targeted headroom to key financial ratios.
Long-term borrowings are at fixed rates to provide certainty or
are indexed to inflation to match the Group's ('RPI') inflation
linked cash flows.
Treasury operations
The principal financial risks which the Company is exposed to
and which arise in the normal course of business are credit risk,
liquidity risk (discussed above) and market risk. Market risk
includes foreign exchange, interest rate, inflation and equity
price risks.
Credit (counterparty) risk management
There is a risk that failure of one of Electricity North West's
counterparties in the current economic climate could result in a
financial loss for the business.
Exposure limits with counterparties are reviewed regularly. The
Company has adopted a policy of only dealing with creditworthy
counterparties as a means of mitigating the risk of financial loss
from defaults. 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.
Market risk management
The Group manages interest rate exposure by seeking to match
financing costs as closely as possible with the revenues generated
by its assets. The Group's exposure to interest rate fluctuations
is periodically managed in the medium-term through the use of
interest rate swaps.
Derivatives are used to hedge exposure to fluctuations in
interest rates and inflation. A derivative is a financial
instrument, the value of which changes in response to some
underlying variable (e.g. an interest rate), that has an initial
net investment smaller than would be required for other instruments
that have a similar response to the variable, and that will be
settled at a future date. At present, the Company uses interest
rate swaps to manage interest rate risk and inflation swaps to
convert fixed rate debt to index-linked borrowing. No formal hedge
accounting is undertaken.
The Group's use of derivative instruments relates directly to
underlying indebtedness. No speculative or trading transactions are
undertaken. The proportion of borrowings at effective fixed rates
of interest for a period greater than one year is set in
conjunction with the level of floating rate borrowings and
projected regulatory revenues that are exposed to inflationary
adjustments (index-linked).
Given that the regulated revenue which the Company earns is
linked to inflation, the Company has sought to match a proportion
of the cost of funding the business using a combination of an
inflation-linked bond and inflation-linked bank loan and fixed rate
debt with overlaying index-linked swaps.
By seeking to match the cost of funding to revenue streams, the
risk of movements in inflation levels is mitigated. Nonetheless,
there will inevitably not be a perfect match between the cash
inflows and outflows. The Company therefore retains some exposure
to movements in inflation rates.
IAS 39 'Financial Instruments: Recognition and Measurement'
limits the use of hedge accounting, increasing the potential
volatility of the income statement in relation to fair value
movements.
During the year, this volatility has been experienced, in
particular from the fair value movement arising on the bond held at
fair value, the index-linked swaps, back-to-back swaps and embedded
derivative.
This has led to net fair value losses of GBP79m being recognised
in the income statement for this year (2011: GBP30m). Of this
GBP81m has no cash flow impact and GBP2m is a cash receipt due to
close out of a swap.
Other than sundry purchases including some plant and machinery
denominated in foreign currencies, the Company's cash flows are in
sterling and the Group has no material exposure to foreign currency
exchange rate movements. The Group has no exposure to equity price
risks.
To further manage market risk going forward three index-linked
swaps were restructured on 2 May 2012. Further details relating to
this are in the Directors' Report, under 'Events after the balance
sheet date'.
Financial instruments entered in the year
During the year the Company entered a GBP50m revolving credit
facility ('RCF') maturing August 2016, replacing the GBP75m RCF
that was due to mature in June 2012. At 31 March 2012 this facility
remained undrawn. Drawings under this facility will be accounted
for at amortised cost.
Principal risks and uncertainties
The Group considers the following risks to be the principal ones
that may affect Electricity North West's performance and results
but cautions that the risks listed in this section do not address
all the factors that could cause results to differ materially.
There may be additional risks that the Group does not currently
know of, or that are deemed immaterial based on either information
currently available or the Group's current assessment of the risk.
Nevertheless, in its ongoing review of risk, the Group is confident
that its assessment of the principal risk categories is correct and
that its analysis of individual risks is soundly-based.
Retail Price Index ('RPI') fluctuations result in volatility in
key metrics
Fluctuations in RPI impact the Company in a number of ways, most
notably in revenues and Regulatory Asset Value ('RAV'). In order to
monitor potential exposure to fluctuating RPI, each month the
Company sources RPI forecasts from a selection of financial
institutions. These are used to refresh the Company's forecasts and
sensitivities on at least a quarterly basis. Any significant
exposure arising from these updates is advised to the Executive
Team and the Board as appropriate.
The changing Regulatory Framework may adversely affect the
Company
There is a risk that Ofgem's revised ('RIIO') framework for
future price controls may adversely affect the cash flow,
financeability and/or valuation of the Company, if implemented in
an unfavourable manner. Ofgem's RIIO objectives set out the
principles that the regulator will employ in agreeing future price
controls with distribution companies. These include a number of
significant changes from the principles employed in previous price
controls. In the main they represent an opportunity to grow the
Company by demonstrating the key role that networks have to
undertake in the transition to a low carbon economy. Electricity
North West is actively engaged in the consultations on the gas and
transmission price controls to influence Ofgem's implementation of
its new principles in a manner that would be beneficial to our
customers and the Company if these principles were replicated in
our next price control ('RIIO ED1').
Financing our investment needs
The Group and the Company are financed to a large extent by long
term external funding. There is no guarantee that new external
funding requirements will be financed by external debt providers.
Forecast operating cash flows, the present cash position and
committed undrawn facilities provide sufficient liquidity to meet
the Company's anticipated financial and operating commitments for
at least the next 12 months. The Company has in place a financing
strategy to meet future financing needs, including a regular
dialogue with the main institutional debt investors.
As a result of the dependence on debt for long term finance,
interest is a significant cost to the Group and Company. The
approach to managing and mitigating the potential interest rate
risks are discussed in note 16.
Counterparty insolvency leading to a financial loss for the
Company
There is a risk that failure of one of the Company's
counterparties in the current economic climate could result in a
financial loss for the business.
This is controlled through the use of a list of approved
counterparties with financial limits of investment by the Group
established based on credit rating and overall spread of the total
available invested cash.
The losses incentive mechanism may result in revenue
reduction
There is a risk that revenues will be adjusted downwards in the
remaining years of DPC5 as a result of the Losses Rolling Retention
Mechanism ('LRRM'). This mechanism (part of the previous price
control, DPC4) allows for losses benefits to be retained for a
period of five years, providing the benefits are sustained, i.e.
losses were lower at the end of DPC4 than they were at the
start.
The final year of DPC4, which is key to the calculation of the
LRRM, saw major fluctuations in settlement data due to corrections
being applied by electricity suppliers. This has been recognised at
an industry level and Ofgem has stated that they will take steps to
ensure there are no windfall gains or losses arising from
settlement data corrections.
An issue has been identified relating to the interaction between
the LRRM mechanism and the incentive mechanism for DPC5. Ofgem is
currently consulting on options for resolving this issue.
Electricity North West is fully engaged in the consultation process
and has established internal working groups to co-ordinate all
actions associated with losses in order to monitor and influence
the outcome.
Delivery of network investment plans and outputs
The Company has agreed its network investment requirements for
the period to 31 March 2015 with Ofgem. These plans include a
significant increase in the volume of activity particularly with
respect to the refurbishment and renewal of overhead lines from
both an operational and safety perspective. Failure to deliver the
capital plans may lead in some circumstances to non-compliance with
safety legislation and perceived non-delivery by Ofgem and our
customers, leading to potential claw-back of efficiencies,
penalties under the outputs regime and/or loss of credibility for
future regulatory submissions.
Electricity North West has developed implementation plans to
ensure sufficient contractor resources are procured, work content
of projects is designed in a timely manner and processes are in
place to fully deliver our outputs efficiently.
A major event causing significant service interruptions
adversely affects profitability
The majority of service interruptions relate to minor network
issues that are rectified promptly with limited effect on customer
supplies. However, the network occasionally experiences widespread
disruption, typically as a result of climatic effect, such as a
major storm or flooding. Such an event could cause a more
significant interruption to the supply of services (in terms of
duration or number of customers affected), which may have an
adverse effect on the Company's results or financial position due
to the impact of non-exempt events.
The Company has comprehensive contingency plans for all network
emergencies, including key contract resources such as mobile
generators and overhead line teams. These resources are contracted
to carry out the capital programme under business as normal, but
will be the first line of escalation in the event of a major event.
Our plans also include reciprocal arrangements with other DNOs to
provide resources should we need them.
Pension scheme obligations
The Company participates in both defined benefit (closed to new
members since 2006) and defined contribution pension schemes. The
principal scheme is a defined benefit scheme and the assets of the
scheme are held in Trust, independent of Company finances.
There is a risk that under performance of the pension scheme
investments and/or an increase in the scheme's pension liabilities
will give rise to a higher scheme deficit which requires increased
Company contributions. Currently efficient pension contributions
and the scheme deficit as at 31 March 2010 are recoverable through
the price controls set by Ofgem. Active monitoring of the
performance of the scheme's investments is carried out formally on
a quarterly basis by the pension Trustee. The Trustee engages
external professional legal, actuarial and investment advice for
all decisions taken and regularly consults with the Company.
The scheme undertook a funding valuation as at 31 March 2010
which identified a funding deficit of approximately GBP145m (31
March 2008: GBP107m). Following constructive engagement between the
Company and the pension scheme Trustee, a revised deficit repair
contribution schedule has been agreed over a period of 15 years to
31 March 2025, in line with Ofgem's funding assumptions.
Failure to deliver efficiently will have adverse impact on
regulatory settlement for RIIO ED1.
Due to the Company being a sole DNO and, unlike the rest of the
sector, not part of a larger group of DNOs there is a risk that we
are, in comparison to the sector, seen as inefficient for RIIO-ED1
because of high direct unit costs, business support and indirect
costs leading to an unfavourable regulatory settlement for
RIIO-ED1.
Direct unit costs
Management are tracking costs of the capital programme against
Ofgem regulatory allowances. Outputs are being tracked with
measures on the corporate scorecard for the effectiveness of
capital programming and efficiency of capital delivery. Management
are using these new measures to enhance forecasting of unit costs
for RIIO.
Business support and indirect costs
We have benchmarked costs to where upper quartile is forecast to
be. We are reviewing business support/indirect costs to identify
further efficiencies. Outputs have been incorporated into the
Company's business planning process and monitored via quarterly
forecast updates.
Our Board
Phil White FCA, CBE,
Independent Non-Executive Chairman
Phil joined the Board as Independent Non-Executive Chairman in
May 2010. Phil was Chief Executive of National Express Group plc
from 1997 to 2006, leading the business through a period of
considerable growth both in the UK and overseas. Phil is also
Non-Executive Chairman of Kier Group plc, Lookers plc and The Unite
Group plc and a Non-Executive Director of Stagecoach Group plc.
EXECUTIVE DIRECTORS
Stephen Johnson, Chief Executive
Steve joined Electricity North West in 2008 from Morrison plc
where he was Managing Director, having previously been with United
Utilities Group PLC as Managing Director of its Industrial and
Commercial Business. Steve previously worked for Norweb and
Yorkshire Electricity and is a member of the Institute of
Engineering and Technology.
Michael McCallion FCA,
Chief Financial Officer
Michael joined Electricity North West in 2007 as Commercial
Director to manage the out-sourcing contract with United Utilities.
He was appointed Chief Financial Officer in September 2010. Michael
was previously Head of Capital Programme Finance for United
Utilities' regulated businesses and prior to that he was a
Marketing Finance Director with AstraZeneca plc. He is a Fellow of
the Institute of Chartered Accountants, having qualified with
PricewaterhouseCoopers.
NON-EXECUTIVE DIRECTORS
John Gittins (Independent)
John is an Independent Non-Executive Director. He is Finance
Director at Fairpoint Group PLC. Prior to that he has been Group
Finance Director of NCC Group plc, Begbies Traynor Group plc,
Vertex Data Science and of Spring Group plc. John is a graduate of
the London School of Economics and qualified as a Chartered
Accountant with Arthur Andersen.
Niall Mills
Niall is Head of Infrastructure Asset Management, Europe for
First State Investments (UK). He is also a director of Anglian
Water Group and has more than 20 years of infrastructure experience
across a variety of sectors.
Niall has Bachelor of Engineering (Hons) in Civil Engineering, a
Masters of Business Administration from the London Business School
and is a Fellow of the Institution of Civil Engineers. He has a
Diploma in Company Directorship from the Institute of
Directors.
Mike Nagle
Mike Nagle was the Group Company Secretary & Solicitor of
SEEBOARD plc and Senior Vice President, Legal Services at Metronet
Rail. Having now retired as a solicitor, Mike is also a
non-executive director on the Boards of Greensands Holdings Limited
(the parent company of Southern Water) and Zephyr Investments
Limited.
Christine O'Reilly
Christine was Global Co-Head of Infrastructure for Colonial
First State Global Asset Management. Christine is also a director
of Anglian Water Group, CSL Limited, Care Australia and Transurban
Group. Prior to joining Colonial First State, Christine was Chief
Executive Officer and Director of the Gasnet Australia Group, a top
200 ASX listed company. Christine has more than 20 years of
infrastructure and financial experience including an early
involvement in the establishment of the regulatory framework for
the Australian gas industry, eight years with the investment bank,
Centauras Corporate Advisory Services, and audit experience with
Price Waterhouse where she qualified as a Chartered Accountant.
Christine is a Bachelor of Business.
Surinder Toor
Surinder is a Managing Director at JP Morgan Asset Management
and the global head of asset management for JP Morgan's
Infrastructure Investments Group. In addition to Electricity North
West, he holds a directorship in the holding company of Southern
Water. Previously, he was the Chief Financial Officer at Scotia Gas
Networks plc and prior to that he was Managing Director of American
Electric Power's European operations. He has also held positions
with Arthur Andersen, PowerGen plc and at PricewaterhouseCoopers,
where he started his career. Surinder holds an MA in Engineering,
Economics and Management from the University of Oxford and he is a
Chartered Accountant.
Corporate Governance Statement
Chairman's statement
Electricity North West is committed to a high level of corporate
governance commensurate with its status as a public interest
entity.
The Board believes effective corporate governance is the
keystone to a successful and well run business that will benefit
shareholders and wider stakeholders alike. With that in mind we
commissioned Ffion Hague from Independent Board Evaluation to
perform an evaluation of how the Board, Committees and individual
directors are performing. The results were encouraging. It was
acknowledged that the Company is performing well through a
demanding few years. In order to continue this good start, an
action plan was put in place to address the findings of the
Evaluation.
In line with the key Governance theme in our ESG (Environmental
and Social Governance)/CSR (Corporate Social Responsibility)
strategy, 'ensuring Electricity North West applies best practice
corporate governance', the Company provides a sustainability report
each year using the Global Reporting Initiative ('GRI')
sustainability reporting guidelines.
In November 2011 we published our first ever GRI (Global
Reporting Initiative) compliant CSR Report. The full report can be
found on our website
http://www.enwl.co.uk/docs/about-us/enwl_csr_statement_complete.pdf
It is important to report against the GRI framework and
indicators as this allows third parties to compare our performance
and commitment with other national and international organisations.
The GRI Report considers company performance in three key areas,
namely Economic Performance, Environmental Performance and Social
Performance. We will continue to report against the GRI framework
in 2012/13.
The UK Corporate Governance Code
As a private Company, having listed bonds and not listed equity,
the Company has not been bound to report on the UK Corporate
Governance Code (the 'Code') at any time during the period under
review. It is, however, required by Standard Condition 44.12 of its
licence, to include a corporate governance statement in its
regulatory financial statements that has the coverage and content
of the corporate governance statement that a quoted company is
required to prepare under the UK Corporate Governance Code issued
under the Financial Services Authority's Listing Rules and
interpretations on corporate governance. In the interests of
transparency for our stakeholders, the Board has decided to include
this same statement in our statutory financial statements, in
addition to our regulatory financial statements.
The Board has fully reviewed its governance in the light of the
new UK Corporate Governance code and where necessary taken steps to
align its governance with the Code. John Gittins and Phil White are
now both on the Audit and Remuneration Committees.
Compliance statement
The Listing Rules require UK quoted companies to describe their
corporate governance from two points of view. The first explaining
adherence to the Code's main principles, and the second explaining
non-compliance with any of the Code's provisions.
The intention of the Code is that companies should be able to
explain their governance in the light of the principles which have
led them to a particular approach. The Directors are of the opinion
that, in the instances where the Company does not comply with
certain provisions of the Code, that approach is justifiable given
the privately held nature of the Company and that the provisions of
the Code are disproportionate or less relevant in their case.
Set out below and in the following pages, the Company outlines
its compliance with the main principles of the Code or explains its
non-compliance with the provisions of the Code.
Leadership and Effectiveness
The Role of the Board
An effective Board is in place, whose major role is to promote
the long-term success of the Company by creating value for the
Company's shareholders and providing an efficient, sustainable
service to our customers and stakeholders. In order to achieve
this, the Board meets regularly to provide leadership, set
strategic direction and objectives and ensure that appropriate
financial and other resources are made available to enable the
Company to meet those objectives. One meeting is set aside each
year to enable the Board to focus on the strategic direction and
objectives of the Company in particular. The Board oversees the
work of the Audit Committee in drawing up and maintaining a
framework of controls that assess and manage risks to the business.
This is discussed in more detail on pages 33 and 34.
The Company has identified a number of key areas that are
subject to regular reporting to the Board. There is in place a
schedule of decisions reserved for the Board which includes:
strategy approval and management; succession planning; business
plan approval; internal controls; Company policies; and delegation
of authority. Projects and contracts have various limits of
approval to Board level.
The names of the current Directors, who served during the year,
and their biographical details, are set out on page 26.
Since 1 April 2011, the Board has formally met nine times.
Attendance by individual Directors at meetings of the Board during
the year ended 31 March 2012 was as follows:
Board
Meetings Meetings
during appointment attendance
----------------- -------------------- ------------
P White (Chair) 9 8
J Gittins 9 9
S Johnson 9 9
M McCallion 9 9
N Mills 9 9
M Nagle 9 9
C O'Reilly 9 8
S Toor 9 7
----------------- -------------------- ------------
Surinder Toor, through himself or Alternate (Mark Walters),
attended all meetings and Committees.
Board Committees
The terms of reference of each Committee are available to the
shareholders of the Company and can be obtained by written request
from the Company's registered office.
All Committees report to the next meeting of the Board.
Audit Committee and Auditors
Since 1 April 2011, the Audit Committee has formally met three
times. Attendance by individual Directors at meetings of the
Committee during the year ended 31 March 2012 was as follows:
Audit Committee (Non-Executive)
Committee Committee
meetings meetings
during appointment attendance
------------ -------------------- ------------
J Gittins
(Chair) 3 3
N Mills 3 3
M Nagle 3 3
C O'Reilly 3 3
S Toor 3 1
P White 2 2
------------ -------------------- ------------
The activities of the Audit Committee are discussed in more
detail on pages 34 and 35.
Remuneration Committee
Since 1 April 2011, the Remuneration Committee has formally met
five times. Attendance by individual Directors at meetings of the
Committee during the year ended 31 March 2012 was as follows:
Remuneration Committee (Non-Executive)
Committee Committee
meetings meetings
during appointment attendance
----------------- -------------------- ------------
P White (Chair) 5 5
J Gittins 4 4
N Mills 5 5
M Nagle 5 5
C O'Reilly 5 4
S Toor 5 3
----------------- -------------------- ------------
The activities of the Remuneration Committee are discussed in
more detail on pages 31 and 32.
