TIDM56WD
RNS Number : 3419V
Northern Electric Finance PLC
15 April 2016
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Northern
Electric Finance plc for the year ended 31 December 2015.
Pursuant to LR 17.3.1, the document has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
www.hemscott.com/nsm.do
The 2015 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Enquiries:
John Elliott 0191 223 5103
REGISTERED NUMBER: 03070482 (England and Wales)
STRATEGIC REPORT, REPORT OF THE DIRECTORS AND
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
FOR
NORTHERN ELECTRIC FINANCE PLC
NORTHERN ELECTRIC FINANCE PLC
CONTENTS OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
Page
Company Information 1
Strategic Report 2
Report of the Directors 5
Responsibility Statement of
the Directors 10
Report of the Independent
Auditor 11
Statement of Profit or Loss 12
Statement of Profit or Loss
and Other Comprehensive Income 13
Statement of Financial Position 14
Statement of Changes in Equity 15
Statement of Cash Flows 16
Notes to the Financial Statements 17
NORTHERN ELECTRIC FINANCE PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2015
DIRECTORS: G E Abel
P A Jones
T E Fielden
S J Lockwood
COMPANY SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 03070482 (England and Wales)
AUDITOR: Deloitte LLP
Chartered Accountants and
Statutory Auditor
Newcastle upon Tyne
NORTHERN ELECTRIC FINANCE PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
The directors present the annual reports and accounts of
Northern Electric Finance plc (the "Company") for the year ended 31
December 2015, which includes the Strategic Report, the Report of
the Directors, the Responsibility Statement and the audited
financial statements for that year. Pages 2 to 4 of this annual
report comprise the Strategic Report and pages 5 to 9 comprise the
Report of the Directors, which have been drawn up and presented in
accordance with the Companies Act 2006.
Cautionary statement regarding forward-looking statements
This annual report has been prepared for the members of the
Company only. The Company, its directors, employees or agents do
not accept or assume responsibility to any other person in
connection with this document and any such responsibility or
liability is expressly disclaimed. This annual report contains
certain forward-looking statements, which can be identified by the
fact that they do not relate only to historical or current facts.
In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in
results of operations, business prospects, the availability of
financing to the Company and anticipated cost savings are
forward-looking statements.
By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the
date of preparation of this annual report and will not be updated
during the year. Nothing in this annual report should be construed
as a profit forecast.
NORTHERN ELECTRIC FINANCE PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
REVIEW OF BUSINESS
BUSINESS MODEL
The Company is a wholly-owned subsidiary of Northern Powergrid
(Northeast) Limited ("Northern Powergrid"), which is part of the
Northern Powergrid Holdings Company group of companies (the
"Northern Powergrid Group"). During the year, the Company continued
to be the issuer of long-term bonds.
The Northern Powergrid Group operates a business model and
strategy based on its six core principles (the "Core Principles"),
which are financial strength, customer service, operational
excellence, employee commitment, environmental respect and
regulatory integrity. The core principles of the Northern Powergrid
Group that are applicable to the Company are as follows:
Principle Strategy Indicator
Financial strength Effective stewardship Profitability, cash
of the Company's flow and maintenance
financial resources, of investment grade
investing in assets credit ratings.
and focusing on
long-term opportunities,
which contribute
to the Company's
future strength.
Regulatory integrity Adhering to a Strong internal
policy of strict controls, regulatory
compliance with engagement and industry
applicable laws, influence.
regulations, standards
and policies.
STRATEGIC OBJECTIVES
Given that the sole purpose of the Company is to raise finance
on behalf of Northern Powergrid, its immediate parent company, the
objective of the Company is to ensure that it has sufficient funds
to cover its interest charges as they fall due.
REVIEW OF THE YEAR
The Company's sole activity during the year was to meet its
obligations to make the interest payments required by the 2020
8.875% bonds and the 2035 5.125% bonds. Those payments were made on
16 October 2015 and 5 May 2015 respectively. The Company undertakes
its activities through employees of other companies in the Northern
Powergrid Group and has no employees of its own.
As the Company's business purpose is to make the interest
payments required by the 2020 8.875% bonds and the 2035 5.125%
bonds, as they fall due, the business of the Company is not
sufficiently large or complex for analysis of key performance
indicators to be required for an understanding of the development,
performance or position of that business. Details of the operations
and activities of and the key performance indicators used in the
Northern Powergrid Group can be found in the Strategic Report in
the Northern Powergrid Holdings Company annual reports and
accounts.
CORE PRINCIPLES
Financial strength
Results, dividends and position at the year end
The Company made a loss after tax for the year of GBP107,000
(2014: loss GBP127,000) mainly due to interest expenses exceeding
interest income. No dividends were paid during the year and the
directors recommend that no final dividend be paid in respect of
the year. The statement of financial position on page 14 shows
that, as at 31 December 2015, the Company had total equity and
liabilities of GBP252.9 million. Given that it is part of the
Northern Powergrid Group, the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Further details
of the other factors taken into account by the directors when
forming that view are included in the Going Concern statement on
page 8 in the Report of the Directors.
NORTHERN ELECTRIC FINANCE PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Financial strength
Share capital and debt structure
There were no changes to the Company's share capital or debt
structure during the year.
Taxation
Full details of the Company's taxation credit are provided in
Note 5 to the accounts.
Net cash outflow from operating activities
The net cash outflow from operating activities was in line with
the prior year at GBP24,000 (2014: GBP40,000).
Dividend policy
The Company's dividend policy is that dividends will be paid
only after having due regard to available distributable reserves,
available liquid funds and the financial resources and facilities
needed to enable the Company to carry on its business for at least
the next year. In addition, the level of dividends is set to
maintain sufficient equity in the Company so as not to jeopardise
its investment grade issuer credit rating.
Regulatory integrity
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April 15, 2016 05:23 ET (09:23 GMT)
The Northern Powergrid Group manages its business to the highest
behavioural standards and adheres to a policy of strict compliance
with all relevant standards, legislation and regulatory conditions.
The Governance and Risk Management Group ("GRMG") is the principal
risk management forum in the Northern Powergrid Group and monitors
and manages performance in risk-related and compliance areas. The
GRMG met on three occasions during the year in order to review the
mechanisms for meeting external obligations, to strengthen the
business-control-improvement environment and to consider and advise
on key strategic risks facing the Northern Powergrid Group. Further
details regarding the activities of the GRMG and the main features
of the Northern Powergrid Group's internal control and risk
management systems are included in the Corporate Governance
Statement in the Report of the Directors.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company's short-term financial objective is to ensure that
it has access to sufficient liquidity to enable it to meet its
obligations as they fall due and to provide adequately for
contingencies. The long-term objective is to provide a stable and
low cost of financing over time whilst observing approved risk
parameters.
Liquidity risk
The principal risk facing the Company is not having sufficient
liquidity to enable the Company to meet its liabilities as they
fall due. In this respect, borrowing facilities are made available
to the Company by other companies in the Northern Powergrid Group,
if required. The Company continues to maintain its investment grade
issuer credit rating.
Interest rate risk
The Company is financed by long-term borrowings at fixed rates
and has access to short-term borrowing facilities at floating rates
of interest. As at 31 December 2015, 100% of the Company's
borrowings were at fixed rates and the average maturity of these
borrowings was 14 years.
Foreign currency risk
No material currency risks are faced by the Company.
Details of the other financial risks faced by the Company can be
found on page 5 in the Report of the Directors.
ON BEHALF OF THE BOARD:
P A Jones
Director
5 April 2016
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
DIVIDENDS
No dividends were paid during the year (2014: GBPnil) and the
directors recommend that no final dividend be paid in respect of
the year (2014: GBPnil).
RESEARCH AND DEVELOPMENT
Given that the sole purpose of the Company is to raise finance
on behalf of Northern Powergrid, the Company does not undertake
research and development.
FUTURE DEVELOPMENTS
The financial position of the Company, as at the year end, is
shown in the statement of financial position on page 14. There have
been no significant events since the year end and it is the
intention of the directors that the Company will continue to meet
its obligations as they fall due and to raise finance on behalf of
Northern Powergrid, if required, in the future.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2015 to the date of this report:
G E Abel Chairman
T E Fielden Finance Director
P A Jones President and Chief Executive
Officer
S J Lockwood Group Financial Controller
During and as at the end of the year, none of the directors was
interested in any contract, which was significant in relation to
the business of the Company.