Health and Safety Committee
The remit of the Health and Safety Committee includes: setting
the health and safety strategy, objectives and targets; reviewing
and monitoring performance; and reporting to the Board.
Since 1 April 2011, the Health and Safety Committee has formally
met five times. Attendance by individual Directors at meetings of
the Committee during the year ended 31 March 2012 was as
follows:
Health and Safety Committee
Committee Committee
meetings meetings
during appointment attendance
----------------- -------------------- ------------
P White (Chair) 5 5
S Johnson 5 5
N Mills 5 5
M Nagle 5 5
----------------- -------------------- ------------
Greg Fernie, Operations Director, is a member of the Health and
Safety Committee in addition to the Directors listed above.
Pensions Committee
The duties of the Pensions Committee include monitoring the
investment strategy adopted for the defined benefit pension
liabilities by the Trustee and to input into the efficient running
of the pension scheme to meet regulatory requirements.
Since 1 April 2011, the Pensions Committee has formally met
twice. Attendance by individual Directors at meetings of the
Committee during the year ended 31 March 2012 was as follows:
Pensions Committee
Committee Committee
meetings meetings
attendance
----------------------- ---------- ------------
M McCallion
(Chair) 2 2
N Mills 2 2
M Walters (Alternate) 2 2
----------------------- ---------- ------------
The following employees: Fiona Brown, Head of Pensions; Rob
O'Malley, Head of Treasury & Investor Relations; Paul Taylor,
HR Director; and Sarah Walls, Head of Economic Regulation are
members of the Pensions Committee in addition to the Directors
listed above.
Use of System Pricing and Banking Committees
In addition to the above, there are two executive committees of
the Board. The Use of System Pricing Committee meets to approve all
the prices contained in the Standard Licence Condition 14 statement
and met three times during the year.
The Banking Committee met once during the year and has been
established to deal with banking matters.
Non-Standing Committees
As the need arises, non-standing committees are established to
deal with special issues. During the year three such committees
were established: a training centre committee to approve the
purchase and funding of a training facility; a financing committee
to negotiate and finalise the restructuring of the Company's Bank
facilities and a finance committee to negotiate and finalise the
restructuring of the Company's index-linked swaps.
The Chairman and Division of Responsibilities
There is a clear division of responsibilities between the
Chairman and the Chief Executive and these responsibilities are set
out in their respective contracts.
The Chairman, with the assistance of the Company Secretary, sets
the agenda for the Board and ensures that directors receive timely,
accurate and clear information.
The Chairman has encouraged greater openness and debate between
executive directors and non-executive directors by scheduling three
board meetings in the year over two days to ensure adequate time
for discussion of agenda items together with increased time to
discuss issues that arise.
Non-executive Directors
Non-executive directors participate fully in discussions on
strategy and are responsible, through the Remuneration Committee,
for Executive Directors' remuneration, appointments and succession
planning for the Executive Leadership Team.
As there are representatives of both shareholders on the Board,
it has not been considered necessary to appoint a Senior
Independent Director to be available to shareholders as required by
section A.4.1. of the Code.
Formal meetings between Non-Executive Directors without
Executives being present took place during the year and they
provide a forum to raise any issues.
Composition of the Board
Phil White and John Gittins fulfil the requirements of
independence as set out in the Code. There are four additional
Non-Executive Directors on the Board, each of whom represents an
ultimate shareholder. The Company believes that these Directors
together with the CEO and CFO represent a good balance of Executive
and Non-Executive Directors to enable the Board and its Committees
to discharge their duties effectively and to ensure that no
individual or small group of individuals can, or do dominate the
Board's decision making. In addition, employees have been included
in the membership of the Health and Safety and Pensions Committees
in order to further enhance the effective discharge of these
respective responsibilities.
The Company is not an equity listed company and therefore the
quota of Independent Directors listed in the Code, section B.1.2,
is not considered appropriate for the Company, having regard to its
privately held status.
Appointments to the Board and Commitment
The Board is satisfied that the process of appointing new
Directors to the Board is rigorous and transparent. Succession
planning is in place for the Executive Leadership Team and senior
management to ensure the Company has the appropriate mix of skills
and experience. All appointments are made on merit, against
objective criteria and with due regard for the benefits of
diversity on the Board, including gender.
There is no formal Nominations Committee for the appointment of
Directors and the Company does not comply, therefore, with the
sections of the Code (B.2.1, B.2.2, B.2.4, B.3.1 and E.2.3) which
deal with Nomination Committees.
The Remuneration Committee has been delegated this function by
the Board and an external recruitment company was used in the
appointment of both Independent Non-Executive Directors.
The terms and conditions of Non-Executive Director appointments
are made available to shareholders. The expected time commitment is
conveyed to Directors, either in written or verbal form and all
Directors confirm that they have sufficient time to fulfil the
role. The Board is regularly updated on other significant
appointments for all Directors.
Development, Information and Support
Directors receive an induction on joining the Board which is
tailored to enable them to discharge their duties effectively.
Shareholders were invited to meet prospective candidates in the
recruitment of the current independent Non-Executive Directors.
All Directors receive comprehensive information on a regular
basis. Board papers are distributed via the Company Secretary's
office sufficiently well in advance of the relevant meeting to
allow time for Directors to be fully briefed. The papers are
detailed enough to enable the Directors to obtain a thorough
understanding of the management and financial performance of the
Company and its business. In addition, two-day Board meetings are
held throughout the year to enable Directors to better understand
major projects or processes in more depth. Meetings with senior
management have been facilitated during the year together with
asset tours for directors in order to assist in their knowledge of
the business.
The Company Secretary assists with professional development when
required and advises on governance matters both on an individual
basis and in the form of papers to the Board.
Evaluation
A Board evaluation was conducted by Ffion Hague of Independent
Board Evaluation in May 2011. Independent Board Evaluation and
Ffion Hague have no other business relationship with the Company.
The evaluation consisted of Board and Committee working observance
together with individual Director questionnaires. The results of
the evaluation were communicated to the Board at its meeting in
July 2011 and any issues that arose were addressed at the following
meeting by the Chairman with actions put in place to address any
improvements identified. The Chairman's performance was evaluated
by John Gittins and discussed with the non-executive directors.
Re-election of Directors
As a private company, the Company is not required to hold AGMs
unless requested by the shareholders. The Articles of the Company
do not require that Directors retire by rotation. The Company has
strong links, however, with its ultimate shareholders: Board
membership includes shareholder representatives and although the
Company is not compliant with section B.7. of the code due to its
private status, shareholders are involved in Director appointments
to at least as great an extent as if re-election took place at an
AGM.
Where the Company releases an executive director to serve as a
non-executive director elsewhere, the Director does not currently
retain, nor have they retained for the period under review, any
remuneration attached to the role.
Remuneration level and components
Levels of remuneration are reviewed in order to attract, retain
and motivate Executive Directors ('Executives') of sufficient
quality to deliver the objectives of the Group.
As a private Company, a remuneration report is not required to
form part of the Company's Annual Report and therefore the Company
does not comply with section D.1.2.
The Remuneration Committee is careful to ensure that
compensation arrangements in Executives' terms of appointments are
appropriate and not designed to reward poor performance.
The Executives' service contracts are designed to reward good
performance and the notice periods are set at one year or six
months.
Performance-related elements of remuneration formed a
significant portion of the total remuneration package of the
Executive Directors in the year under review and these are linked
to both corporate and individual performance objectives.
Remuneration procedure
The Remuneration Committee sets the policy and procedures for
Executive remuneration and for setting the remuneration packages of
Executive Directors. No Director is involved in setting his or her
own remuneration.
The Board has established a Remuneration Committee, the terms of
reference of which are available to shareholders. Membership is
solely made up of Non-Executive Directors including two Independent
Non-Executive directors, Phil White, who chairs the Committee and
the Board and John Gittins, Independent Director. The Company does
not, therefore, comply with section D.2.1. of the Code. The Board
is confident, however, that Phil White provides independent and
objective chairmanship of the Committee and that the Committee
membership is effective and enables the successful discharge of the
Committee's responsibilities.
The Committee has responsibility to make recommendations to the
Board on the policy and framework for the remuneration of the
Executive Directors, approve employment related benefits for other
Company employees and implement employees' bonus and long term
incentive plans. The Remuneration Committee has responsibility for
setting remuneration and succession planning for the Company's
Executive Team.
The Board use external consultants to provide benchmark data for
base salary, bonus and other benefits of Directors and the
Executive Team. These are reviewed annually and pension benefits
are considered when reviewing the overall compensation package.
There is no entitlement nor is there a commitment to award an
increase year on year.
The Remuneration Committee also determines the remuneration of
the Non-Executive Directors. The Remuneration Committee, comprising
shareholder representatives, approves all long-term incentive
schemes and significant changes to existing bonus schemes.
The allocation of total reward to base salary and, (maximum)
performance-based, short-term and long-term incentive plans for the
CEO is broadly as follows:
Short term corporate objectives are based on a balanced
scorecard approach with approximately 55% of the total related to
financial performance and efficiency and 45% of the total
comprising key operational metrics. The long term bonus is based on
financial performance and DPC5 comparative performance, as assessed
by Ofgem, and is deferred until June 2015.
Share options are not offered as an incentive to Executives or
Non-Executive Directors as the Company is private. Remuneration for
Non-Executives is reviewed by the Remuneration Committee, which
ensures that this reflects the time commitment and responsibilities
of the role.
Financial and Business Reporting
The Board takes seriously its responsibility to ensure that a
balanced and understandable assessment of the Company's
performance, position and prospects is given in the Annual Report
and in any other report published by it for Ofgem or other
stakeholders as necessary.
Directors' responsibilities in relation to the preparation of
the annual report and financial statements and their statement in
relation to information given to auditors are given in the
Directors' Report.
Details of the basis on which the Company generates or preserves
value over the longer term and the strategy for delivering the
objectives of the Company are given on pages 7 to 18 of the
Business Review.
As discussed in the Directors' Report and accounting policies,
after making diligent enquiries, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operation for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the Company's financial
statements.
Internal Control framework
The Board of Directors is responsible for the group's system of
internal control and its ongoing review. There is an ongoing
process for identifying, evaluating and managing the significant
risks faced by the Company. This internal control framework has
been in place for the year under review and up to the date of
approval of the annual report and financial statements. It is
reviewed regularly by the board and accords with the revised
Turnbull guidance.
The internal control framework is designed to identify and
manage the principle risks and uncertainties of the business
outlined in the business review on pages 23 to 25, rather than to
eliminate, the risk of failure to achieve the Group's business
objectives and can only provide reasonable, and not absolute,
assurance against material misstatement or loss.
The key features of Electricity North West's internal control
framework are:
-- The highest standards of behaviour are expected from our
employees. At Electricity North West we are proud of our strong
commitment to having high ethical standards in the way that we
work. We have outlined what those principles are in our Employee
Code of Conduct document, which summarises our approach to doing
business. All our employees must act in accordance with those
principles.
-- Engagement and commitment are obtained from all levels of the
organisation in order to promote a strong control environment with
clearly defined accountabilities and organisation structures,
operating within a framework of policies and procedures covering
every aspect of the business.
-- Comprehensive compliance regimes are in place to help ensure
that the business meets its various financial, statutory and
regulatory obligations.
-- A well established 'Table of Accountabilities', which is
updated (as a minimum) annually, is in place which details the
obligations under the standard and special licence conditions that
we must adhere to. It outlines who has specific responsibility for
compliance with each of our licence conditions.
-- Comprehensive business planning, risk assessment and
financial reporting policies and procedures are in place. They
include the annual preparation of detailed operational budgets for
the year ahead and projections for subsequent years.
-- A Capital Programme Management Group and Project Approvals
Group with defined policies and procedures, for planning, approving
and monitoring major capital investment projects, provides
effective governance in this area.
-- Monthly reporting of financial and non-financial performance
to the Board and Executive Leadership Team. Reviews are made of
monthly performance against budgeted and targeted performance.
-- An extensive Internal Control Manual is maintained, acting as
the cornerstone of the internal control framework, which our
employees are required to adhere to.
-- A Risk, Control and Assurance team has responsibility for
independently assessing the adequacy and effectiveness of the
management of significant risk areas and internal control. This
ongoing assessment helps to inform our annual risk-based audit
strategy and plan.
-- A designated audit team reporting to the Head of Health,
Safety and Environment serves to monitor the effectiveness of our
key Health and Safety controls and reporting processes, overseen by
a committee of the Board.
-- The Disclosure ("Whistleblowing") policy for Electricity
North West, refreshed during this year, seeks to ensure that any
employee may voice any concerns about particular incidents of
wrongdoing, or other suspected malpractice, without fear of
criticism or future discrimination, provided that any matters
raised are in good faith.
-- Formal briefings are provided to our employees on key areas
of the internal control framework in order to promote understanding
and commitment. For example, in response to the introduction of the
Bribery Act in 2011, an extensive programme of Bribery Act
briefings has taken place.
Risk Management
The Company has a well embedded structure and process to help
identify, assess and manage risks.
The key features of the risk management framework are as
follows:
-- All Enterprise operational and non-operational risks are
managed on a single corporate risk register which is maintained by
the Head of Risk, Control and Assurance.
-- This is underpinned by a number of 'local' risk registers in
various areas of the business. Key risks on these 'local' registers
are fed into the corporate risk register as they are
identified.
-- Each risk on the corporate register is designated to a member
of the Executive Leadership Team (ELT) who has the overall
responsibility for managing that risk.
-- All open risks, associated controls and mitigating actions
are reviewed on a monthly basis as part of a well embedded risk
monitoring process.
-- Quarterly risk workshops are held with the ELT in order to
review the key risks that appear on the corporate register.
-- An annual risk review is formally held with the Electricity North West Board.
Audit Committee and Auditors
It is important that the board and all stakeholders have
confidence in the Company's financial reporting.
With this in mind, the Audit Committee performed a review of the
effectiveness, independence and objectivity of the external
Auditors and following its review was pleased to recommend the
re-appointment of Deloitte LLP. Reviews of the Auditors are
undertaken every year together with meetings held with the Auditors
without management present to ensure there is a forum to express
any concerns.
As part of the work to ensure the independence and objectivity
of the Auditors, a policy on the non-audit services that Deloitte
LLP provide to the Company and those services which require Audit
Committee approval is established and is managed by the Committee.
Safeguarding the independence of the external auditors is
paramount, the audit committee ensure controls are in place to
maintain their continued independence.
There are certain services where the threat to auditor
independence is considered low and which are best provided by
auditors, these make up the permitted non-audit services listed in
the policy. The provision of these permitted services where the fee
is below GBP250,000 do not require authorisation from the audit
committee. For work with fees greater than GBP250,000 or not
falling into the permitted category, the decision to appoint the
auditors to do the work shall be made by the Audit Committee with
reference to the separate Procurement Policy outlined in the
Internal Control Manual.
In deciding whether the Auditors may be contracted to perform
these services, the Audit Committee considers:
-- Whether the skills and experience of the Auditors make it
most suitable supplier of the non-audit service;
-- Whether there are safeguards in place to eliminate or reduce,
to an acceptable level, any threat to objectivity and independence
of the auditors though the additional services; and
-- Any criteria governing the compensation of the individuals
performing the audit which might result in a threat to objectivity
and independence in their conduct of the audit.
No non-audit service may be contracted to the Auditors where
performing the service would entail taking on a management role or
where in other ways the possibility of compromising their
independence is deemed high.
Permitted services contracted to the Auditors are to be reported
annually to the Audit Committee together with an explanation of how
their objectivity and independence is safeguarded.
Instances where the auditors were not contracted to provide a
non-audit service are to be noted together with the reasons for the
decision to contract to another firm and are to be reported to the
Audit Committee at least annually.
The only significant non-audit services provided by Deloitte LLP
in the year were services assisting in submitting a capital
allowance claim with HMRC.
Meetings are held with the Head of Risk, Control &
Assurance, who manages the internal audit activities, without
Executive Management present to provide an open and transparent
forum.
The ENWL Audit Committee membership consists of Non-Executive
Directors who have recent and relevant financial experience. John
Gittins is considered an Independent Non-Executive Director and
therefore the Company complies, as required, with the conditions
for audit committees detailed in the Disclosure and Transparency
Rules 7.1.1. to have one independent non-executive director but not
with the requirements of section C.3.1. of the Code which requires
three. The composition of the Committee is considered by the Board,
however, to be effective and objective.
The main role and responsibilities of the Audit Committee are
set out in its terms of reference and include those items detailed
in section C.3.2. of the Code save that the Company does not hold
an AGM and therefore the reappointment of Deloitte LLP was approved
by the Board.
The Committee's terms of reference are available to
shareholders. The work of the Committee in discharging its
responsibilities is described below.
The Committee monitors the integrity of the Group's financial
statements and the effectiveness of the external audit process. The
Audit Committee provides recommendations to the Board in relation
to the appointment, reappointment and remuneration of the external
auditor and assesses the external auditor's independence and the
level of non-audit services provided to the Company.
The Committee is also responsible for ensuring that the
Company's policies and practices relating to the assurance of risks
are prudent and compliant with the Company's banking facilities
together with providing oversight of the impact of, and compliance
with, externally imposed regulatory rules on the operations of the
business. The Board has applied the principles of the Code by
establishing a continuous process for identifying, evaluating and
managing the significant risks the Company faces.
The Company has in place guidance on the reporting of incidents
of fraud which detail the procedure(s) to be followed by employees,
together with the option to report anonymously. Employees who
report incidents in good faith are protected by the Company's
Disclosure ('Whistle-blowing') Policy.
The Committee regularly reviews the effectiveness of the
internal audit activities.
Internal Audit
-- All internal audit activity is conducted by a single team
under the leadership of the Head of Risk, Control & Assurance.
The role has a dual reporting line into the Audit Committee
Chairman and the Chief Financial Officer.
-- The Risk, Control & Assurance team has responsibility to
the Audit Committee for agreement of the annual risk-based audit
strategy and plan, providing regular updates on findings and
progress against the plan. The audit strategy is subject to robust
review each year in order to ensure that the plan addresses key
areas of focus for the business.
-- The Risk, Control and Assurance team comprises both financial
and operational expertise and works closely with related areas of
assurance and compliance activity within the business, including
legal, health and safety and regulation.
-- When issues or control deficiencies are identified during
audit engagements, the Risk, Control & Assurance team works
with business managers to develop corrective action plans to
address the causes of non-compliance and gaps in internal controls.
The team employs a rigorous monitoring process to track these plans
to completion and report results on a monthly basis to the
Executive, and at each Audit Committee meeting.
-- To supplement the internal skills required to complete the
audit programme, the Group uses external financial and operational
professionals, where appropriate, to provide independent assurance
of internal control processes in accordance with a pre-defined
scope. Risk, Assurance & Control has been subject to external
review of its key processes during the year in order to ensure that
it operates in an efficient and effective manner.
In compliance with the Code, the Board regularly and at least
annually reviews the effectiveness of the Company's system of
internal control. The Board's monitoring covers all controls,
including financial, operational and compliance controls and risk
management. It is based principally on reviewing reports from
management to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses identified are promptly remedied or managed by more
extensive monitoring. The Audit Committee assists the Board in
discharging its review responsibilities.