During the financial year and up to the date of approval of the
Report of the Directors, an indemnity contained in the Company's
Articles of Association was in force for the benefit of the
directors of the Company and as directors of associated companies,
which was a qualifying indemnity provision for the purposes of the
Companies Act 2006.
FINANCIAL RISK MANAGEMENT
The main risks are liquidity and interest rate risk, further
details of which can be found on page 4 in the Strategic Report.
Other financial risks are:
Trading risk
Throughout the year under review, the Company's policy was that
no trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2015 and during the year (2014: GBPnil) it was
the Company's policy not to hold any derivative financial
instruments.
POLITICAL DONATIONS
During the year, no contributions were made to political
organisations (2014: GBPnil).
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT
Section 1B.1.5R of the Disclosure and Transparency Rules ("DTR")
requires an issuer, whose transferable securities are admitted to
trading, to provide a corporate governance statement in its annual
Report of the Directors. However, DTR 1B.1.6R provides that the
rules in DTR 7.2.2R, 7.2.3R and 7.2.7R do not apply to an issuer,
which has not issued shares, which are admitted to trading.
Accordingly, as the Company has no shares admitted to trading, it
is eligible for the exemption provided by DTR 1B.1.6R.
Main features of the internal control risk and management
systems
The GRMG is the principal risk management forum in the Northern
Powergrid Group and monitors and manages performance in
risk-related and compliance areas. The GRMG monitors and reviews
the strategic risk environment, ensuring the continued suitability,
adequacy and effectiveness of risk management arrangements and
reports to the Northern Powergrid Group's Audit Committee.
The GRMG implemented a new process during Quarter 1 of 2015,
which is designed to improve the effectiveness of the risk
management and control activities, better define the risk
environment within the Northern Powergrid Group, rationalise the
reporting procedures to focus attention on key risk movements and
to identify accountabilities for each risk sector.
The GRMG met on three occasions during the year in order to
monitor the risk management framework and to ensure that all
strategic risks were being addressed. Risk management policies and
procedures were reviewed and updated to ensure a robust and clear
approach was maintained. Mr R Dixon, an independent non-executive
director of both Northern Powergrid Holdings Company and Northern
Powergrid, attended meetings of the GRMG to provide an independent
view in respect of the matters discussed.
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk, as part of its
overall risk management policy. Risks are divided into a number of
risk sectors which, in turn, align to the Northern Powergrid
Group's Core Principles. A report regarding the effectiveness of
each risk sector in terms of risk management, control activity, key
success factors, and supporting measures is presented at meetings
of the GRMG. The risk environment is reviewed continually in order
that new or emerging potential risks are identified.
A rigorous internal control environment exists within the
Northern Powergrid Group based on regular reporting, a series of
operational and financial policy statements, investigations
undertaken by internal audit and a stringent process for ensuring
the implementation of any recommendations. The directors consider
that the governance framework in place is appropriate to the
circumstances of the Company, given that the framework is agreed
with its parent company, Berkshire Hathaway Energy Company
("Berkshire Hathaway Energy"), and includes regular reporting to
and meetings with the Chairman and senior management of Berkshire
Hathaway Energy. In addition, the internal control environment is
designed to meet the standards required by the United States
Sarbanes-Oxley Act.
Berkshire Hathaway Energy requires a quarterly risk control
assessment to be undertaken by certain senior managers as part of
its programme for compliance with the requirements of the United
States Sarbanes-Oxley Act and, while no significant areas of
weakness have been identified, any recommended improvements are
implemented. In addition, the Northern Powergrid Group employs
comprehensive business planning and financial reporting procedures,
regularly reviews key performance indicators to assess progress
towards its goals and has a strong internal audit function to
provide independent scrutiny of its internal control systems. The
Northern Powergrid Group has risk management procedures in place,
including the standards required by the United States
Sarbanes-Oxley Act, and has centralised treasury operations and
established procedures for the planning, approving and monitoring
of major capital expenditure.
Details of other financial risks faced by the Company can be
found in the Strategic Report and on page 5 in the Report of the
Directors.
Other key features of the Northern Powergrid Group's internal
control system are:
- Comprehensive business planning and financial reporting
procedures, including the annual preparation of detailed
operational budgets for the year ahead and projections for
subsequent years;
- Regular review of key performance indicators to assess progress towards objectives;
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Main features of the internal control risk and management
systems - continued
- A range of policies, codes of practice and more detailed
instructions that define the processes to be followed;
- Centralised treasury operations that operate within defined
limits and are subject to regular reporting requirements and audit
reviews; and
- Established procedures for planning, approving and monitoring
major capital expenditure, major projects and the development of
new business which includes short and long-term budgets, risk
evaluation, detailed appraisal and review procedures, defined
authority levels and post-investment performance reviews.
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 05:23 ET (09:23 GMT)
The Northern Powergrid Group is committed to maintaining the
highest ethical standards in the conduct of its business and, in
that respect, implements Berkshire Hathaway Energy's code of
business conduct for employees. The code of conduct sets out and
emphasises the required standards and commitment to ethical
behaviour, provides reporting mechanisms for known or suspected
ethical issues, helps prevent wrongdoing, and creates and sustains
an ethical work environment across the Northern Powergrid Group.
All employees are required to complete annual training on the code
of business conduct and then confirm that they understand the
requirements outlined in the code. The training is available online
and employees who do not have access to the online system attend a
briefing with their line manager.
The Northern Powergrid Group is also committed to preventing
corruption in all its forms and continues to have a zero-tolerance
approach to corruption in its business or by those with whom it
does business. The board of Northern Powergrid Holdings Company has
addressed the risks introduced by the Bribery Act 2010 through a
compliance policy, changes to contractual terms, training and other
staff awareness measures. The introduction of annual risk
assessments and enhanced due diligence in respect of new business
transactions has further assisted in ensuring compliance. The
Northern Powergrid Group requires staff, suppliers of services and
business partners to comply with the Bribery Act. Its policies
encourage an employee who has any suspicion of bribery or other
form of corruption within or related to the Northern Powergrid
Group to report the suspicion to a manager or via an international,
anonymous help line, which is provided for the use of employees of
the Northern Powergrid Group.
Audit committee
The board of Northern Powergrid Holdings Company has established
an audit committee for the Northern Powergrid Group under delegated
terms of reference, which include monitoring of the financial
reporting process, the effectiveness of the internal control,
internal audit and risk management systems, the statutory audit of
the accounts, and the independence of and the provision of
additional services by the auditor. The Audit Committee, which
comprises one member who is independent and one member who has
competence in accounting, receives annual reports from the GRMG and
from the Northern Powergrid Group's Head of Internal Audit on the
work of the Internal Audit Section during the year and the audit
plan for the following year.
Given that Mr Dixon is an independent non-executive director of
Northern Powergrid Holdings Company and Northern Powergrid, the
Audit Committee comprises:
R Dixon Non-Executive
Director
T E Fielden Finance Director
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic
Report, the Report of the Directors and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union. Under company law, the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
STATEMENT OF DIRECTORS' RESPONSIBILITIES - continued
In preparing these financial statements, International
Accounting Standard 1 requires the directors to:
- Properly select and apply accounting policies;
- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- Provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance; and
- Make an assessment of the Company's ability to continue as a going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions, disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The directors are responsible
for the maintenance and integrity of any corporate and financial
information relating to the Company, which is included on the
Northern Powergrid Group's website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
GOING CONCERN
The Company's business activities, together with details
regarding its future development, performance and position are set
out in the Strategic Report and in the Report of the Directors. In
addition, the Company's objectives, policies and processes for
managing its capital, its financial risk management objectives,
details of its financial instruments and its exposures to credit
risk and liquidity risk are included in the Principal Risks and
Uncertainties section of the Strategic Report, the Report of the
Directors and the appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
account of a number of factors that arise due to the Company being
a wholly-owned subsidiary of Northern Powergrid, including the
following:
a) Northern Powergrid is a stable electricity distribution
business operating an essential public service and is regulated by
the Gas and Electricity Markets Authority ("GEMA"). In carrying out
its functions, GEMA has a statutory duty under the Electricity Act
1989 to have regard to the need to secure that licence holders are
able to finance their activities, which are the subject of
obligations under Part 1 of the Electricity Act 1989 (including the
obligations imposed by the electricity distribution licence) or by
the Utilities Act 2000;
b) Northern Powergrid is profitable with strong underlying cash
flows resulting in low gearing and holds investment grade credit
ratings; and
c) Northern Powergrid has access to considerable financial
resources, in the form of short-term borrowings made available by
Yorkshire Electricity Group plc, a fellow company in the Northern
Powergrid Group, and an overdraft facility provided by Lloyds Bank
plc which is reviewed annually. In addition, Northern Powergrid has
committed revolving credit facilities in place from Lloyds Bank
plc, Royal Bank of Scotland plc and Abbey National Treasury
Services plc until 30 April 2020.