Relationship with shareholders
Electricity North West Limited is a private company and the
ultimate holding Company, North West Electricity Networks (Jersey)
Limited, has just two major shareholders. Board membership includes
four Non-Executive Directors taken proportionately from both the
Company's ultimate shareholders. The Board as a whole therefore has
a full understanding of the views of the major shareholders of the
Company including on strategy and governance.
The Company's relationship with the shareholders as described
above is a strong one not requiring a formal AGM as outlined in
section E.2 of the Code.
Directors' Report
The Directors present their annual report and the audited
financial statements of Electricity North West Limited (the
'Company') and its subsidiaries (together referred to as the
'Group') for the year ended 31 March 2012.
Business review and principal activities
The Chief Executive Officer's statement on page 3 and the
Business Review on pages 5 to 25 report on the Group's activities
during the year and on likely future developments. In addition the
Business Review has been compiled to inform the Company's
shareholders and help them assess how the Directors have performed
their duty to promote the success of the Company under the
Companies Act 2006. A summary of key performance indicators can be
found on pages 5 and 6. The Directors, in preparing the Business
Review, have not sought to comply with the Accounting Standard
Board's 2006 Reporting Statement on operating and financial
reviews.
Principal risks and uncertainties
Principal risks and uncertainties are discussed on pages 23 to
25.
Dividends
In 2012 the Company paid dividends of GBP62m (2011: GBP62m).
This figure represents an interim payment of GBP25m paid in June
2011 and a further interim payment of GBP37m paid in December 2011
(2011: This figure represented an interim payment of GBP15m paid in
June 2010 and GBP47m paid in December 2010). The Directors do not
propose a final dividend for the year ended 31 March 2012 (2011:
GBPnil).
Directors
The Directors of the Company during the year ended 31 March 2012
are set out below. Directors were appointed for the whole year
except where otherwise indicated.
P M White (Chair)
J A Gittins
S Johnson
M G McCallion
N P Mills
M A Nagle
C E O'Reilly
S S Toor
Alternate Directors during the year were:
M L Ayre
M A Walters
At no time during the year did any Director have a material
interest in any contract or arrangement which was significant in
relation to the Company's business.
Going concern
When considering continuing to adopt the going concern basis in
preparing the Annual Report and consolidated financial statements,
the Directors have taken into account a number of factors,
including the following:
-- Management has prepared, and the Directors have reviewed,
updated Group forecasts for the DPC5 period which include
projections and cash flow forecasts, including covenant compliance
considerations. The forecasts include appropriate assumptions on
the efficiencies forecast from business transformation. Inherent in
forecasting is an element of uncertainty and our forecasts have
been sensitised for possible changes in the key assumptions,
including RPI and over recoveries of allowed revenue. This analysis
demonstrates that there is sufficient headroom to key covenants and
that sufficient resources are available within the forecast
period;
-- The Company's electricity distribution licence includes the
obligation in standard condition 40 to maintain an investment grade
issuer credit rating;
-- Under section 3A of the Electricity Act 1989, the Gas and
Electricity Markets Authority has a duty, in carrying out its
functions, to have regard to the need to secure that licence
holders are able to finance their activities, which are the subject
of obligations imposed by or under Part 1 of the Electricity Act
1989 or the Utilities Act 2000;
-- Short-term liquidity requirements are forecast to be met from
the Company's normal operating cash flow. Further liquidity is
provided by cash and short-term deposit balances. Furthermore,
GBP55m of committed undrawn bank facilities are available from
lenders which have a maturity of more than one year. Whilst the
utilisation of these facilities is subject to gearing covenant
restrictions, projections to 31 March 2015 indicate there is
significant headroom.
Consequently, after making appropriate enquiries, the Directors
have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the Annual Report and Financial Statements.
The going concern basis has been adopted by the Directors, with
consideration of the guidance given in 'Going Concern and Liquidity
Risk: Guidance for Directors of UK Companies 2009' published by the
Financial Reporting Council in October 2009.
Directors' and Officers' insurance
The Group maintains an appropriate level of Directors' and
Officers' insurance whereby Directors are indemnified against
liabilities to third parties to the extent permitted by the
Companies Act.
Political and charitable donations
The Group made no political donations in the year (2011:
GBPnil). Charitable donations by the Group in the year amounted to
GBP4,700 (2011: GBP11,000) in support of causes in the local
communities in which it operates.
People
The Company's policies on employee consultation and on equal
opportunities for disabled employees are contained within the
employees section of the Business Review.
Corporate Social Responsibility
Details of the Group's approach to corporate responsibility
relating to our environment, social and governance policies can be
found in the Business Review.
Essential contractual relationships
Certain suppliers to the Company contribute key goods or
services, the loss of which could cause disruption to the Company's
services. However, none are so vital that their loss would affect
the viability of the Company as a whole; nor is the business of the
Company overly dependent upon any one individual customer.
Policy on the payment of suppliers and creditors
The Company's policy is to pay suppliers according to agreed
terms of business. These terms are agreed upon entering into
binding contracts and the Company seeks to adhere to the payment
terms, provided the relevant goods and services have been supplied
in accordance with the contracts.
As at 31 March 2012, the average credit period taken for trade
purchases was 20 days from receipt of invoice (2011: 23 days).
Research and development
The Company is committed to developing innovative and
cost-effective solutions for providing high quality services and
reliability to our customers, and for the benefit of the wider
community and the development of the network, as further detailed
in the Business Review.
Financial instruments
The risk management objectives and policies of the Company in
relation to the use of financial instruments can be found in the
Business Review and in note 16 to the financial statements.
Fixed assets
Further details on Property, Plant and Equipment are provided in
the Business Review and note 10 to the financial statements.
Capital Structure
See note 29 for details of the Company's capital structure.
Events after the balance sheet date
At the balance sheet date, ENWL had index-linked swaps totalling
GBP200m notional, with a single accretion payment on maturity in
2038. At that date the swaps had mandatory breaks as follows;
GBP66m notional in July 2013, GBP66m notional in July 2016 and
GBP68m notional in July 2019. On these break dates, ENWL could have
been liable to pay the full mark-to-market value of the swaps to
the swap counterparties.
On 2 May 2012, the GBP66m notional with a mandatory break in
July 2013 was re-structured to remove the mandatory break clause
and to convert to a 'pay-as-you-go' profile, with accretion pay
downs scheduled every five years from July 2012 until maturity in
2038, rather than a single payment on maturity. The real-rate
coupon payable was also amended on re-structure.
The index-linked swaps meet the IAS39 definition of a derivative
and are, therefore, accounted for at fair value through profit or
loss. At the balance sheet date, i.e. prior to re-structure, the
GBP66m notional index-linked swaps were included in the Statement
of Financial Position as a GBP35.3m liability, part of the
derivative liabilities totalling GBP126.1m. On 2 May 2012,
immediately prior to re-structure, these swaps were a GBP33.8m
liability. The impact of the re-structure was to increase the
GBP33.8m liability, by GBP45.9m, to GBP79.7m. The GBP45.9m impact
is a non-cash fair value movement through the income statement post
the balance sheet date.
Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union (EU) and Article 4 of the IAS regulation and
have also chosen to prepare the parent company financial statements
under IFRs as adopted by the EU. 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
Group and Company and of the profit or loss of the Group and
Company for that period. In preparing these financial statements,
International Accounting Standard 1 requires that directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the 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 and
the Group'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
Group and 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.
Information given to auditor
Each of the persons who is a Director at the date of approval of
this annual report confirms that:
(1) so far as the Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
(2) the Director has taken all the steps that he/she ought to
have taken as a Director in order to make himself/herself aware of
any relevant audit information and to establish that the Company's
auditor is aware of that information.
This confirmation is given and should be interpreted within the
provisions of s418 of the Companies Act 2006.
Independent auditor
Deloitte LLP have expressed their willingness to continue in
office as auditor of the company.
In accordance with s487 of the Companies Act 2006, Deloitte LLP
are deemed to be re-appointed as auditor of the Company.
Registered address
Electricity North West Ltd
304 Bridgewater Place
Birchwood Park
Warrington
WA3 6XG
Registered number: 2366949
Approved by the Board on 1 June 2012 and signed on its behalf
by:
S Johnson
Director
Independent Auditor's Report to the Members of Electricity North
West Limited
We have audited the financial statements of Electricity North
West Limited for the year ended 31 March 2012 which comprise the
Consolidated Income Statement and the Consolidated and Company
Statements of Comprehensive Income, Financial Position, Changes in
Equity, Cash Flows and the related notes 1 to 32. 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 and, as regards the parent
company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the group's and the parent company's circumstances
and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the annual report to identify material
inconsistencies with the audited financial statements. If we become
aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinion on financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the parent company's affairs as at 31
March 2012 and of the Group's profit for the year then ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as regards the
group financial statements, Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report
for the financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Alan Fendall (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Manchester, United Kingdom
1 June 2012
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2012
Note Group Group
2012 2011
GBPm GBPm
Revenue 2 404.6 393.8
--------------------------------- ---- ------- -------
Employee costs 3,4 (35.3) (33.9)
Depreciation and amortisation
expense (net) 3 (81.2) (68.3)
Other operating costs 3 (98.7) (81.2)
Total operating expenses (215.2) (183.4)
Operating profit 3 189.4 210.4
Investment income 5 4.4 1.8
Finance expense 6 (138.8) (73.1)
Profit before taxation 55.0 139.1
Taxation 7 14.7 (17.9)
Profit for the year attributable
to equity shareholders 24 69.7 121.2
The results shown in the consolidated income statement for the
current and preceding years are derived from continuing
operations.
CONSOLIDATED STATEMENT AND COMPANY STATEMENT OF COMPREHENSIVE
INCOME for the year ended 31 March 2012
Group and Group and
Company Company
2012 2011
Note GBPm GBPm
Profit for the financial year 69.7 121.2
----------------------------------------- ---- --------- ---------
Other comprehensive (expenses)/income
Actuarial (losses)/gains on
defined benefit pension schemes 19 (18.6) 84.4
Deferred tax on actuarial (losses)/gains
on defined benefit pension schemes
taken directly to equity 20 4.4 (22.0)
Adjustment due to change in
future tax rates of brought
forward deferred tax asset taken
directly to equity 20 (1.2) (2.9)
----------------------------------------- ---- --------- ---------
Other comprehensive (expense)/income
for the year (15.4) 59.5
Total comprehensive income
for the year and attributable
to equity holders 54.3 180.7
----------------------------------------- ---- --------- ---------
CONSOLIDATED STATEMENT AND COMPANY STATEMENT OF FINANCIAL
POSITION
at 31 March 2012
Group Company Group Company
Note 2012 2012 2011 2011
GBPm GBPm GBPm GBPm
ASSETS
Non-current assets
Intangible assets and goodwill 9 37.5 37.5 29.8 29.8
Property, plant and equipment 10 2,430.7 2,433.7 2,309.5 2,312.5
Investments 11 - 15.4 - 15.4
---------------------------------- ---- --------- --------- --------- ---------
2,468.2 2,486.6 2,339.3 2,357.7
---------------------------------- ---- --------- --------- --------- ---------
Current assets
Inventories 12 6.8 6.8 5.6 5.6
Trade and other receivables 13 53.7 53.7 78.1 78.1
Money market deposits 14 25.0 25.0 40.0 40.0
Cash and cash equivalents 14 59.0 59.0 126.9 126.9
Derivative financial instruments 16 - - 1.0 1.0
Current tax asset 14.9 14.9 - -
---------------------------------- ---- --------- --------- --------- ---------
159.4 159.4 251.6 251.6
---------------------------------- ---- --------- --------- --------- ---------
Total assets 2,627.6 2,646.0 2,590.9 2,609.3
---------------------------------- ---- --------- --------- --------- ---------
LIABILITIES
Current liabilities
Trade and other payables 17 (151.2) (166.9) (151.5) (166.9)
Current income tax liabilities - - (24.1) (24.1)
---------------------------------- ---- --------- --------- --------- ---------
(151.2) (166.9) (175.6) (191.0)
---------------------------------- ---- --------- --------- --------- ---------
Net current assets/(liabilities) 8.2 (7.5) 76.0 60.6
Non-current liabilities
Borrowings 15 (1,087.0) (1,087.0) (1,043.9) (1,043.9)
Derivative financial instruments 16 (126.1) (126.1) (76.3) (76.3)
Deferred tax 20 (238.0) (238.7) (258.6) (259.6)
Customer contributions 21 (470.3) (470.3) (448.5) (448.5)
Refundable customer deposits 22 (3.4) (3.4) (1.6) (1.6)
Retirement benefit obligations 19 (14.2) (14.2) (41.3) (41.3)
---------------------------------- ---- --------- --------- --------- ---------
(1,939.0) (1,939.7) (1,870.2) (1,871.2)
---------------------------------- ---- --------- --------- --------- ---------
Total liabilities (2,090.2) (2,106.6) (2,045.8) (2,062.2)
---------------------------------- ---- --------- --------- --------- ---------
Total net assets 537.4 539.4 545.1 547.1
---------------------------------- ---- --------- --------- --------- ---------
EQUITY
Called up share capital 23 238.4 238.4 238.4 238.4
Share premium account 24 4.4 4.4 4.4 4.4
Revaluation reserve 24 107.9 107.9 109.9 109.9
Capital redemption reserve 24 8.6 8.6 8.6 8.6
Retained earnings 24 178.1 180.1 183.8 185.8
---------------------------------- ---- --------- --------- --------- ---------
Total equity 537.4 539.4 545.1 547.1
---------------------------------- ---- --------- --------- --------- ---------
The financial statements of Electricity North West Limited
(registered number 2366949) were approved by the Board of Directors
on 1 June 2012 and signed on its behalf by:
M McCallion
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2012
Group
Called Share Capital
up share premium Revaluation redemption Retained Total
capital account reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2010 238.4 4.4 111.6 8.6 63.4 426.4
Profit for the year - - - - 121.2 121.2
Transfer from
Revaluation reserve - - (1.7) - 1.7 -
Actuarial gains on
defined benefit schemes - - - - 84.4 84.4
Tax on components of
comprehensive income - - -
------------ ---------- --------
- (24.9) (24.9)
-------------------------- ---------- --------- ------------- ------------ ---------- --------
Total comprehensive
(expense)/income for
the year - - (1.7) - 182.4 180.7
Transactions with owners
recorded directly in
equity
----------
Equity dividends (note
8) - - - - (62.0) (62.0)
-------------------------- ---------- --------- ------------- ------------ ---------- --------
At 31 March 2011 238.4 4.4 109.9 8.6 183.8 545.1
Profit for the year - - - - 69.7 69.7
Transfer from
Revaluation reserve - - (2.0) - 2.0 -
Actuarial losses on
defined benefit schemes
(note 19) - - - - (18.6) (18.6)
Tax on components of
comprehensive income - - -
------------ ---------- --------
- 3.2 3.2
-------------------------- ---------- --------- ------------- ------------ ---------- --------
Total comprehensive
(expense)/income for
the year - - (2.0) - 56.3 54.3
Transactions with owners
recorded directly in
equity
----------
Equity dividends (note
8) - - - - (62.0) (62.0)
-------------------------- ---------- --------- ------------- ------------ ---------- --------
At 31 March 2012 238.4 4.4 107.9 8.6 178.1 537.4
-------------------------- ---------- --------- ------------- ------------ ---------- --------
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2012
Company
Called Share Capital
up share premium Revaluation redemption Retained Total
capital account reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2010 238.4 4.4 111.6 8.6 65.4 428.4
Profit for the
year - - - - 121.2 121.2
Transfer from
Revaluation reserve - - (1.7) - 1.7 -
Actuarial gains
on
defined benefit
schemes - - - 84.4 84.4
----------
Tax on components
of comprehensive
income - - - (24.9) (24.9)
-
-
---------------------- ---------- --------- ------------ ------------ ---------- --------
Total comprehensive
(expense)/income
for the year - - (1.7) - 182.4 180.7
Transactions with
owners recorded
directly in equity
Equity dividends
(note 8) - - - - (62.0) (62.0)
---------------------- ---------- --------- ------------ ------------ ---------- --------
At 31 March 2011 238.4 4.4 109.9 8.6 185.8 547.1
Profit for the
year - - - - 69.7 69.7
Transfer from
Revaluation reserve - - (2.0) - 2.0 -
Actuarial losses
on
defined benefit
schemes(note 19) - - - - (18.6) (18.6)
Tax on components
of comprehensive
income - - - - 3.2 3.2
Total comprehensive
(expenses)/income
for the year - - (2.0) - 56.3 54.3
Transactions with
owners recorded
directly in equity
Equity dividends
(note 8) - - - - (62.0) (62.0)
---------------------- ---------- --------- ------------ ------------ ---------- --------
At 31 March 2012 238.4 4.4 107.9 8.6 180.1 539.4
CONSOLIDATED STATEMENT AND COMPANY STATEMENT OF CASH FLOWS
for the year ended 31 March 2012
Group Company Group Company
Note 2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Operating activities
Cash generated from operations 28 231.9 231.9 245.9 246.8
Interest paid (46.9) (46.9) (37.0) (37.0)
Tax paid (15.2) (15.2) (31.1) (31.1)
-------------------------------- ---- -------------- -------------- ------- -------
Net cash generated from
operating activities 169.8 169.8 177.8 178.7
Investing activities
Interest received and similar
income 1.4 1.4 0.6 0.6
Purchase of property, plant
and equipment (222.0) (222.0) (173.9) (155.2)
Purchase of intangible assets (0.8) (0.8) (3.0) (2.9)
Acquisition of subsidiary,
net of cash acquired 26 (2.0) (2.0) (14.3) (23.5)
Overdraft acquired on hive-up
of subsidiary 26 - - - (10.0)
Customer contributions received 30.3 30.3 37.1 37.1
Proceeds from sale of
property, plant and equipment 0.6 0.6 0.6 0.1
-------------------------------- ---- -------------- -------------- ------- -------
Net cash used in investing
activities (192.5) (192.5) (152.9) (153.8)
Financing activities
Proceeds from borrowings - - 135.9 135.9
Transfer from/(to) money
market deposits 15.0 15.0 (40.0) (40.0)
Repayment of borrowings - - (3.9) (3.9)
Receipt on close out of
swap 1.8 1.8 - -
Dividends paid to equity
shareholders of the Company (62.0) (62.0) (62.0) (62.0)
-------------------------------- ---- -------------- -------------- ------- -------
Net cash (used in)/generated
from financing activities (45.2) (45.2) 30.0 30.0
-------------------------------- ---- -------------- -------------- ------- -------
Net (decrease)/increase
in cash and cash equivalents (67.9) (67.9) 54.9 54.9
-------------------------------- ---- -------------- -------------- ------- -------
Cash and cash equivalents
at the beginning of the
year 14 126.9 126.9 72.0 72.0
-------------------------------- ---- -------------- -------------- ------- -------
Cash and cash equivalents
at the
end of the year 14 59.0 59.0 126.9 126.9
-------------------------------- ---- -------------- -------------- ------- -------
Notes to the financial statements
Electricity North West Limited is a company incorporated in the
United Kingdom under the Companies Act.
1. Accounting Policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below.
Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted for
use in the European Union, including International Accounting
Standards ('IAS') and interpretations issued by the International
Financial Reporting Interpretations Committee ('IFRIC').
The financial statements have been prepared on the historical
cost basis, except for the revaluation of financial instruments,
and certain property, plant and equipment.
The preparation of financial statements, in conformity with
generally accepted accounting principles ('GAAP') under IFRS,
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting year. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results ultimately may differ from these
estimates.
Basis of preparation - going concern basis
When considering continuing to adopt the going concern basis in
preparing the Annual Report and consolidated financial statements,
the Directors have taken into account a number of factors,
including the following:
-- Management has prepared, and the Directors have reviewed,
updated Group forecasts for the DPC5 period which include
projections and cash flow forecasts, including covenant compliance
considerations. The forecasts include appropriate assumptions on
the efficiencies forecast from business transformation. Inherent in
forecasting is an element of uncertainty, our forecasts have been
sensitised for possible changes in the key assumptions, including
RPI and over recoveries of allowed revenue, and demonstrate that
there is sufficient headroom to key covenants and that sufficient
resources are available within the forecast period.
-- The Company's electricity distribution licence includes the
obligation in standard condition 40 to maintain an investment grade
issuer credit rating.
-- Under section 3A of the Electricity Act 1989, the Gas and
Electricity Markets Authority has a duty, in carrying out its
functions, to have regard to the need to secure that licence
holders are able to finance their activities, which are the subject
of obligations imposed by or under Part 1 of the Electricity Act
1989 or the Utilities Act 2000.
-- The Group and Company have considerable financial resources.
Short-term liquidity requirements are forecast to be met from the
Company's normal operating cash flow. Further liquidity is provided
by cash and short-term deposit balances. Furthermore, committed
undrawn bank facilities are available from lenders of GBP55m within
ENWL, GBP121.4m in North West Electricity Networks Limited and
GBP20m at North West Electricity Networks (Holdings) Limited which
have a maturity of more than one year. Whilst the utilisation of
these facilities is subject to gearing covenant restrictions the
covenants are not forecast to pose any operational
restrictions.
Consequently, after making appropriate enquiries, the Directors
have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the Annual Report and consolidated financial
statements.
The going concern basis has been adopted by the directors with
supporting assumptions or qualifications as necessary, that has
been prepared in accordance with 'Going Concern and Liquidity Risk:
Guidance for Directors of UK companies 2009' published by the
Financial Reporting Council in October 2009.
Adoption of new and revised standards
In the current year, the following new and revised Standards and
Interpretations have been adopted and have had no impact on the
amounts reported or the presentation and disclosure in the
financial statements. However they may impact the accounting for
future transactions and arrangements:
-- IAS 24 (Nov 2009) Related Party Disclosures
-- IAS 32 (amended) Classification of Rights Issues;
-- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments;
-- IFRIC 14 (amended) Prepayments of a Minimum Funding Requirement; and
-- Improvements to IFRSs (May 2010).
Recently issued accounting pronouncements - International
Financial Reporting Standards
At the date of approval of these financial statements, the
following relevant standards and interpretations were in issue but
not yet effective. The Directors anticipate that the adoption of
these standards and interpretations will have no material impact on
the Group's financial statements and that the Group will adopt
these standards and interpretations at their effective dates:
-- IFRS 9 Financial Instruments;
-- Amendments to IFRS 7, 'Financial Instruments; Disclosures' on transfers of fixed assets;
-- Amendment to IFRS 1, 'First time adoption' on fixed dates and hyperinflation;
-- Amendment to IAS 12 'Income Taxes' on deferred tax: recovery of underlying assets;
-- Amendment to IAS 1 'Financial Statement Presentation' regarding other comprehensive income;
-- Amendment to IAS 19 'Employee Benefits';
-- IFRS 10, 'Consolidated Financial statements';
-- IFRS 11 'Joint Arrangements';
-- IFRS 12 'Disclosures of Interests in Other Entities';
-- IFRS 13 'Fair Value Measurement';
-- IAS 27 (revised 2011), 'Separate Financial Statements'; and
-- IAS 28 (revised 2011) 'Associates and Joint Ventures'.
Basis of consolidation
The Group financial statements consolidate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries), made up to 31 March each year.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of
disposal, as appropriate.
Subsidiaries
Control is achieved where the Company has the power to govern
the financial and operating policies, generally accompanied by a
shareholding of more than one half of the voting rights, of an
invested entity so as to obtain benefits from its activities. On
acquisition, the assets and liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair
values of the identifiable net assets acquired is recognised as
goodwill. If the cost of acquisition is below the fair values of
the identifiable net assets acquired the difference is recognised
as negative goodwill and immediately written-off and credited to
the income statement in the year of acquisition. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation.
Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment.
Business combinations and goodwill
The acquisition of subsidiaries is accounted for using the
purchase method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the group in exchange for control of the acquiree. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition date. All
costs associated with business combinations are expensed to the
income statement.
Goodwill arising on the acquisition is recognised as an asset
and initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, then the negative goodwill is recognised,
but immediately written-off to the income statement.
Goodwill is allocated to cash-generating units and is not
amortised but is tested annually for impairment. Goodwill is
considered as having an indefinite useful life.
Intangible assets
Intangible assets are measured initially at cost and are
amortised on a straight-line basis over their estimated useful
lives. Carrying amount is reduced by any provision for impairment
where necessary.
Amortisation periods for categories of intangible assets
are:
Computer software 3-10 years
Intangible assets under construction are not amortised.
Amortisation commences from the date the intangible asset is
available for use.
Property, plant and equipment
Property, plant and equipment comprises operational structures
and other assets (including properties, overground plant and
equipment and electricity operational assets).
Operational structures
Infrastructure assets are depreciated by writing off their
deemed cost less the estimated residual value, evenly over their
useful lives, which range from 5 to 80 years. Employee costs
incurred in implementing the capital schemes of the Group are
capitalised within operational structure assets.
In 1997 the Company undertook a revaluation of certain assets
due to a business combination. This resulted in the creation of a
revaluation reserve of GBP234.9m. The additional depreciation
created as result of the revaluation is transferred from the
revaluation reserve to retained earnings on an annual basis.
Other assets
All other property, plant and equipment is stated at historical
cost less accumulated depreciation.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Subsequent costs are
included in the asset's carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. All other
repairs and maintenance are charged to the income statement during
the financial year in which they are incurred.
Freehold land and assets in the course of construction are not
depreciated. Other assets are depreciated by writing off their cost
evenly over their estimated useful lives, based on management's
judgement and experience, which are principally as follows:
Buildings 30-60 years
Fixtures and equipment, vehicles and other 3-40 years
Depreciation methods and useful lives are re-assessed annually
and, if necessary, changes are accounted for prospectively.
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sale proceeds and
the carrying amount of the asset and is recognised in the income
statement.
Impairment of tangible and intangible assets
Intangible assets and property, plant and equipment are reviewed
for impairment at each reporting date to determine whether there is
any indication that those assets may have suffered an impairment
loss. An intangible asset with an indefinite life is tested for
impairment at least annually and whenever there is an indication of
impairment. If any such indication exists, the recoverable amount
of the asset is estimated in order 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.
The recoverable amount is the higher of fair value less costs to
sell, and value in use. Value in use represents the net present
value of expected future cash flows discounted on a pre-tax basis
using a rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. Impairment of non-current assets is recognised
in the income statement within operating costs.
Where an impairment loss subsequently reverses, the reversal is
recognised in the income statement and the carrying amount of the
asset is increased to the revised estimate of its recoverable
amount, but not so as to exceed the carrying amount that would have
been determined had no impairment loss been recognised in prior
years.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is based on weighted average cost and includes
expenditure incurred in acquiring the inventories, conversion costs
and other costs in bringing them to their existing location and
condition.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
Trade receivables
Trade receivables are stated at nominal value with any
allowances made for any estimated irrecoverable amounts.
Trade payables
Trade payables are stated at their nominal value.
Cash and cash equivalents
In the consolidated cash flow statement and related notes, cash
and cash equivalents includes cash at bank and in hand, deposits,
other short-term highly liquid investments which are readily
convertible on initial investment into known amounts of cash within
three months and which are subject to an insignificant risk of
change in value.
Money market deposits
Money market deposits with terms to maturity in excess of three
months are not included as cash or cash equivalents and are
separately disclosed on the face of the statement of financial
position.
Financial investments
Investments (other than interests in subsidiaries and fixed
deposits) are recognised and derecognised on a trade date basis and
are initially measured at fair value, including transaction costs.
Investments are classified as available-for-sale and are measured
at subsequent reporting dates at fair value. Gains and losses
arising from changes in fair value are recognised directly in
equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously
recognised in equity is included in the net profit or loss for the
year.
Financial Assets
All financial assets are recognised and derecognised on a trade
date basis where the purchase or sale of a financial asset is under
a contract whose terms require delivery of the financial asset
within the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except
for those financial assets classified as at fair value through
profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified
categories: financial assets 'at fair value through profit or loss'
(FVTPL) and 'loans and receivables'. The classification depends on
the nature and purpose of the financial assets and is determined at
the time of initial recognition.
The effective interest method is a method of calculating the
amortised cost of a debt instrument and of allocating interest
income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the debt
instrument, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt
instruments other than those financial assets classified as at
FVTPL.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Equity instruments issued by the Group are
recorded at the proceeds received, net of direct issue costs.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the
proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct
issue costs, are accounted for on an amortised cost basis to the
income statement using the effective interest method and are added
to the carrying amount of the instrument to the extent that they
are not settled in the year in which they arise.
The effective interest rate is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense to the relevant year. The effective interest rate is the
rate that exactly discounts estimated future cash payments through
the expected life of the financial liability, or where appropriate,
a shorter period. The Group derecognises financial liabilities
when, and only when, the Group's obligations are discharged,
cancelled or they expire.
Borrowing costs and finance income
All borrowing costs and finance income that are not directly
attributable to the acquisition, issue or disposal of a financial
asset or financial liability are recognised in the income statement
in the year in which they are incurred. Transaction costs that are
directly attributable to the acquisition or issue of a financial
asset or financial liability are included in the initial fair value
of that instrument.
Under IAS 23 borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset are
capitalised. A qualifying asset is any major project with a
projected timescale of greater than 12 months. Capitalisation
commences when activities are undertaken to prepare the asset for
use, and expenditure and borrowing costs are being incurred.
Capitalisation ceases when substantially all of the activities
necessary to prepare the intended asset for its intended use or
sale are complete.
Borrowing costs capitalised in the year under IAS 23 were
GBP0.6m (2011: GBP0.3m), using an average annual capitalisation
rate of 6.9% (2011: 6.7%).
Derivatives and borrowings
The Group's default treatment is for borrowings to be carried at
amortised cost, whilst derivatives are recognised separately on the
statement of financial position at fair value with movements in
those fair values reflected through the income statement. This has
the potential to introduce considerable volatility to both the
income statement and statement of financial position.
Embedded Derivatives
Derivatives embedded in other financial instruments, or host
contracts, are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host
contracts and the host contracts are not measured at FVTPL.
An embedded derivative is presented as a non-current asset or
non-current liability if the remaining maturity of the hybrid
instrument to which the embedded derivative relates is more than 12
months and is not expected to be realised or settled within 12
months.
The Group is therefore subject to volatility in the income
statement due to changes in the fair values of the derivative
financial instruments. Further information is provided in note 16
to the financial statements.
Financial liabilities designated at fair value through profit or
loss ('FVTPL')
The Group applied the fair value through profit or loss option
to the GBP250m 8.875% 2026 bond upon initial recognition as the
complexity of the associated swaps at that time meant that the
criteria to allow hedge accounting was not met and the otherwise
inconsistent accounting treatment that would have resulted allowed
the Group to satisfy the criteria for this designation.
Financial liabilities at FVTPL are stated at fair value, with
any gains or losses on re-measurement recognised in the income
statement. The net gain or loss recognised in the income statement
incorporates any interest paid on the financial liabilities and is
included in the interest charge. Fair value is determined in the
manner described in note 16.
The Group elects to designate a financial liability at inception
as fair value through the income statement on the basis that it
meets the conditions specified in IAS 39 'Financial Instruments:
Recognition and measurement'.
Derivative financial instruments and hedge accounting
Interest rate and index linked swap agreements are used to
manage interest rate exposure. The Group does not use derivative
financial instruments for speculative purposes.
All financial derivatives are initially recognised at fair value
at the date the derivative contract is entered into and are
subsequently re-measured to their fair value at each statement of
financial position date. Changes in the fair value of all
derivative financial instruments are recognised in the income
statement within finance expense as they arise; the Group does not
currently designate derivatives into hedging relationships and
apply hedge accounting.
Hedge accounting
There are two types of hedge accounting strategies that the
Group considers; a fair value hedge and a cash flow hedge.
Currently the Group has no formal hedging relationships.
Operating profit
Operating profit is stated after charging operating expenses but
before investment income, finance expense and other gains and
losses.
Taxation
The tax expense represents the sum of current and deferred tax
charges for the financial year, adjusted for prior year items.
Current taxation
Current tax, representing UK corporation tax, is based on the
taxable profit for the year and is provided at amounts expected to
be paid (or recovered) using the tax rates and laws that have been
enacted or substantively enacted at the statement of financial
position date. Taxable profit differs from the net profit as
reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are
provided, using the liability method, on all taxable temporary
differences at the statement of financial position date. Such
assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries except where the
Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax is measured at the average tax rates that are
expected to apply in the years in which the temporary timing
differences are expected to reverse based on tax rates and laws
that have been enacted or substantively enacted at the statement of
financial position date. The carrying amount of deferred tax assets
is reviewed at each statement of financial position date and
reduced to the extent that it is no longer more likely than not
that sufficient taxable profits will be available to allow all or
part of the asset to be recovered. Deferred tax is charged or
credited to the income statement, except when it relates to items
charged or credited to equity, in which case the deferred tax is
also dealt with in other comprehensive income.
Employee benefits - Retirement benefit obligations
The Group's defined pension benefit arrangements are provided
through a division of the Electricity Supply Pension Scheme (ESPS).
The most recent actuarial valuation for the scheme for funding
purposes was carried out at 31 March 2010 and actuarial valuations
will be carried out thereafter at intervals of not more than three
years. The pension cost under IAS 19 'Employee Benefits' is
assessed in accordance with the advice of a firm of actuaries. The
assumptions are disclosed in note 19 of the financial statements.
Results are affected by the actuarial assumptions used. These
assumptions include those made for investment returns on the
scheme's assets, discount rates, pay growth and increases to
pensions in payment and deferred pensions, and life expectancy for
scheme members. Actual experience may differ from the assumptions
made, for example, due to changing market and economic conditions
and longer or shorter lives of participants. Defined benefit assets
are measured at fair value while liabilities are measured at
present value. The difference between the two amounts is recognised
as a surplus or obligation in the statement of financial
position.
The cost of providing pension benefits to employees relating to
the current year's service and the difference between the expected
return on scheme assets and interest on scheme liabilities are
included within the income statement within employee costs.
All actuarial gains and losses are recognised outside the income
statement in retained earnings and presented in the Statement of
Comprehensive Income.
In July 2010, the Government announced its intention that future
statutory minimum pension indexation would be measured by the
Consumer Prices Index, rather than the Retail Prices Index. The
Company has taken legal advice on how this change will impact the
Scheme. This change was reflected in the Company's accounting
figures at 31 March 2011 and a reduction in the benefit obligation
of GBP3m was recognised in equity as a result of this change in
assumptions.
In addition, the Group also operates defined contribution
pension schemes. Payments are charged to the income statement as
employee costs as they fall due. The Group has no further payment
obligations once the contributions have been paid.
IFRIC14: 'The limit on a defined benefit asset, minimum funding
requirements and their interaction' was published by the
interpretations committee of the International Accounting Standards
Board in July 2007 and was adopted during the year ended 31 March
2008. IFRIC14 provides guidance on the extent to which a pension
scheme surplus should be recognized as an asset and may also
require additional liabilities to be recognised where minimum
funding requirements exist. Legal opinion was obtained that a
pension surplus could be recovered on wind up of the scheme and
could therefore be recognised, along with associated liabilities.
At this current time this interpretation does not affect the
group.
Revenue recognition
Revenue represents the fair value of the income receivable in
the ordinary course of business primarily for the distribution of
electricity during the year, exclusive of value-added tax. Revenue
includes an assessment of the volume of unbilled energy distributed
to customers between the date of the last meter reading and the
year end. Remaining sales relate to the invoice value of other
goods and services provided which also relate to the electricity
network.
Where turnover received or receivable exceeds the maximum amount
permitted by regulatory agreement adjustments will be made to
future prices to reflect this over-recovery, no liability is
recognised as such an adjustment to future prices relates to the
provision of future services. Similarly no asset is recognised
where a regulatory agreement permits adjustments to be made to
future prices in respect of an under-recovery.
The Group recognises revenue generally at the time of delivery
and when collection of the resulting receivable is reasonably
assured. Payments received in advance of revenue recognition are
recorded as deferred revenue.
Customer Contributions
Contributions receivable in respect of property, plant and
equipment are treated as deferred income, which is credited to the
income statement over the estimated economic lives of the related
assets. Amortisation of contributions received post 1 July 2009 is
shown as revenue rather than within operating costs following the
adoption of IFRIC 18.
Refundable Customer Deposits
Refundable customer deposits received in respect of property,
plant and equipment are held as a liability until repayment
conditions come into effect and the amounts are repaid to the
customer or otherwise credited to customer contributions.
Leases
Operating lease rentals are charged to the income statement on a
straight-line basis over the period of the lease.
Research and development
Research and development costs are written off to the income
statement as incurred.
In the process of applying the Group's accounting policies, the
Group is required to make certain estimates, judgements and
assumptions that it believes are reasonable based upon the
information available. These estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the years presented.
On an ongoing basis, the Group evaluates its estimates using
historical experience, consultation with experts and other methods
considered reasonable in the particular circumstances. Actual
results may differ significantly from the estimates, the effect of
which is recognised in the year in which the facts that give rise
to the revision become known.
The following policies are those critical judgements which the
Group believes have the most significant impact on the annual
results under IFRS.
Carrying value of long-life assets
The Group's accounting policy for property, plant and equipment
('PPE') is detailed above. The carrying value of PPE under IFRS as
at 31 March 2012 was GBP2,430.7m (2011: GBP2,309.5m). Additions to
PPE, excluding acquisitions, totalled GBP220.3m (2011: GBP188.1m)
and the depreciation charge was GBP83.9m (2011: GBP75.1m) in the
year ended 31 March 2012. The estimated useful economic lives of
PPE are based on management's judgement and experience. When
management identify that the actual useful lives differ materially
from the estimates used to calculate depreciation, that charge is
adjusted prospectively. Due to the significance of PPE investment
to the Company, variations between actual and estimated useful
lives could impact operating results both positively and
negatively, although historically, few changes to estimated useful
lives have been required.
In accordance with IFRS, the Company is required to evaluate the
carrying values of PPE for impairment whenever circumstances
indicate, in management's judgement, that the carrying value of
such assets may not be recoverable. An impairment review requires
management to make subjective judgements concerning the cash flows,
growth rates and discount rates of the cash-generating units under
review.
In the financial year ended 31 March 2012, the Directors have
assessed the carrying value of both tangible and intangible fixed
assets in accordance with the principles of IAS36 'Impairment of
Assets'. This review was underpinned by value in use calculations
on the recoverable amounts of the cash generating units (CGUs). For
the purpose of impairment testing the Group have determined that
there is only one CGU and, due to favourable operating cash flows
being forecast to the end of DPCR5 and beyond, no impairment
exists. Furthermore, management have completed a review of tangible
fixed assets for material obsolescence and/or physical damage and
no indication of impairment was identified.