Consequently, after making enquiries, the directors have a
reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
NORTHERN ELECTRIC FINANCE PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITOR
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
a) so far as he is aware, there is no relevant audit information
of which the Company's auditor is unaware; and
b) he has taken all the steps he ought to have taken as a
director in order to make himself aware of any relevant audit
information and to establish that the auditor is aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITOR
A resolution to re-appoint Deloitte LLP as the Company's auditor
and authorise the directors to determine their remuneration will be
proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
P A Jones
Director
5 April 2016
NORTHERN ELECTRIC FINANCE PLC
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORTS AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015
Each of the directors as at the date of the Annual Report, whose
names and functions are set out on page 5 in the Report of the
Directors confirms that, to the best of their knowledge:
a) the Company's financial statements, prepared in accordance
with applicable UK law and in conformity with IFRS, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company; and
b) the Management Report (which is comprised of the Strategic
Report and the Report of the Directors) includes a fair review of
the development and performance of the business and the position of
the Company, together with a description of the principal risks and
uncertainties it faces.
This responsibility statement was approved by the Board of
Directors on 5 April 2016 and signed on its behalf by:
P A Jones
Director
5 April 2016
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
NORTHERN ELECTRIC FINANCE PLC
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We have audited the financial statements of Northern Electric
Finance plc ("the Company") for the year ended 31 December 2015,
which comprise the Statement of Profit or Loss, the Statement of
Profit or Loss and Other Comprehensive Income, the Statement of
Financial Position, the Statement of Changes in Equity, the
Statement of Cash Flows and related notes 1 to 14. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRS) as adopted by the European Union.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
a Report of the Auditor and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on pages 7 and 8, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed, the reasonableness
of significant accounting estimates made by the directors and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the
Strategic Report and the Report of the Directors to identify
material inconsistencies with the audited financial statements and
to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Company's
affairs as at 31 December 2015 and of its loss for the year then
ended;
- have been properly prepared in accordance with IFRS as adopted by the European Union; and
- have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and
the Report of the Directors for the financial year for which the
financial statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- adequate accounting records have not been kept; or
- returns adequate for our audit have not been received from branches not visited by us; or
- the financial statements are not in agreement with the accounting records and returns; or
- certain disclosures of directors' remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
David M Johnson FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
Date: 14 April 2016
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue - -
Administrative expenses (7) (9)
OPERATING LOSS (7) (9)
Finance costs 3 (17,173) (17,175)
Finance income 3 17,026 17,024
LOSS BEFORE INCOME
TAX 4(154) (160)
Income tax 5 47 33
LOSS FOR THE YEAR (107) (127)
The notes on pages 17 to 24 form part of these financial
statements
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
GBP'000 GBP'000
LOSS FOR THE YEAR (107) (127)
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE (107) (127)
EXPENSE FOR THE YEAR
The notes on pages 17 to 24 form part of these financial
statements
NORTHERN ELECTRIC FINANCE PLC (REGISTERED NUMBER: 03070482)
STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2015
2015 2014
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Trade and other receivables 6 247,951 247,880
CURRENT ASSETS
Trade and other receivables 6 3,419 3,419
Tax receivable 33 28
Cash and cash equivalents 7 1,536 1,560
4,988 5,007
TOTAL ASSETS 252,939 252,887
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 8 50 50
Retained earnings 9 (1,192) (1,085)
TOTAL DEFICIT (1,142) (1,035)
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans
and borrowings 10 247,158 246,958
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Deferred tax 11 144 186
247,302 247,144
CURRENT LIABILITIES
Interest bearing loans
and borrowings 10 6,779 6,778
TOTAL LIABILITIES 254,081 253,922
TOTAL EQUITY AND LIABILITIES 252,939 252,887
The financial statements were approved by the Board of Directors
on 5 April 2016 and were signed on its behalf by:
P A Jones
Director
The notes on pages 17 to 24 form part of these financial
statements
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Called up
share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