Revenue recognition
Under IFRS, the Company recognises revenue generally at the time
of delivery and when collection of the resulting receivable is
reasonably assured. Should management consider that the criteria
for revenue recognition are not met for a transaction, revenue
recognition would be delayed until such time as the transaction
becomes fully earned. Payments received in advance of revenue
recognition are recorded as deferred revenue. The Company raises
bills and recognises revenue in accordance with its entitlement to
receive revenue in line with the limits established by the periodic
regulatory price review processes.
The principal customers of the business are the electricity
supply companies that utilise the Company's distribution network to
distribute electricity from generators to the end consumer. Revenue
from such activity is known as 'use of system'. The amount billed
is dependent upon the volume of electricity distributed, including
estimates of the units distributed to customers. The estimated
usage is based on historical data, judgement and assumptions.
Operating revenues are gradually adjusted to reflect actual usage
in the period over which the meters are read.
Taxation
Assessing the outcome of uncertain tax positions requires
judgements to be made regarding the application of tax law and the
results of negotiations with, and enquiries from tax
authorities.
Accounting for provisions and contingencies
The Group is subject to a number of claims incidental to the
normal conduct of its business, relating to and including
commercial, contractual and employment matters, which are handled
and defended in the ordinary course of business. The Group
routinely assesses the likelihood of any adverse judgements or
outcomes to these matters as well as ranges of probable and
reasonably estimated losses. Reasonable estimates involve
judgements made by management after considering information
including notifications, settlements, estimates performed by
independent parties and legal counsel, available facts,
identification of other potentially responsible parties and their
ability to contribute, and prior experience. A provision is
recognised when it is probable that an obligation exists for which
a reliable estimate can be made of the obligation after careful
analysis of the individual matter. The required provision may
change in the future due to new developments and as additional
information becomes available. Matters that either are possible
obligations or do not meet the recognition criteria for a provision
are disclosed, unless the possibility of transferring economic
benefits is remote.
ENWL held the leasehold title to a number of retail properties
as a result of its legacy retail operations whilst trading as
Norweb Plc. The Company assigned the majority of these to Comet
Group Plc ('Comet') in 1996. ENWL still has a potential liability
for lease obligations under privity of contract rules for 29 of
those premises. It has been considered that the likelihood of Comet
defaulting, and hence ENWL becoming liable for these leases is not
probable. However, it could be possible and therefore a contingent
liability has been disclosed in line with IAS 37, "Provisions,
contingent liabilities and contingent assets". For further details
refer to note 30.
Retirement benefits
The pension cost under IAS 19 'Employee benefits' is assessed in
accordance with the advice of a firm of actuaries. The assumptions
are disclosed in note 19 of the financial statements. Results are
affected by the actuarial assumptions used. These assumptions
include those made for investment returns on the schemes' assets,
discount rates, pay growth and increases to pensions in payment and
deferred pensions, and life expectancy for scheme members. Actual
experience may differ from the assumptions made, for example, due
to changing market and economic conditions and longer or shorter
lives of participants.
Fair values of derivative financial instruments
The Group uses derivative financial instruments to manage the
exposure to interest rate risk and bond issues. The Board has
authorised the use of derivatives by the Group to reduce the risk
of loss arising from changes in market risks, and for economic
hedging reasons. All financial derivatives are initially recognised
at fair value at the date the derivative contract is entered into
and are subsequently re-measured to their fair value at each
statement of financial position date. Changes in the fair value of
all derivative financial instruments that are not in a hedging
relationship are recognised in the income statement within finance
expense as they arise.
The Group is therefore subject to volatility in the income
statement due to changes in the fair values of the derivative
financial instruments. Further information is provided in note 16
to the financial statements.
Impairment of goodwill
On acquisition of business combinations, assessment is required
as to whether the Group has acquired any intangible assets as part
of the acquisition, and subsequent measurement of any intangible
assets must be made.
In the prior year the Group acquired the share capital of ENWSL.
On acquisition, in line with IFRS 3 requirements, management has
performed a review for intangibles as part of the assessment of
fair values. For an intangible asset to be recognised it must be
possible to separately identify it and also to reliably measure the
value. Management did not identify any intangible assets arising as
a result of the acquisition of ENWSL, and consequently the excess
of the total consideration over acquired net assets, after fair
value adjustments, of GBP10.1 million was recognised as
goodwill.
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash generating units to which goodwill
has been allocated. The value in use calculation requires the
entity to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to
calculate present value. The value in use calculation performed
concludes that no impairment loss is required against this
goodwill. The carrying amount of goodwill at the balance sheet date
was GBP10.1m.
Impairment of intangibles
Management assesses the recoverability of intangible assets on
an annual basis. Determining whether any of the intangible assets
are impaired requires an estimation of the value in use of the
asset to the Group. This value in use calculation requires the
Group to estimate the future cash flows expected to arise from the
asset and a suitable discount rate in order to calculate the
present value for the asset and compare that calculation to its
carrying value.
2 REVENUE
2012 2011
GBPm GBPm
-------- ----- -----
Revenue 404.6 393.8
-------- ----- -----
Predominantly all Group revenues arise from electricity
distribution in the North West of England and associated
activities. Only one operating segment is therefore regularly
reviewed by the Chief Executive Officer and Executive Team.
Included within the above are revenues of approximately GBP306.1m
(2011: GBP313.9m) which arose from sales to the Group's five (2011:
five) largest customers. Customer 1 represented GBP98.2m (2011:
GBP98.7m), Customer 2 GBP78.7m (2011: GBP79.7m), Customer 3
GBP56.3m (2011: GBP55.6m), Customer 4 GBP37.8m (2011: GBP40.3m) and
Customer 5 GBP35.1m (2011: GBP39.6m) of revenues. No other customer
represented more than 10 per cent of revenues either this year or
prior year.
3 Operating Profit
The following items have been included in arriving at the
Group's operating profit:
2012 2011
Group GBPm GBPm
------------------------------------------------------ ------ ------
Employee costs
Employee costs (see note 4) 35.3 33.9
------------------------------------------------------ ------ ------
Depreciation and amortisation expense (net)
Depreciation of property, plant and equipment
Owned assets (see note 10) 83.9 75.1
Amortisation of intangible assets and customer
contributions
Software (see note 9) 8.3 4.3
Customer contributions(1) (see note 21) (11.0) (11.1)
------------------------------------------------------ ------ ------
81.2 68.3
------------------------------------------------------ ------ ------
Other income
Profit on disposal of property, plant and equipment (0.6) (0.6)
------------------------------------------------------ ------ ------
Other operating costs include:
Research and development 1.6 1.5
Restructuring costs(2) 1.9 1.9
Operating leases:
- land and buildings 1.3 0.6
- hire of plant and machinery 0.1 0.5
------------------------------------------------------ ------ ------
1 In the current year GBP1.9m (2011: GBP1.0m) of customer
contributions amortisation has been amortised through revenue as a
result of the adoption of IFRIC 18 as detailed in note 1.
(2) Restructuring costs include severance costs of GBP1.9m
(2011: GBP1.1m).
Analysis of the auditor's remuneration is as follows:
Group Group
2012 2011
GBPm GBPm
--------------------------------- ----- -----
Fees payable to the Company's
auditor and their associates
for the audit of the Company's
annual accounts 0.1 0.1
Fees payable to the Company's
auditor and their associates
for other services to the
group
The audit of the Company's
subsidiaries - -
--------------------------------- ----- -----
Total audit fees 0.1 0.1
--------------------------------- ----- -----
Audit-related assurance services 0.1 -
Other taxation advisory services - 0.1
Corporate finance services - 0.1
Other services - -
--------------------------------- ----- -----
Total non-audit fees 0.1 0.2
--------------------------------- ----- -----
Total fees 0.2 0.3
--------------------------------- ----- -----
Fees payable to Deloitte LLP and their associates for non-audit
services to the Company are not required to be disclosed because
the consolidated financial statements are required to disclose such
fees on a consolidated basis.
Details of the Company's policy on the use of auditors for
non-audit services, the reasons why the auditor was used rather
than another supplier and how the auditor's independence and
objectivity was safeguarded are set out in the Audit Committee
Report. A contingent tax project has been undertaken during the
year ended 31 March 2012. Fees for the project could be up to
GBP260,000 and are excluded from the table above pending the
outcome of the services.
4 Employee COSTS
Group Group
2012 2011
GBPm GBPm
------------------------------ ------ ------
Wages and salaries 70.5 51.8
Social security costs 7.0 3.9
Pension costs (see note 19) 11.5 12.6
------------------------------ ------ ------
Employee costs (including
Directors' remuneration) 89.0 68.3
Costs transferred directly
to fixed assets (53.7) (34.4)
Charged to operating expenses 35.3 33.9
------------------------------ ------ ------
The average monthly number of employees during the year
(including Executive Directors)
Company Company
Group 2012 2012 Group 2011 2011
Number Number Number Number
-------------------------- ------ ---------- ------- ---------- --------
Electricity distribution 1,613 1,613 1,189 109
-------------------------- ------ ---------- ------- ---------- --------
As part of the hive up of ENWSL assets and liabilities to ENWL
on 31 March 2011 (see note 26) the employees of ENWSL were
transferred to be employees of ENWL.
5 Investment Income
2012 2011
GBPm GBPm
------------------------------------------------- ------ ------
Interest receivable on short-term bank deposits
held at amortised cost 1.8 0.6
------------------------------------------------- ------ ------
Expected return on pension scheme assets (see
note 19) 52.4 51.7
Interest cost on pension scheme obligations (see
note 19) (49.8) (50.5)
Net pension interest 2.6 1.2
Total investment income 4.4 1.8
------------------------------------------------- ------ ------
6 Finance Expense
Group 2012 2012 2011 2011
GBPm GBPm GBPm GBPm
--------------------------------------- ------- ------ ------- ------
Interest payable
Interest payable on Group borrowings 17.0 17.1
Interest payable on borrowings
held at amortised cost 22.8 21.0
Interest payable on borrowings
designated
at fair value through profit
or loss 22.2 22.2
Net receipts on derivatives
held for trading (14.1) (22.5)
Other finance charges related
to
index-linked bonds 12.3 5.3
Capitalisation of borrowing
costs under IAS 23 (0.6) (0.3)
--------------------------------------- ------- ------ ------- ------
Total interest expense 59.6 42.8
--------------------------------------- ------- ------ ------- ------
Movements on financial instruments
Fair value movement on borrowings
designated at fair value through
profit or loss 30.2 6.8
Fair value movement on derivatives
held for trading 50.8 23.5
Cash settlement on close-out (1.8) -
of amortising swaps
Total fair value movements 79.2 30.3
Total finance expense 138.8 73.1
--------------------------------------- ------- ------ ------- ------
In respect of the movement in the fair value of borrowings
designated as at fair value through profit or loss GBP30.2m loss
(2011: GBP.6.8m loss) and a GBP8.6m gain (2011: GBP7.5m loss) is
attributable to changes in credit spread assumptions which is
partially offset by changes in interest rates and therefore
interest payable.
7 Taxation
2012 2011
GBPm GBPm
------------------------------------- ------ ------
Current tax
UK corporation tax 12.1 38.9
Prior year (9.4) (1.4)
Deferred tax (see note 20)
Current year 1.8 1.4
Prior year 2.1 -
Impact of change in future tax rates (21.3) (21.0)
Taxation (14.7) 17.9
------------------------------------- ------ ------
Corporation tax is calculated at 26% (2011: 28%) of the
estimated assessable profit for the period.
The prior year corporation tax credit arises as a result of
changes between the estimated tax position in prior year Statutory
Accounts and the final tax computation position due primarily to
work done during the year on the optimisation of capital allowance
and research and development tax claims. This is partly offset by
the prior year deferred tax charge.
The tax charge in future periods will be affected by the
announcement on 21 March 2012 that the corporation tax main rate
will be reduced to 24% from 1 April 2012. The rate will be reduced
by 1% annually until 1 April 2014 when the rate will be 22%.
Tax rate changes are taken into account if they are
substantively enacted at the statement of financial position date.
The reduction to 24% was included in a resolution passed under the
Provisional Collection of Taxes Act 1968 on 26 March 2012.
Accordingly the tax disclosures reflect deferred tax measured on
the new 24% rate, resulting in a credit of GBP21.3m.
A further deferred tax credit, in respect of the change in
corporation tax rates from 24% to 22% is expected to be in the
region of GBP20m.
The table below reconciles the notional tax charge at the UK
corporation tax rate to the effective tax rate for the year:
2012 2011
GBPm GBPm
------------------------------------------ ------ ------
Profit before tax 55.0 139.1
------------------------------------------ ------ ------
Tax at the UK corporation tax rate of 26%
(2011: 28%) 14.3 39.0
Prior year tax adjustments (7.3) (1.4)
Impact of withdrawal of IBA allowances - 1.3
Non Taxable (income)/expense (0.4) -
Impact from change in future tax rates (21.3) (21.0)
Tax (credit)/expense for the year (14.7) 17.9
------------------------------------------ ------ ------
In addition to the amount charged to the Income Statement,
deferred tax relating to actuarial gains on defined benefit schemes
of GBP4.4m credit (2011: GBP22.0m charge), deferred tax due to
changes in future tax rates of the brought forward deferred tax
asset of GBP1.2m charge (2011: GBP2.9m charge) were taken to the
Statement of Comprehensive Income.
8 Dividends
Amounts recognised as distributions to equity holders in the
year comprise:
2012 2011
GBPm GBPm
--------------------------------------- ----- -----
Interim dividends paid during the year
ended 31 March 2012 of 13p per share
(31 March 2011: 13p per share) 62.0 62.0
---------------------------------------- ----- -----
At the current and prior year ends, there were no proposed final
dividends subject to approval by equity holders of the Company and,
hence, no liability has been included in the financial statements
at 31 March 12 and 31 March 2011 respectively.
9 Intangible Assets and goodwill
Assets under
the course
Goodwill Software of construction Total
Group and Company GBPm GBPm GBPm GBPm
-------------------------------- -------- -------- ---------------- ------
Cost
At 1 April 2010 - 35.4 5.5 40.9
Additions - 0.4 2.6 3.0
Arising on acquisition of
subsidiary 10.1 - - 10.1
Transfers - 2.2 (2.2) -
At 31 March 2011 10.1 38.0 5.9 54.0
Additions - - 0.8 0.8
Reclassification from Tangibles
to Intangibles(1) - - 15.2 15.2
Transfers - 18.5 (18.5) -
Disposals - (1.8) - (1.8)
At 31 March 2012 10.1 54.7 3.4 68.2
-------------------------------- -------- -------- ---------------- ------
Amortisation
At 1 April 2010 - 19.9 - 19.9
Charge for the year - 4.3 - 4.3
At 31 March 2011 - 24.2 - 24.2
Charge for the year - 8.3 - 8.3
Disposals - (1.8) - (1.8)
At 31 March 2012 - 30.7 - 30.7
-------------------------------- -------- -------- ---------------- ------
Net book value
At 31 March 2012 10.1 24.0 3.4 37.5
-------------------------------- -------- -------- ---------------- ------
At 31 March 2011 10.1 13.8 5.9 29.8
-------------------------------- -------- -------- ---------------- ------
Goodwill arose on the acquisition of ENWSL in the prior year,
see note 26 for details.
(1) During the year GBP15.2m of computer software costs have
been transferred from tangible assets under the course of
construction to intangible assets under the course of construction,
due to uncertainty of split from contractors later clarified.
In the Company, Goodwill arose on the transfer of assets and
liabilities (the 'hive-up') of ENWSL in the prior year. This value
reflects the excess of the investment over the book value of the
trade and assets at the date of hive-up and reflects the value of
the business now within ENWL. The value of the investment was
consequently reduced by this same amount.
Assets under the course of construction relates primarily to the
ENWL IT Refresh Programme (ITRP), which involved changing from the
United Utilities platform to Electricity North West's own platform,
the remaining balance at year end relates to the DUoS and
Associated Distribution Systems capture billing system expected to
be completed during next year.
The reclassification between tangible and intangible assets
during the year was as a result of the large number of ongoing ITRP
projects at the last year end. At 31 March 2011, although the total
cost was known, the split between tangible and intangibles
(hardware and software) was unclear. This split has been determined
in the year and transferred accordingly.
At 31 March 2012, the Group and Company had entered into
contractual commitments for the acquisition of intangible assets
amounting to GBPnil (2011: GBP2.1m).
Impairment testing of Goodwill
The Group tests annually for impairment or more frequently if
there are indications that intangible assets with indefinite lives
might be impaired. The recoverable amounts of the cash generating
units (CGUs) are determined from value in use calculations. For the
purposes of impairment testing the Group have determined that there
is only one CGU. The key assumptions for the value in use
calculations are those regarding discount rates and the outcomes of
future Ofgem price control settlements.
The Group has prepared cash flow forecasts for a 25 year period,
which represents the notice period on the licence to distribute
electricity. The rate used to discount cash flows was 7.56% (2011:
7.00%) reflecting an assumed level of risk associated with the cash
flows generated from the licence.
Based on the impairment testing performed, management are
comfortable that sufficient headroom exists between the value in
use and the carrying value of the assets such that no impairment
loss is required to be booked.
10 Property, Plant And Equipment
Group
Fixtures, Assets
Non operational equipment, under the
Operational land and vehicles course
Structures buildings and other of construction Total
GBPm GBPm GBPm GBPm GBPm
----------------------- ----------- --------------- ----------- ---------------- ---------
Cost or valuation
At 1 April 2010 2,928.7 11.1 11.6 186.3 3,137.7
Additions 54.2 1.3 4.0 128.6 188.1
Arising on acquisition - - 18.3 - 18.3
Transfers 104.5 0.4 1.4 (106.3) -
Disposals (7.3) - (0.3) - (7.6)
At 31 March 2011 3,080.1 12.8 35.0 208.6 3,336.5
Additions 78.0 0.1 34.5 107.7 220.3
Transfers
Reclassification 92.5 0.1 (12.5) (80.1) -
from Tangibles to
Intangibles(1) - - - (15.2) (15.2)
Disposals (5.2) - (5.7) - (10.9)
At 31 March 2012 3,245.4 13.0 51.3 221.0 3,530.7
-------------------------- ----------- --------------- ----------- ---------------- ---------
Depreciation and
impairment
At 1 April 2010 940.9 3.7 8.0 - 952.6
Arising on acquisition - - 6.9 - 6.9
Charge for the year 69.9 0.3 4.9 - 75.1
Disposals (7.3) - (0.3) - (7.6)
At 31 March 2011 1,003.5 4.0 19.5 - 1,027.0
Charge for the year 74.1 0.4 9.4 - 83.9
Disposals (5.2) - (5.7) - (10.9)
At 31 March 2012 1,072.4 4.4 23.2 - 1,100.0
Net book value
At 31 March 2012 2,173.0 8.6 28.1 221.0 2,430.7
-------------------------- ----------- --------------- ----------- ---------------- ---------
At 31 March 2011 2,076.6 8.8 15.5 208.6 2,309.5
-------------------------- ----------- --------------- ----------- ---------------- ---------
At 31 March 2012, the Group and Company had entered into contractual
commitments for the acquisition of property, plant and equipment
amounting to GBP2.9m (2011: GBP35.7m).
(1) See note 9
Company
Fixtures and Assets under the
Operational Non operational equipment, vehicles course of
Structures land and buildings and other construction Total
GBPm GBPm GBPm GBPm GBPm
-------------------- ------------------- ------------------- ------------------- ------------------- --------
Cost or valuation
At 1 April 2010 2,931.7 11.1 11.6 186.3 3,140.7
Additions 54.2 1.3 1.1 128.6 185.2
Transfers 104.5 0.4 1.4 (106.3) -
Intra group
transfers(1) - - 20.9 - 20.9
Disposals (7.3) - - - (7.3)
--------------------
At 31 March 2011 3,083.1 12.8 35.0 208.6 3,339.5
Additions 78.0 0.1 34.5 107.7 220.3
Transfers 92.5 0.1 (12.5) (80.1) -
Reclassification
from Tangible to
Intangibles(2) - - - (15.2) (15.2)
Disposals (5.2) - (5.7) - (10.9)
-------------------- ------------------- ------------------- ------------------- ------------------- --------
At 31 March 2012 3,248.4 13.0 51.3 221.0 3,533.7
-------------------- ------------------- ------------------- ------------------- ------------------- --------
Depreciation and Impairment
At 1 April 2010 940.9 3.7 8.0 - 952.6
Charge for the year 69.9 0.3 2.3 - 72.5
Disposals (7.3) - - - (7.3)
Intra group
transfers(1) - - 9.2 - 9.2
At 31 March 2011 1,003.5 4.0 19.5 - 1,027.0
Charge for the year 74.1 0.4 9.4 - 83.9
Disposals (5.2) - (5.7) - (10.9)
At 31 March 2012 1,072.4 4.4 23.2 - 1,100.0
Net book value
At 31 March 2012 2,176.0 8.6 28.1 221.0 2,433.7
-------------------- ------------------- ------------------- ------------------- ------------------- --------
At 31 March 2011 2,079.6 8.8 15.5 208.6 2,312.5
-------------------- ------------------- ------------------- ------------------- ------------------- --------
(1) The intra-group transfer related to the hive-up of net
assets from ENWSL in prior year. See note 26for further details
(2) See note 9
At 31 March 2012, had the property, plant and equipment of the
Group been carried at historical cost less accumulated depreciation
and accumulated impairment losses, the carrying amount would have
been approximately GBP2,291.8m (2011: GBP2,164.1m). The revaluation
surplus is disclosed in note 24, net of deferred tax. The
revaluation surplus arose following a Directors' revaluation of
operational assets and non operational land and buildings in
1997.
11 Investments
Group Company
GBPm GBPm
----------------------------------- ----- -------
Cost
At 31 March 2011 and 31 March 2012 - 15.4
------------------------------------ ----- -------
Details of the investments as at 31 March 2012, all of which
were incorporated in the UK, are as follows:
Company
--------------------------------------- -------------------------------- ---------------- -------------------------
Description of holding Proportion held Nature of business
--------------------------------------- -------------------------------- ---------------- -------------------------
Subsidiary undertakings
Electricity North West Services Ordinary shares of GBP1 each 100% Dormant
Limited
NB Property and Estate Services No. 1 Ordinary shares of GBP1 each 100% Dormant
Limited
NB Leasing Limited Ordinary shares of GBP1 each 100% Dormant
NB (Miles Platting Community Project) Ordinary shares of GBP1 each 100% Dormant
Limited
ENW (ESPS) Pensions Trustees Limited Ordinary shares of GBP1 each 100% Non trading
Group and Company Description of holding Proportion held Nature of business
Other Investments
National Grid plc Ordinary shares of 11.76p each Negligible Energy Distribution
Associated undertaking
NorWeb Limited Ordinary shares of GBP1 each 50% Dormant
Joint ventures
Selectusonline Limited Ordinary shares of 66.67p each 16.67% Planning and Procurement
12 INVENTORIES
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
------------------------------ ----- ------- ----- -------
Raw materials and consumables 6.8 6.8 5.6 5.6
------------------------------ ----- ------- ----- -------
13 Trade And Other Receivables
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
----------------------------------- ----- ------- ----- -------
Trade receivables 6.5 6.5 33.2 33.2
Amounts owed by Group undertakings 0.3 0.3 3.4 3.4
Prepayments and accrued income 46.9 46.9 41.5 41.5
53.7 53.7 78.1 78.1
----------------------------------- ----- ------- ----- -------
Trade receivables do not carry interest and are stated net of
allowances for doubtful receivables of GBP0.4m (2011: GBP0.1m)
estimated by management based on known specific circumstances, past
default experience and their assessment of the current economic
environment. The average credit period taken on sales is 14 days
(2011: 14 days).
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value. Of the trade
receivables, 23% (2011: 10%) are past due but not impaired. The
majority of balances are less than 45 days past due; a balance of
GBP1.5m is greater than 45 days past due at 31 March 2012 (2011:
GBP1.3m), against which an allowance for doubtful debt of GBP0.4m
(2011: GBP0.1m) has been made.
The movement on the provision for impairment of trade
receivables is as follows:
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
---------------------------------- --- ------ -------- ------ --------
Opening balance 0.1 0.1 0.3 0.3
Charged to the income statement 0.3 0.3 - -
Utilised - - (0.2) (0.2)
Closing balance 0.4 0.4 0.1 0.1
Trade receivables comprise 488 (2011: 654) individual customers
and 77.8% (2011: 68.5%) of the trade receivables balance above
relates to the regulated provision of infrastructure to electricity
retail companies. The Group is required by Ofgem to accept any
company that has obtained a trading licence regardless of their
credit status. To mitigate the risk posed by this, all transactions
with customers are governed by a contract which all customers are
required by Ofgem to sign and adhere to the terms.
Under the terms of the contract, the maximum unsecured credit
that the Group may be required to give is 2% of the Regulatory
Asset Value ('RAV') of the Company. In addition the contract makes
provisions for the credit quality of customers and adjusts the
credit value available to them based on credit ratings and payment
history. Where a customer exceeds their agreed credit level under
the contract the customer must provide collateral to mitigate the
increased risk posed. As at 31 March 2012 GBP2.9m (2011: GBP2.9m)
of cash had been received as security.
The allowed RAV is set by Ofgem for each year of DPC5 (1 April
2010 to 31 March 2015) and is GBP1,519.2m for the year ended 31
March 2012 based on March closing prices (2011: GBP1,403.3m).
At 31 March 2012 GBP97.0m (2011: GBP95.2m) of unsecured credit
limits had been granted to customers and the highest unsecured
credit limit given to any single customer was GBP9.9m (2011:
GBP10.3m). All of the customers granted credit of this level must
have a credit rating of at least A- from Standard and Poor's and A3
from Moody's Investor Services or a guarantee from a parent company
of an equivalent rating. Alternatively, the customer must be able
to prove their creditworthiness on an ongoing basis.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
14 Cash AND CASH EQUIVALENTS And Money market deposits
2012 2011
Group and Company GBPm GBPm
Short-term bank deposits including cash at bank
and in hand 59.0 126.9
Cash and Cash Equivalents 59.0 126.9
Short-term money market deposits (maturity over
three months) 25.0 40.0
84.0 166.9
------------------------------------------------- ------- -------
Cash and cash equivalents comprise cash at bank and in hand,
deposits and other short-term highly liquid investments which are
readily convertible into known amounts of cash and have a maturity
of three months or less, net of any bank overdrafts which are
payable on demand. Money market deposits with terms to maturity in
excess of three months are not included as cash or cash equivalents
and are separately disclosed on the face of the statement of
financial position.
The effective interest rate on all short-term deposits was a
weighted average of 1.25% (2011: 0.97%) and these deposits had an
average maturity of 245 days (2011: 164 days).
15 Borrowings
This note provides information about the contractual terms of
the Group's loans and borrowings. For more information about the
Group's exposure to credit risk, liquidity risk and market risk see
note 16.
2012 2011
Group and Company GBPm GBPm
-------------------------------------------------- ------- -------
Non-current liabilities
Bonds 682.8 646.6
Bank and other term borrowings 141.2 134.7
Amounts owed to parent undertaking 67.4 67.4
Amounts owed to affiliated(1) undertaking 195.6 195.2
-------------------------------------------------- ------- -------
1,087.0 1,043.9
-------------------------------------------------- ------- -------
Carrying value by category
The carrying values by category of financial instruments were as
follows:
2012 2011
Year of maturity Carrying Carrying
Value Value
Group and Company GBPm GBPm
--------------------------------------------------------------------- ----------------- -------- ----------
Borrowings designated at fair value through profit or loss statement
8.875% GBP250m bond 2026 365.4 335.2
--------------------------------------------------------------------- ----------------- -------- ----------
Borrowings measured at amortised cost
8.875% GBP200m bond 2026 195.5 195.3
1.4746%+RPI(2) GBP100m index-linked bond 2046 121.9 116.1
1.5911%+RPI(2) GBP135m index-linked loan 2024 141.5 135.0
Amortising costs re: Long term loans at LIBOR plus 2.25% 2012 - (0.3)
Amortising costs re: Long term loans at LIBOR plus 0.70% 2016 (0.3) -
Amounts due to parent undertaking 2015 67.4 67.4
Amounts due to affiliated(1) undertaking 2021 195.6 195.2
Other financial liabilities held at amortised cost 721.6 708.7
(1.) Affiliated companies being those owned by Companies above
ENWL in the North West Electricity Networks (Jersey) Limited
consolidation group.
(2) RPI - Retail Prices Index - a UK general index of retail
prices (for all items) as published by the Office for National
Statistics (January 1987 = 100).
All loans and borrowings are unsecured. There is no formal bank
overdraft facility in place between 1 April 2011 and 31 March 2012.
All borrowings are in sterling. The fair values of the Group's
financial instruments are shown in note 16.
Included within the borrowing note are capitalised facility
arrangement fees of GBP0.3m (2011: GBP0.3m) relating to the undrawn
Revolving Credit Facilities.
Borrowing facilities
The Group and Company had GBP55m (2011: GBP80m) in unutilised
committed bank facilities at 31 March 2012 of which GBPnil expires
within one year (2011: GBPnil), GBP5.0m expires after one year but
less than two years (2011: GBP75m) and GBP50m expires in more than
two years (2011: GBP5m).
16 Financial Instruments
A financial instrument is a contract that gives rise to a
financial asset in one entity and a financial liability or equity
in another entity. The Group uses financial instruments to invest
liquid asset balances, raise funding and manage the risks arising
from its operations.
The principal risks which the Group is exposed to and which
arise in the normal course of business include credit risk,
liquidity risk and market risk, in particular interest rate risk
and inflation risk. Derivative financial instruments are used to
change the basis of interest cash flows from fixed to either
inflation-linked or an alternative fixed profile to more accurately
match the revenue profile.
The Board has authorised the use of derivatives by the Group to
reduce the risk of loss arising from changes in market risks, and
for economic hedging reasons.
The accounting policy for derivatives is provided in note 1.
Control over financial instruments
The Group has a formal risk management structure, which includes
the use of risk limits, reporting and monitoring requirements,
mandates, and other control procedures. It is currently the
responsibility of the Board to set and approve the risk management
procedures and controls.
Risk management
All of the Group's activities involve analysis, acceptance and
management of some degree of risk or combination of risks. The most
important types of financial risk are credit risk, liquidity risk
and market risk. Market risk includes foreign exchange, interest
rate, inflation (RPI) and equity price risks.
The only material exposure the Group has to foreign exchange
risk or equity price risk relates to the assets of the defined
benefit pension scheme, these are managed by the pension scheme
investment managers.
The Group's risk management policies are designed to identify
and analyse these risks, to set appropriate risk limits and
controls and to monitor the risks and limits continually by means
of reliable and up to date systems. The Group modifies and enhances
its risk management policies and systems to reflect changes in
markets and products. The Audit Committee is responsible for
independently overseeing the activities in relation to Group risk
management. ENWL's treasury function, which is authorised to
conduct the day-to-day treasury activities of the Group, reports on
a regular basis to the Committee. The Group's processes for
managing risk and the methods used to measure risk have not changed
since the prior year. In the year, there have been changes to the
Group's policies in relation to the management of credit risk; risk
limits and minimum credit ratings of counterparties have been
amended to reflect changes to market conditions and the associated
level of perceived risks.
Credit risk
The Group takes on exposure to credit risk, which is the risk
that financial loss arises from the failure of a customer or
counterparty to meet its obligations under a contract as they fall
due. Credit risk arises principally from trade finance and treasury
activities. The Group has dedicated standards, policies and
procedures to control and monitor credit risk.
The counterparties under treasury activities consist of
financial institutions. In accordance with IAS 39, the directors
have considered and quantified the exposure of the Group to
counterparty credit risk and do not consider there to be a material
credit risk adjustment required. The exposure to counterparty
credit risk will continue to be monitored. Although the Group is
potentially exposed to credit loss in the event of non-performance
by counterparties, such credit risk is controlled through regular
credit rating reviews of the counterparties and by limiting the
total amount of exposure to any one party. In the year, there have
been changes to the Group's policy on risk limits and minimum
credit ratings of counterparties to reflect changes to market
conditions and the associated level of perceived risks. Management
does not anticipate any counterparty will fail to meet its
obligations.
Significant changes in the economy or in the utilities sector
could result in losses not necessarily provided for at the
statement of financial position date. The total number of customers
in 2012 was 488 (2011: 654), however there are only five (2011:
five) principal customers, see note 2. The creditworthiness of each
of these is closely monitored. Whilst the loss of one of the
principal customers could have a significant impact on the Group,
due to the small number of these, the exposure to such credit
losses would be mitigated in most cases by the protection the
regulator provides to cover such losses. Nonetheless, the credit
management process must be closely adhered to, to avoid such
circumstances, and the Group's management therefore closely monitor
adherence to this process.
a) Trade receivables
Credit risk in relation to trade receivables is considered to be
relatively low, due to the small number of principal customers, and
the fact that each of these customers has a contract in place with
the Group, and is required to provide collateral in the form of a
cash deposit subject to the amounts due and their credit rating. At
31 March 2012 there was GBP1.5m receivables past due (2011:
GBP3.5m) against which an allowance for doubtful debts of GBP0.4m
has been made (2011: GBP0.1m).
b) Treasury investments
The Directors do not believe that the Group is exposed to any
material concentrations of credit risk in relation to treasury
investments (including both amounts placed on deposit with
counterparties and asset interest rate swaps).
As at 31 March 2012 none (2011: none) of the Group's treasury
portfolio exposure was either past due or impaired, and no terms
had been re-negotiated with any counterparty. The Group has limits
in place to ensure counterparties have a certain minimum credit
rating, and individual exposure limits to ensure there is no
concentration of credit risk.
The table below provides details of the ratings of the Group's
treasury portfolio:
2012 2012 2011 2011
Credit Rating GBPm % GBPm %
AAA 12.3 13.2 33.7 18.8
AA - - 1.0 0.5
AA- - - 71.0 39.6
A+ 15.0 16.1 48.5 27.1
A 65.9 70.7 25.0 14.0
93.2 100.0 179.2 100.0
------------------------------ ------- ------ ------- --------
The rating profile of counterparties has decreased due to change
in market conditions as a result of global economic
uncertainty.
No collateral is held in relation to Treasury assets.
Exposure to credit risk
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset, including derivatives, in
the statement of financial position. For trade receivables, the
value is net of any collateral held in cash deposits (see note 13
for further details).
2012 2012 2011 2011
Group Company Group Company
Credit risk by category GBPm GBPm GBPm GBPm
------------------------------------------------------------- -------- ---------- -------- ----------
Trade Receivables 6.5 6.5 33.2 33.2
Derivative Financial Instruments (assets) - - 1.0 1.0
Cash and Cash Equivalents 59.0 59.0 126.9 126.9
Money Market Deposits (original maturity over three months) 25.0 25.0 40.0 40.0
90.5 90.5 201.1 201.1
------------------------------------------------------------- -------- ---------- -------- ----------
Trade receivables and cash and cash equivalents are measured at
cost. Derivative financial instruments are measured at fair value
in accordance with IAS 39.
Liquidity risk
Liquidity risk is the risk that the Group will not have
sufficient funds to meet the obligations or commitments resulting
from its business operations or associated with its financial
instruments, as they fall due. The Group manages the liquidity
profile of its assets, liabilities and commitments so that cash
flows are appropriately balanced and all funding obligations are
met when due. This is achieved through maintaining a prudent level
of liquid assets, and arranging funding facilities.
The Board is responsible for monitoring the maturity of
liquidity and deposit funding balances and taking any action as
appropriate. A long-term view of liquidity is provided by Group
financial models which project cash flows out 40 years ahead, and a
medium-term view is provided by the five year Group business plan,
which is updated and approved annually by the Board. Shorter-term
liquidity is monitored via an 18 month liquidity projection and
this is reported to the Board. The Board has approved a liquidity
framework within which the business operates.
Available liquidity at 31 March was as follows:
2012 2012 2011 2011
Group Company Group Company
Available Liquidity GBPm GBPm GBPm GBPm
------------------------------------------------------------- -------- ---------- -------- ----------
Cash and Cash Equivalents 59.0 59.0 126.9 126.9
Money Market Deposits (original maturity over three months) 25.0 25.0 40.0 40.0
Committed Undrawn Bank facilities 55.0 55.0 80.0 80.0
------------------------------------------------------------- -------- ---------- -------- ----------
139.0 139.0 246.9 246.9
------------------------------------------------------------- -------- ---------- -------- ----------
Cash and cash equivalents comprise cash at bank and in hand and
short-term deposits with maturity of three months or less, net of
any bank overdrafts which are payable on demand.
Committed undrawn bank facilities include GBPnil (2011: GBPnil)
of facilities that expire within one year, GBP5.0m (2011: GBP75.0m)
that expires after one year but less than two years and GBP50.0m
(2011: GBP5.0m) that expires in more than two years.
The Group gives consideration to the timing of scheduled
payments to avoid the risks associated with the concentration of
large cash flows within particular time periods. The Group uses
economic hedges to ensure that certain cash flows can be
matched.
The following is an analysis of the maturity profile of
contractual cash flows of principal and interest payable under
financial liabilities and derivative financial instruments on an
undiscounted basis. Derivative cash flows have been shown net; all
other cash flows are shown gross.