Balance at 1 January 2014 50 (958) (908)
Changes in equity
Total comprehensive expense - (127) (127)
Balance at 31 December 2014 50 (1,085) (1,035)
Changes in equity
Total comprehensive expense - (107) (107)
Balance at 31 December 2015 50 (1,192) (1,142)
The notes on pages 17 to 24 form part of these financial
statements
NORTHERN ELECTRIC FINANCE PLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
GBP'000 GBP'000
Cash flows used in operating activities
Cash used in operations 13 (78) (75)
Interest paid (16,972) (16,989)
Interest received 17,026 17,024
Net cash used in operating activities (24) (40)
Decrease in cash and cash equivalents (24) (40)
Cash and cash equivalents
at beginning of year 1,560 1,600
Cash and cash equivalents
at end of year 1,536 1,560
The notes on pages 17 to 24 form part of these financial
statements
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
1. GENERAL INFORMATION
Northern Electric Finance plc (the "Company") is a company
incorporated in England and Wales and is part of the Northern
Powergrid Holdings Company group of companies (the "Northern
Powergrid Group"). The address of the registered office is Lloyds
Court, 78 Grey Street, Newcastle-upon-Tyne, NE1 6AF.
The nature of the Company's business model, strategic
objectives, operations and activities are set out in the Strategic
Report.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
financial statements have also been prepared in accordance with
IFRS as adopted by the European Union, and with those parts of the
Companies Act 2006 (the "Act") that are applicable to companies
reporting under IFRS.
The financial statements have been prepared under the historical
cost convention.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these financial statements is determined on such a
basis, except for leasing transactions which are in the scope of
IAS 17, and measurements that have some similarities to fair value
but are not fair value, such as net realisable value in IAS 2 or
value in use in IAS 36.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
Adoption of new or revised standards
Amendments to IFRS made by the International Accounting
Standards Board ("IASB") that are effective mandatorily for an
accounting period that begins on or after 1 January 2015 have not
impacted these financial statements.
The Company has not applied the following new and revised IFRS
that have been issued but are not yet effective for the year ending
31 December 2015:
- Annual Improvements to IFRS 2012-2014 Cycle.
The Annual Improvements to IFRS 2012-2014 Cycle include a number
of amendments to various IFRS. The directors of the Company do not
anticipate that the application of these amendments will have a
significant impact on the Company's financial statements.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES- continued
Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition.
Taxation
The income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from 'profit before tax' as reported
in the statement of profit or loss because of items of income or
expense that are taxable or deductible in other years and items
that are never taxable or deductible. The Company's current tax is
calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively.
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Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation
of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax
assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits
will be available against which those deductible temporary
differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit. In addition, deferred tax liabilities are not
recognised if the temporary difference arises from the initial
recognition of goodwill.
Deferred tax liabilities recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the
Company is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future. Deferred tax assets arising from
deductible temporary differences associated with such investments
and interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting period and reduced to the extent that that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Financial assets
Financial assets, including trade and other receivables and cash
and cash equivalents, are classified as loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment.
The effective interest method is a method of calculating the
amortised cost of an instrument and of allocating income over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts through the
expected life of the instrument to the net carrying amount on
initial recognition.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the effect of
discounting is immaterial.
Cash and cash equivalents (which are presented as a single class
of assets on the face of the statement of financial position)
comprise loans advanced to the parent company, having a maturity of
less than three months on the basis that they are readily
convertible to known amounts of cash and are subject to
insignificant risk of changes in value.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES - continued
Financial assets - continued
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are considered
to be impaired where there is objective evidence that, as a result
of one or more events that occurred after the initial recognition
of the financial asset, the estimated future cash flows of the
investment have been affected.