On
Group and Company demand <1 year 1 - 2 years 2 - 3 years 3 - 4 years >4 years Total
31 March 2012 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------- ------------ ------------ ------------ ---------- ----------
Trade payables (23.5) - - - - - (23.5)
Amounts owed to parent
undertaking - (4.4) (4.4) (73.0) - - (81.8)
Amounts owed to
affiliated undertaking - (12.3) (12.3) (12.3) (12.3) (267.4) (316.6)
Bonds - (41.8) (41.8) (41.8) (41.8) (1,030.0) (1,197.2)
Borrowings and
overdrafts - (2.3) (2.3) (2.3) (2.3) (159.8) (169.0)
Derivative financial
instruments (net) - 14.2 (23.6) 7.0 7.0 (33.6) (29.0)
------------------------ -------- -------- ------------ ------------ ------------ ---------- ----------
(23.5) (46.6) (84.4) (122.4) (49.4) (1,490.8) (1,817.1)
------------------------ -------- -------- ------------ ------------ ------------ ---------- ----------
On
Group and Company demand <1 year 1 - 2 years 2 - 3 years 3 - 4 years >4 years Total
31 March 2011 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------- ------------ ------------ ------------ ---------- ----------
Trade payables (10.0) - - - - - (10.0)
Amounts owed to parent
undertaking - (4.4) (4.4) (4.4) (73.0) - (86.2)
Amounts owed to
affiliated undertaking - (12.3) (12.3) (12.3) (12.3) (279.6) (328.8)
Bonds - (41.7) (41.7) (41.7) (41.7) (1,062.9) (1,229.7)
Borrowings and
overdrafts - (2.1) (2.1) (2.1) (2.1) (155.3) (163.7)
Derivative financial
instruments (net) - 15.2 15.2 (22.2) 7.9 10.6 26.7
(10.0) (45.3) (45.3) (82.7) (121.2) (1,487.2) (1,791.7)
------------------------ -------- -------- ------------ ------------ ------------ ---------- ----------
Market risk
Market risk is the risk that future cash flows of a financial
instrument, or the fair value of a financial instrument, will
fluctuate because of changes in market prices. Market prices
include foreign exchange rates, interest rates, inflation (RPI),
equity and commodity prices. The main types of market risk to which
the Group is exposed are interest rate risk and inflation risk. The
Board is required to review and approve policies for managing these
risks on an annual basis. The Board approves all new interest rate
swaps and index-linked swaps entered into. The management of market
risk is undertaken using risk limits, approved by the Chief
Financial Officer or Treasurer under delegated authority. The Group
has no significant foreign exchange, equity or commodity
exposure.
The Group has exposure to interest rate risk and inflation risk
and this is explained in the sections below.
The Group borrows in the major global debt markets at fixed,
index-linked and floating rates of interest, using derivatives,
where appropriate, to generate the desired effective interest
basis.
Interest rate risk
Interest rate risk is the risk that either future cash flows of
a financial instrument, or the fair value of a financial
instrument, will fluctuate because of changes in market interest
rates. The Group's floating rate borrowings and derivatives are
exposed to a risk of change in cash flows due to changes in
interest rates. The Group's fixed rate borrowings and derivatives
are exposed to a risk of change in their fair value due to changes
in interest rates.
Investments in short-term receivables and payables are not
exposed to interest rate risk.
The Group uses derivative financial instruments to change the
basis of interest cash flows from fixed to either inflation-linked
or an alternative fixed profile to more accurately match the
revenue profile. The cash flows exchanged under the derivatives are
calculated by reference to a notional principal amount. The
notional principal reflects the extent of the Group's involvement
in the instruments, but does not represent its exposure to credit
risk, which is assessed by reference to the fair value.
Sensitivity analysis
The Group's fixed rate borrowings and derivatives are exposed to
a risk of change in their fair value due to changes in interest
rates. The following sensitivity analysis is used by Group
management to monitor interest rate risk. The analysis below shows
forward-looking projections of market risk assuming certain market
conditions occur. The sensitivity figures are calculated based on a
downward parallel shift of 0.5% and upward parallel shifts of 0.5%
and 1% in the yield curve.
2012 2011
Change in interest rates Change in interest rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ---------- --------- ------ ---------- -------- -------
Debt held at fair value (17.9) 16.8 32.7 (8.4) 22.8 30.2
Interest rate swaps (0.2) 0.2 0.4 0.1 (0.1) (0.1)
Inflation-linked swaps (35.5) 30.5 56.6 (27.5) 23.4 43.3
--------------------------- ---------- --------- ------ ---------- -------- -------
Total fair value movement (53.6) 47.5 89.7 (35.8) 46.1 73.4
--------------------------- ---------- --------- ------ ---------- -------- -------
The sensitivity analysis above shows the amount by which the
fair value of items recorded on the statement of financial position
at fair value would be adjusted for a given interest rate movement.
As fair value movements are taken to the income statement, there
would be a corresponding adjustment to profit in these scenarios
(figures in brackets represent a reduction to profit). However,
there would be no direct cash flow impact arising from these
adjustments.
The Group's floating rate borrowings and derivatives are exposed
to a risk of change in cash flows due to changes in interest rates.
The analysis below shows the impact on profit for the year if
interest rates over the course of the year had been different from
the actual rates.
2012 2011
Change in interest rates Change in interest rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- ------- --------- --------- -------
Interest rate swaps (0.0) 0.0 0.1 (0.1) 0.1 0.1
------------------------------ --------- --------- ------- --------- --------- -------
Total finance expense impact (0.0) 0.0 0.1 (0.1) 0.1 0.1
------------------------------
Although the above measures provide an indication of the Group's
exposure to market risk, such measures are limited in that
historical data is not necessarily a good guide to future events,
and the exposures are calculated on static statement of financial
position balances, with future changes in the structure of the
statement of financial position ignored.
Index-linked debt is carried at amortised cost and as such the
statement of financial position in relation to this debt is not
exposed to movements in interest rates.
Inflation risk
The revenues of ENWL are linked to movements in inflation, as
measured by the Retail Prices Index (RPI). To economically hedge
exposure to RPI, ENWL links a portion of its funding costs to RPI
by either issuing RPI linked bonds or by using derivative financial
instruments. The Group's index-linked swaps are exposed to a risk
of change in their fair value arising from a risk of change of
future cash flows due to changes in inflation rates. The Company's
revenues are also linked to RPI via returns on the Regulated Asset
Value (RAV) and an increase in RPI would increase revenues,
mitigating any increase in finance expense.
Sensitivity analysis
The Group's inflation-linked derivatives are exposed to a risk
of change in their fair value due to changes in inflation rates.
The following sensitivity analysis is used by Group management to
monitor inflation rate risk. The analysis below shows
forward-looking projections of market risk assuming certain market
conditions occur. The sensitivity figures are calculated based on a
downward parallel shift of 0.5% and upward parallel shifts of 0.5%
and 1% in the yield curve.
2012 2011
Change in inflation rates Change in inflation rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------- --------- ----------
Inflation-linked swaps 37.1 (41.5) (87.8) 31.2 (35.0) (74.4)
Total fair value movement 37.1 (41.5) (87.8) 31.2 (35.0) (74.4)
The sensitivity analysis above shows the amount by which the
fair value of items recorded on the statement of financial position
at fair value would be adjusted for a given inflation rate
movement. As fair value movements are taken to the income
statement, there would be a corresponding adjustment to profit in
these scenarios (figures in brackets represent a reduction to
profit). However, there would be no direct cash flow impact arising
from these adjustments.
The Group's inflation-linked borrowings and derivatives are
exposed to a risk of change in cash flows due to changes in
inflation rates. The analysis below shows the impact on profit for
the year if inflation rates over the course of the year had been
different from the actual rates.
2012 2011
Change in inflation rates Change in inflation rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
Debt held at amortised cost - inflation-linked interest
basis 1.3 (1.3) (2.7) 1.3 (1.3) (2.5)
Inflation-linked swaps - - (0.1) - - (0.1)
Total finance expense impact 1.3 (1.3) (2.8) 1.3 (1.3) (2.6)
Hedging
The Group does not use derivative financial instruments for
speculative purposes, and has not pledged collateral in relation to
any of its derivative instruments. At 31 March 2012, the Group's
derivatives are not designated in formal hedging relationships
(2011: none), and instead are measured at fair value through the
income statement.
Fair values
The tables below provide a comparison of the book values and
fair values of the Group's financial instruments by category as at
the statement of financial position date. Where available, market
values have been used to determine fair values. Where market values
are not available, fair values have been calculated by discounting
cash flows at prevailing interest rates.
For cash and cash equivalents, trade and other receivables and
trade and other payables the book values approximate to the fair
values because of their short-term nature. For non-public long term
loans and receivables, fair values are estimated by discounting
future contractual cash flows to net present values using current
market interest rates available to the Group for similar financial
instruments as at the year end.
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the statement of financial
position, are as follows:
2012 2011
Carrying Carrying
value Fair value value Fair value
Group and Company GBPm GBPm GBPm GBPm
Non-current assets
Derivative financial instruments - - 1.0 1.0
Current assets
Trade receivables 6.5 6.5 33.2 33.2
Cash and cash equivalents 59.0 59.0 126.9 126.9
Money Market Deposits (original
maturity
over three months) 25.0 25.0 40.0 40.0
90.5 90.5 201.1 201.1
2012 2011
Carrying Carrying
value Fair value value Fair value
Group and Company GBPm GBPm GBPm GBPm
Non-current liabilities
Borrowings designated at FVTPL (365.4) (365.4) (335.2) (335.2)
Borrowings measured at amortised
cost (458.6) (555.4) (446.1) (518.9)
Amounts due to parent undertaking (67.4) (67.4) (67.4) (67.4)
Amounts due to affiliated
companies (195.6) (234.9) (195.2) (217.8)
Derivative financial instruments (126.1) (126.1) (76.3) (76.3)
Current liabilities
Trade and other payables (23.5) (23.5) (10.0) (10.0)
(1,236.6) (1,372.7) (1,130.2) (1,225.6)
Fair value measurements recognised in the statement of financial
position
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Level Level Level Total
31 March 2012 1 2 3 GBPm
GBPm GBPm GBPm
Financial assets at fair value
through profit or loss
Derivative financial assets - - - -
Financial liabilities at fair value
through
profit or loss
Derivative financial liabilities - (126.1) - (126.1)
Financial liabilities designated
at FVTPL (365.4) - - (365.4)
(365.4) (126.1) - (491.5)
Level Level Level Total
31 March 2011 1 2 3 GBPm
GBPm GBPm GBPm
Financial assets at fair value
through profit or loss
Derivative financial assets - 1.0 - 1.0
Financial liabilities at fair value
through
profit or loss
Derivative financial liabilities - (76.3) - (76.3)
Financial liabilities designated
at FVTPL (335.2) - - (335.2)
(335.2) (76.3) - (411.5)
There were no transfers between levels during the current
year.
17 Trade And Other Payables
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Trade payables 23.5 23.5 10.0 10.0
Amounts owed to group 15.6 15.6 - -
Amounts owed to subsidiary undertakings - 15.4 - 15.4
Other taxation and social security 6.7 6.7 13.8 13.8
Customer contributions (see note
21) 28.9 28.9 29.0 29.0
Refundable customer deposits
(see note 22) 0.4 0.4 6.5 6.5
Accruals and deferred income 76.1 76.4 92.2 92.2
151.2 166.9 151.5 166.9
------
Trade payables and accruals principally comprise amounts
outstanding for capital purchases and ongoing costs. The average
credit period in the year was 20 days from receipt of invoice
(2011: 23 days)
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
18 Directors' remuneration
Re-presented
2012 2011
GBPm GBPm
Salaries 0.7 1.0
Accrued Bonus 0.6 0.6
Pension 0.1 0.1
1.4 1.7
Directors' emoluments have been re-presented in respect of 2011
in order to correct an overstatement of GBP62,498.
The aggregate emoluments of the Directors in 2012 amounted to
GBP1,433,746 (2011 re-presented: GBP1,671,953). Emoluments comprise
salaries, fees, taxable benefits, compensation for loss of office
and the value of short-term and long-term incentive awards. Amounts
payable under long-term incentive awards are not payable until June
2015 and are dependent upon a combination of both financial
performance and comparative performance, as assessed by Ofgem, over
the DPC5 period. The emoluments of the highest paid Director in
2012 in respect of services to the Group amounted to GBP757,933
(2011 re-presented: GBP756,511). Included in the total emoluments
shown above for the current year, are amounts payable for
compensation for loss of office of GBPnil (2011 re-presented:
GBP410,000) all paid in cash. Not included in the amounts shown
above are further payments made in respect of Directors' services,
as detailed in note 27.
Mr M McCallion is a former member of the United Utilities
Pension Scheme and a member of, and contributed to, a defined
benefit section of the ENW Electricity Supply Pension Scheme ('ENW
ESPS'), which provides an entitlement, on normal retirement of age
65, equal to 1/60(th) of pensionable earnings for each complete
year of service. Mr S Johnson is a member of the defined
contribution section of the ENW ESPS scheme.
The pension contributions for the highest paid Director for 31
March 2012 were GBP36,013 (2011: GBP38,500). The accrued pension at
31 March 2012 for the highest paid Director was GBPnil (2011:
GBPnil).
As at 31 March 2012 the Directors have no interests in the
ordinary shares of the Company.
19 Retirement Benefit Schemes
Group and Company
The Group's defined benefit arrangement is the ENW Group of the
ESPS ("the Scheme") and forms part of the Electricity Supply
Pension Scheme ("ESPS"). Up to 31 March 2011 the Scheme was split
into two sections. However, following the 'hive-up' of the assets
and liabilities of ENWSL to ENWL and the termination of the Asset
Services Agreement between ENWL and ENWSL on the 31 March 2011, the
two sections were merged as at that date.
The defined benefit section of the scheme was closed to all new
entrants on 1 September 2006. New employees of the Group are
instead provided with access to a defined contribution section of
the Scheme. The total cost charged to the income statement in
relation to the defined contribution section for the year ended 31
March 2012 was GBP1.3m (2011: GBP0.9m) and represents contributions
payable to the Scheme at rates specified in the rules of the
Scheme.
During the year the Group made contributions of GBP53.3m (2011:
GBP27.6m) to the defined benefit section of the Scheme. This
included advance payment of the April 2013 to March 2015 deficit
contributions paid by the Group on 30 March 2012. The Group
estimates that contributions for the year ending 31 March 2013 will
amount to around GBP12m. The total defined benefit pension expense
for the year was GBP7.6m (2011: pension expense GBP10.5m).
Information about the pension arrangements for the Executive
Directors is contained in note 18.
As at 31 March 2012 contributions of GBP3.3m (2011: GBP2.3m) due
in respect of the current reporting period had not been paid over
to the Scheme.
The last actuarial valuation of the Scheme was carried out as at
31 March 2010. The valuation has been projected forward by an
independent actuary to take account of the requirements of IAS 19
'Employee Benefits' in order to assess the position as at 31 March
2012. The present value of the defined benefit obligation, the
related current service cost and the past service cost were
measured using the projected unit credit method. A pension deficit
under IAS 19 of GBP14.2m is included in the statement of financial
position at 31 March 2012 (2011 deficit of GBP41.3m).
In January 2012 a bulk transfer amount of GBP4.9m was received
into the ENW Group section of the Electricity Supply Pension Scheme
("ESPS") in respect of the transfer of pension liabilities from the
United Utilities Pension Scheme and the United Utilities Group Plc
section of the ESPS. These pension liabilities related to the
transfer of employees into the ENW Group section following the
purchase of Electricity North West (Construction and Maintenance)
Limited (COMA) from United Utilities PLC in the prior year.
The main financial assumptions used by the actuary (in
determining the deficit) were as follows:
2012 2011
% %
-----------------------------
Discount rate 5.1 5.5
Expected return on assets 5.6 6.0
Pensionable salary increases 3.9 4.4
Pension increases 3.3 3.4
Price inflation 3.3 3.4
The mortality rates utilised in the valuation are based on the
standard actuarial tables S1PMA/S1PFA (birth year) tables with a
105% loading to allow for differences in mortality between the
Scheme population and the population used in the standard tables
(unchanged from 2011). A long term improvement rate of 1.25% p.a.
is assumed (2011 1.0% p.a.). These factors have been taken into
account in the calculation of the defined benefit obligations of
the Scheme.
The current life expectancies (in years) underlying the value of
the accrued pension Scheme liabilities for the Scheme are:
2012 2011
Male life expectancy at age 60 Years Years
---------------------------------------
Retired member 26.4 25.8
Non-retired member (currently aged 45) 27.9 27.0
In valuing the liabilities of the Scheme at 31 March 2012
mortality assumptions have been made as indicated above. If the
life expectancy had been changed to assume that all members of the
Fund lived for one year longer, the value of the reported
liabilities at 31 March 2012 would have increased by approximately
GBP25m before deferred tax.
As at 31 March 2012, the Scheme's assets and liabilities
recognised in the statement of financial position were as
follows:
Scheme assets Value at Scheme assets Value at
at 31 March 31 March at 31 March 31 March
2012 2012 2011 2011
% GBPm % GBPm
Equities 45.5 435.8 43.7 385.6
Gilts 10.4 100.0 11.8 104.7
Bonds 34.0 326.1 38.3 338.7
Property 6.9 66.2 4.5 39.8
Cash 0.6 5.9 1.0 9.0
Assets arising on ENWSL
acquisition - - 0.6 5.4
Net current assets 2.6 24.7 0.1 0.6
Total fair value of
assets 100.0 958.7 100.0 883.8
Present value of liabilities - (972.9) - (925.1)
Net retirement benefit
obligation (14.2) (41.3)
To develop the expected long-term rate of return on assets
assumption, the Group considered the level of expected returns on
risk-free investments, the historical level of the risk premium
associated with the other asset classes in which the portfolio is
invested and the expectations for future returns of each asset
class. The expected return for each asset class was then weighted
based on the actual allocation to develop the expected long-term
return on assets assumption for the portfolio. The actual return on
the Scheme assets was GBP62.5m gain (2011 GBP56.1m gain). None of
the pension scheme assets are held in the Group's own financial
instruments or any other assets used by the Group.
Movements in the present value of the Group's defined benefit
obligations are as follows:
2012 2011
GBPm GBPm
At 1 April (925.1) (984.1)
Current service cost (9.9) (11.4)
Interest cost on Scheme obligations (49.8) (50.5)
Member contributions (2.1) (2.1)
Augmentation (1.0) (0.3)
Actuarial (losses)/gains-
assumptions (28.7) 52.9
Actuarial gains - experience
items - 27.1
Benefits paid 51.2 48.7
ENWSL acquisition and other
bulk transfers (7.5) (5.4)
At 31 March (972.9) (925.1)
Movements in the fair value of the Group pension Scheme assets
were as follows:
2012 2011
GBPm GBPm
At 1 April 883.8 841.3
Expected return on Scheme
assets 52.4 51.7
Actuarial gains 10.1 4.4
Company contributions 53.3 27.6
Member contributions 2.1 2.1
Benefits paid (51.2) (48.7)
ENWSL acquisition and other
bulk transfers 8.2 5.4
At 31 March 958.7 883.8
The net pension expense before taxation recognised in the income
statement, before capitalisation, in respect of the defined benefit
Scheme is summarised as follows:
2012 2011
GBPm GBPm
Current service cost (9.9) (11.4)
Past service cost (0.3) (0.3)
Expected return on Scheme
assets 52.4 51.7
Interest on Scheme obligations (49.8) (50.5)
Net pension expense before
taxation (7.6) (10.5)
The above amounts are recognised in arriving at operating profit
except for the expected return on Scheme assets and interest on
Scheme obligations which have been recognised within investment
Income.
The reconciliation of the opening and closing statement of
financial position is as follows:
2012 2011
GBPm GBPm
At 1 April (41.3) (142.8)
Expense recognised in the
income statement (7.6) (10.5)
Contributions paid 53.3 27.6
Actuarial (losses)/gains
gross of taxation (18.6) 84.4
At 31 March (14.2) (41.3)
Actuarial gains and losses are recognised in the statement of
comprehensive income. At 31 March 2012, a cumulative gain of
GBP180.5m (2011 gain of GBP199.1m) had been recorded directly in
the statement of comprehensive income.
The history of the Scheme for the current and prior years is as
follows:
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
Present value of defined
benefit obligation (972.9) (925.1) (984.1) (728.0) (796.3)
Fair value of Scheme
assets 958.7 883.8 841.3 700.5 841.4
Net retirement benefit
(obligation)/surplus (14.2) (41.3) (142.8) (27.5) 45.1
Experience adjustments
on Scheme liabilities - 27.1 - 0.8 (18.4)
Experience adjustments
on Scheme assets 10.1 4.4 - (152.5) (12.9)
20 Deferred Tax
The following are the major deferred tax liabilities and assets
recognised by the Group and Company, and the movements thereon,
during the current and prior years.
Accelerated Retirement
tax depreciation benefit
GBPm obligations Other Total
Group GBPm GBPm GBPm
At 1 April 2010 306.5 (40.0) (12.8) 253.7
(Credited)/charged to
the income statement (20.8) 4.4 (3.2) (19.6)
Deferred tax on actuarial
(losses)/gains on defined
benefit pension schemes - 22.0 - 22.0
Adjustment due to change
in future tax rates of
brought forward deferred
tax asset - 2.9 - 2.9
Arising on acquisition - - (0.4) (0.4)
At 1 April 2011 285.7 (10.7) (16.4) 258.6
(Credited)/charged to
the income statement (19.3) 10.5 (8.6) (17.4)
Deferred tax on actuarial
(losses)/gains on defined
benefit pension schemes - (4.4) - (4.4)
Adjustment due to change
in future tax rates of
brought forward deferred
tax asset - 1.2 - 1.2
At 31 March 2012 266.4 (3.4) (25.0) 238.0
Accelerated tax depreciation Retirement benefit obligations
GBPm GBPm
Other Total
Company GBPm GBPm
At 1 April 2010 307.4 (40.0) (12.8) 254.6
(Credited)/charged to the income
statement (21.0) 4.4 (3.2) (19.8)
Deferred tax on actuarial
(losses)/gains on defined benefit
pension schemes - 22.0 - 22.0
Adjustment due to change in future tax
rates of brought forward deferred tax
asset - 2.9 - 2.9
Arising on 'hive-up' of ENWSL - - (0.1) (0.1)
At 1 April 2011 286.4 (10.7) (16.1) 259.6
Charged/(credited) to the income
statement (19.4) 10.5 (8.8) (17.7)
Deferred tax on actuarial
(losses)/gains on defined benefit
pension schemes - (4.4) - (4.4)
Adjustment due to change in future tax
rates of brought forward deferred tax
asset - 1.2 - 1.2
At 31 March 2012 267.0 (3.4) (24.9) 238.7
There are no significant unrecognised deferred tax assets or
liabilities for either the Group or Company in either the current
or prior year.
Other deferred tax relates primarily to derivative financial
instruments.
21 CUSTOmer Contributions
Customer contributions are amounts received from a customer in
respect of the provision of a new connection to the network.
Customer contributions are amortised through the income statement
over the lifetime of the relevant asset.
Group and Company GBPm
At 1 April 2010 450.6
Additions during the year 39.0
Amortisation (12.1)
At 1 April 2011 477.5
Additions during the year 34.6
Amortisation (12.9)
At 31 March 2012 499.2
2012 2011
GBPm GBPm
Amounts due in less than one year (see note 17) 28.9 29.0
Amounts due after more than one year 470.3 448.5
499.2 477.5
22 Refundable Customer Deposits
Refundable customer deposits are those customer contributions
which may be in part refundable, dependent on contracted
targets.
2012 2011
Group and Company GBPm GBPm
Amounts due in less than one year (see note 17) 0.4 6.5
Amounts due after more than one year 3.4 1.6
3.8 8.1
23 Share Capital
2012 2011
GBP GBP
Authorised:
569,999,996 (2011: 569,999,996) ordinary shares of 50 pence each 284,999,998 284,999,998
4 'A' ordinary shares of 50 pence each 2 2
Special rights redeemable preference share of GBP1 1 1
285,000,001 285,000,001
2012 2011
GBP GBP
Allotted, called up and fully paid:
476,821,341 (2011: 476,821,341) ordinary shares of 50 pence each 238,410,671 238,410,671
4 'A' ordinary shares of 50 pence each 2 2
238,410,673 238,410,673
The 'A' ordinary shares and the ordinary shares rank pari passu
in all respects, save that dividends may be declared on one class
of shares without being declared on the other.
24 Shareholders' Equity
Called Share Capital
up share premium Revaluation redemption Retained Total
capital account reserve reserve earnings Equity
Group GBPm GBPm GBPm GBPm GBPm GBPm
---------- --------- -------------
At 1 April 2011 238.4 4.4 109.9 8.6 183.8 545.1
Profit for the year - - - - 69.7 69.7
Transfer from Revaluation
Reserve - - (2.0) - 2.0 -
Actuarial losses
on defined benefit
Schemes - - - - (18.6) (18.6)
Tax on components
of comprehensive
income - - - - 3.2 3.2
---------- --------- -------------
Total comprehensive
(expense)/income
for the year - - (2.0) - 56.3 54.3
Transactions with
owners recorded
directly in equity
Equity dividends - - - - (62.0) (62.0)
At 31 March 2012 238.4 4.4 107.9 8.6 178.1 537.4
---------- --------- ------------- ----------- ---------
The profit after tax for the parent Company for the year ended
31 March 2012 was GBP69.7m (2011: GBP121.2m) and the income for the
year was GBP404.6m (2011: GBP393.8m). As permitted by s408 of the
Companies Act 2006, the Company has not presented its own income
statement.
In 1997 the Company undertook a revaluation of certain assets,
following Norweb's acquisition of North West Water. This resulted
in the creation of a revaluation reserve of GBP234.9m. The
additional depreciation created as result of the revaluation is
transferred from the revaluation reserve to retained earnings on an
annual basis.
Capital redemption reserve, is a non distributable reserve
specifically for the purchase of own shares.
Called Share Capital
up share premium Revaluation redemption Retained Total
capital account reserve reserve earnings Equity
Company GBPm GBPm GBPm GBPm GBPm GBPm
--------- -------------
At 1 April 2011 238.4 4.4 109.9 8.6 185.8 547.1
Profit for the
year - - - - 69.7 69.7
Transfer from
Revaluation
reserve - - (2.0) - 2.0 -
Actuarial losses
on defined benefit
Schemes - - - - (18.6) (18.6)
Tax on components
of comprehensive
income - - - - 3.2 3.2
--------- -------------
Total comprehensive
income for the
year - - (2.0) - 56.3 54.3
Transactions with
owners recorded
directly in equity
Equity dividends - - - - (62.0) (62.0)
At 31 March 2012 238.4 4.4 107.9 8.6 180.1 539.4
--------- --------- ------------- ----------- ---------
25 operating Leases
The Group and Company are committed to making the following
payments over the lifetime of the lease in respect of
non-cancellable operating leases which expire in:
Land and Plant Land and Plant and
buildings and machinery buildings machinery
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Within one year 1.3 0.1 0.7 0.1
In the second to fifth years
inclusive 3.9 0.4 1.9 0.4
After five years 4.7 2.9 1.4 3.0
9.9 3.4 4.0 3.5
26 ACQUISITION OF SUBSIDIARY
On the 30 June 2010, the Group acquired 100 per cent of the
issued share capital of Electricity North West Services Limited
("ENWSL") (formerly United Utilities Electricity Services Limited)
for cash consideration of GBP25.5m. ENWSL had been engaged as a
third party service provider to manage delivery of all operations
and maintenance, capital investments, connections and customer
service for ENWL. Incorporating the operations and maintenance
contract into one business is expected to reduce costs, improve
efficiency and secure continued delivery of all services to
customers in the region. This transaction has been accounted for
using the purchase method of accounting.
As a result of the acquisition, goodwill arose of GBP10.1 (note
9)
It has been more than 12 months since the date of acquisition
and therefore, the figures included in note 26 of the Annual Report
and Consolidated Financial Statements of Electricity North West
Limited at March 2011 are now final and there have been no changes
to any of the balances since that date.
Deferred consideration of GBP2.0m was paid on 22 December 2011
as per the agreement.
Hive up of ENWSL assets and liabilities to ENWL
On 31 March 2011, the trade, assets and liabilities of ENWSL, a
wholly owned subsidiary undertaking, were hived up to ENWL. The
consideration was equal to the net book value of the assets and
liabilities and is included in amounts owing to group
companies.
27 RELATED PARTY TRANSACTIONS
For the Group, transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
During the year the following transactions with related parties
were entered into:
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Transactions with related parties
Recharges to Electricity North West (Construction and Maintenance) Limited 0.4 0.4 0.2 0.2
Executive Directors' remuneration (note 18) 1.4 1.4 1.7 1.7
Directors' services 0.2 0.2 0.1 0.1
Interest payable to North West Electricity Networks Ltd 4.4 4.4 4.5 4.5
Interest payable to ENW Finance plc 12.4 12.4 12.4 12.4
Dividends paid to North West Electricity Networks Ltd 62.0 62.0 62.0 62.0
------ ------
Amounts outstanding with related parties are as follows:
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Amounts owed to related parties
Group tax relief to North West Electricity Networks Ltd 11.9 11.9 - -
Interest payable to North West Electricity Networks Ltd 1.3 1.3 - -
Interest payable to ENW Finance plc 2.4 2.4 - -
Amounts owed to Electricity North West Services Limited - 15.4 - 15.4
Borrowings from North West Electricity Networks Ltd 67.4 67.4 67.4 67.4
Borrowings from ENW Finance plc 195.6 195.6 195.2 195.2
Amounts owed by related parties
Group tax relief from North West Electricity
Networks Ltd - - 3.4 3.4
Amounts owed by Electricity North West (Construction and Maintenance) Ltd 0.3 0.3 - -
The loan from North West Electricity Networks Ltd accrues
interest at 6.5% (2011: 6.5%) and is repayable in March 2015. The
loan from ENW Finance plc accrues interest at 6.125% (2011: 6.125%)
and is repayable in July 2021.
Fees of GBP0.1m (2011: GBP0.1m) were payable to Colonial First
State in respect of the provision of Directors' services. Colonial
First State is part of the Commonwealth Bank of Australia which is
identified as a related party as per note 31.
Fees of GBP0.1m (2011: GBPnil) were payable to IIF Int'l Holding
GP Ltd ('IIF') in respect of the provision of Directors' services
which is identified as a related party as per note 31.
Directors' remuneration is as follows:
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Short-term employee benefits 1.0 1.0 0.9 0.9
Post-employment benefits 0.1 0.1 0.1 0.1
Termination benefits - - 0.4 0.4
Other long-term employee
benefits 0.3 0.3 0.3 0.3
1.4 1.4 1.7 1.7
-------
28 Cash Generated From Operations
Group Company Group Company
2012 2012 2011 2011
GBPm GBPm GBPm GBPm
Operating profit 189.4 189.4 210.4 210.4
Adjustments for:
Depreciation of property, plant
and equipment 83.9 83.9 75.1 72.5
Amortisation of intangible assets 8.3 8.3 4.3 4.3
Amortisation of customer contributions (12.9) (12.9) (12.1) (12.1)
Profit on disposal of property,
plant and equipment (0.6) (0.6) (0.6) (0.1)
Cash contributions in excess of
pension charge to operating profit (43.1) (43.1) (15.9) (15.9)
---------------
Operating cash flows before movements
in working capital 225.0 225.0 261.2 259.1
Changes in working capital
(Increase) in inventories (1.2) (1.2) (0.2) -
Decrease / (Increase) in trade
and other receivables 25.7 25.7 (4.1) (33.9)
(Decrease) / increase in payables (17.6) (17.6) (11.0) 21.6
---------------
Cash generated from operations 231.9 231.9 245.9 246.8
---------------
29 Capital Structure
Details of the authorised and allotted share capital, together
with details of the movements in the Company's issued share capital
during the year are shown in note 23. The Company has Ordinary
shares which carry no right to fixed income. Each share carries the
right to one vote at general meetings of the Company. The Company
also has 'A' ordinary shares which rank pari passu in all respects
save that dividends may be declared on one class of shares without
being declared on the other.
There exists an unissued special rights redeemable preference
share which does not carry any voting rights and can only be held
by one of Her Majesty's Secretaries of State, another Minister of
the Crown, the Solicitor for the affairs of her Majesty's Treasury
or any other person acting on behalf of the Crown. This share is a
legacy from the privatisation of the Company and was issued on 19
November 1990 and redeemed on 31 March 1995.
There are no specific restrictions on the size of a holding nor
on the transfer of shares which are both governed by the general
provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreements between
holders of the Company's shares that may result in restrictions n
the transfer of securities or on voting rights.
No person has any special rights of control over the Company's
share capital and all issued shares are fully paid up.
With regard to the appointment and replacement of directors, the
company is governed by its Articles of Association, the Companies
Act and related legislation. The Articles themselves may be amended
by special resolution of the shareholders. The powers of Directors
are described in the Articles of Association, copies of which are
available on request, and the Corporate Governance statement on
pages 26 to 36.
30 contingent liability
ENWL holds the leasehold title to a number of retail properties
as a result of its legacy retail operations whilst trading as
Norweb Plc. The Company assigned the majority of these to Comet
Group Plc ('Comet') in 1996. ENWL still has a potential liability
for lease obligations under privity of contract rules for 29 of
those premises. In prior years, owing partly to the protection
afforded by Kesa Electricals Plc (the parent company of Comet
('Kesa')), and partly due to the strength of Comet's own financial
covenant, ENWL management assessed the risk of exposure to be
remote.
Although ENWL is still protected from landlord claims by Comet's
indemnity, on 3 February 2012 Kesa disposed of the Comet Retail
Business to a private investment company OpCapita for GBP2 whilst
retaining pensions liability (there is a reported GBP39m pension
deficit) and injecting GBP50m cash into the new company with a
clawback arrangement should the company be sold on for more than
GBP70m.
There is an obligation in the proposed business sale for the new
company to continue trading for at least eighteen months from the
completion of business sale in February 2012.
ENWL management considers the risk of exposure to be low but is
monitoring the store closure programme in relation to the 29
leasehold retail units (that could potentially produce a liability
in the future) and rent payments to landlords. To date, none of the
29 units are in the closure programme nor have we received any
notification from landlords or market intelligence that there are
any problems with lease payments by Comet in relation to the 29
former ENWL leases.
The 29 stores have lease expiry dates ranging from 2013 to 2021.
The total annual accommodation cost, which includes rent, rates,
service charge, insurance and maintenance, for these 29 properties
for the next year is GBP7.0m. However based on the favourable
location and size of the stores ENWL management expects to be able
to relet the majority of these properties within a relatively short
time period and considers any exposure to be in the total range of
GBP5m-GBP10m (pre tax, undiscounted).
This figure is subject to a significant degree of uncertainty as
it involves making judgements on 29 individual retail premises, the
period of vacant possession and negotiations with individual
landlords, letting agents and tenants.
31 Ultimate Parent Undertaking And Controlling Party
The immediate parent undertaking is North West Electricity
Networks Limited, a company incorporated and registered in the
United Kingdom. The ultimate parent undertaking is North West
Electricity Networks (Jersey) Limited, a company incorporated and
registered in Jersey. The external address of the ultimate parent
company is: Ogier House, The Esplanade, St Helier, Jersey, Channel
Islands, JE4 9WG.
The largest group in which the results of the company are
consolidated is that headed by North West Electricity Networks
(Jersey) Limited incorporated in Jersey. The smallest group in
which they are consolidated is that headed by North West
Electricity Networks Limited, a company incorporated and registered
in the UK.
First State Investments Fund Management S.a.r.l. on behalf of
First State European Diversified Infrastructure Fund
FCP-SIF('EDIF') and IIF Int'l Holding GP Ltd ('IIF') have been
identified as ultimate controlling parties and are advised by
Colonial First State Global Asset Management (a member of the
Commonwealth Bank of Australia Group) and JP Morgan Investment
Management Inc respectively.
32 Events after the balance sheet date
At the balance sheet date, ENWL had index-linked swaps totalling
GBP200m notional, with a single accretion payment on maturity in
2038. At that date the swaps had mandatory breaks as follows;
GBP66m notional in July 2013, GBP66m notional in July 2016 and
GBP68m notional in July 2019. On these break dates, ENWL could have
been liable to pay the full mark-to-market value of the swaps to
the swap counterparties.
On 2 May 2012, the GBP66m notional with a mandatory break in
July 2013 was re-structured to remove the mandatory break clause
and to convert to a 'pay-as-you-go' profile, with accretion pay
downs scheduled every five years from July 2012 until maturity in
2038, rather than a single payment on maturity. The real-rate
coupon payable was also amended on re-structure.
The index-linked swaps meet the IAS39 definition of a derivative
and are, therefore, accounted for at fair value through profit or
loss. At the balance sheet date, i.e. prior to re-structure, the
GBP66m notional index-linked swaps were included in the Statement
of Financial Position as a GBP35.3m liability, part of the
derivative liabilities totalling GBP126.1m. On 2 May 2012,
immediately prior to re-structure, these swaps were a GBP33.8m
liability. The impact of the re-structure was to increase the
GBP33.8m liability, by GBP45.9m, to GBP79.7m. The GBP45.9m impact
is a non-cash fair value movement through the income statement post
the balance sheet date.
Glossary
AGMA Association of Greater Manchester Authorities
CGU Cash Generating Unit
CI Customer Interruptions
CML Customer Minutes Lost
COMA Electricity North West (Construction and Maintenance) Limited
CSR Corporate Social Responsibility
DNO Distribution Network Operator
DPC4 Distribution Price Control 4, 2005-2010
DPC5 Distribution Price Control 5, 2010-2015
DuOS Distribution use Of System
ELT Executive Leadership Team
ENA Electricity Networks Association
EOS Employee Opinion Survey
ENWL Electricity North West Limited
ENWSL Electricity North West Services Limited (formerly 'UUES')
ESG Environmental, Social and Governance
ESPS Electricity Supply Pension Scheme
ESQCR Electricity Safety and Quality Continuity (Amendment) Regulations
FIT Feed In Tariff
FVTPL Fair Value Through Profit or Loss
GAAP Generally Accepted Accounting Principles
GRI Global Reporting Initiative
HI Health Indices
HV/LV High Voltage / Low Voltage
ICP Independent Connections Provider
IDNO Independent Distribution Network Operator
IET Institute of Engineering and Technology
IFI Innovation Funding Incentive
kV Kilo Volts
LCNF Low Carbon Network Fund
LI Load Indices
LRRM Losses Rolling Retention Mechanism
NTR Non Trading Rechargeable
NWEN(J) North West Electricity Networks (Jersey) Limited
Ofgem Office of Gas and Electricity Markets
PFI Private Finance Initiative
RAV Regulatory Asset Value
RCF Revolving Credit Facility
RIDDOR Reporting of Injuries, Diseases and Dangerous Occurences Regulation
RIIO Revenue using Incentives to deliver Innovation and Outputs
RIIO - ED1 Revenue using Incentives to deliver Innovation and Outputs - Electricity Distribution 1
RIIO - GD1 Revenue using Incentives to deliver Innovation and Outputs - Gas Distribution 1
RIIO - T1 Revenue using Incentives to deliver Innovation and Outputs - Transmission 1
UU United Utilities Group PLC
UUES United Utilities Electricity Services Limited
This information is provided by RNS
The company news service from the London Stock Exchange
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