For certain categories of financial assets, such as trade
receivables, assets are assessed for impairment on a collective
basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables
could include the Company's past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past
the average credit period of 30 days, as well as observable changes
in national or local economic conditions that correlate with
default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
statement of profit or loss.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the financial statements. Further detail is contained
within the Going Concern Statement in the Report of the Directors
on page 8.
3. NET FINANCE COSTS
2015 2014
GBP'000 GBP'000
Finance income:
Interest receivable 17,026 17,024
on loans to Group undertakings
Finance costs:
Interest payable on other loans 17,152 17,139
Interest payable on loans from Group
undertakings 21 36
17,173 17,175
Net finance costs 147 151
4. LOSS BEFORE INCOME TAX
Analysis of auditor's remuneration is as follows:
2015 2014
GBP'000 GBP'000
Fees payable to the Company's auditor
for the audit of the Company's annual 7 6
accounts
Total fees payable to the Company's
auditor 7 6
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
5. INCOME TAX
Analysis of tax income
2015 2014
GBP'000 GBP'000
Current tax (5) (9)
Deferred tax (34) (24)
Total tax income in statement of
profit or loss (39) (33)
Factors affecting the tax income
The tax assessed for the year is lower (2014 - higher) than the
standard rate of corporation tax in the UK. The difference is
explained below:
2015 2014
GBP'000 GBP'000
Loss on ordinary activities before
income tax (154) (160)
Loss on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 20.25% (2014 - 21.5%) (31) (34)
Effects of:
Changes in legislation (16) -
Other - 1
Tax income (47) (33)
2015 2014
GBP'000 GBP'000
Tax expense comprises:
Current tax income:
Receipt for surrender of group losses (5) (9)
Total current tax credit (5) (9)
Deferred tax:
Deferred tax expenses relating to
the origination and reversal of (26) (24)
temporary differences
Effect of changes in legislation (16) -
Total deferred tax credit (42) (24)
Tax on profit before tax (47) (33)
The Finance Act 2015 included a provision that the standard rate
of corporation tax in the United Kingdom was to reduce from 20% to
19% from April 2017 and to 18% from April 2020. Accordingly, 18%
has been applied when calculating deferred tax assets and
liabilities throughout the Northern Powergrid Group as at 31
December 2015.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
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FOR THE YEAR ENDED 31 DECEMBER 2015
6. TRADE AND OTHER RECEIVABLES
2015 2014
GBP'000 GBP'000
Current:
Prepayments and accrued income 3,419 3,419
Non-current:
Amounts due from group undertakings 247,951 247,880
Aggregate amounts 251,370 251,299
The fair value of the trade and other receivables as at 31
December 2015 is estimated to be GBP308 million (2014: GBP316
million), determined in accordance with generally accepted pricing
models based on discounted cash flow analysis using prices from
observable market transactions or dealer quotes for similar
instruments. The valuation is based on Level 1 inputs.
Amounts owed to group undertakings represent the value of loans
made to Northern Powergrid (Northeast) Limited, the Company's
immediate parent, and are at fixed rates of interest. Prepayments
and accrued income represent the accrued interest due on these
loans. The maximum exposure to risk to the Company is the book
value of these loans.
7. CASH AND CASH EQUIVALENTS
2015 2014
GBP'000 GBP'000
Cash in hand 1,536 1,560
Cash and cash equivalents represent amounts owed by companies
within the Northern Powergrid Group (see related party disclosures
note), which have a maturity date of less than three months and
which are subject to an insignificant risk of changes in value. The
fair value of cash and cash equivalents is equal to their book
value.
8. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid:
Number: Class: Nominal 2015 2014
value: GBP GBP
50,000 Ordinary shares GBP1 50,000 50,000
9. RESERVES
Retained
earnings
GBP'000
At 1 January 2015 (1,085)
Deficit for the year (107)
At 31 December 2015 (1,192)
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
9. RESERVES - continued
Retained
earnings
GBP'000
At 1 January 2014 (958)
Deficit for the year (127)
At 31 December 2014 (1,085)
10. BORROWINGS
The directors' consideration of liquidity, interest rate and
foreign currency risk are described in the Strategic Report.
Book Value Fair Value
2015 2014 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000
Loans 253,937 253,736 311,022 319,285
253,937 253,736 311,022 319,285
The borrowings are repayable as follows:
On demand or within
one year 6,779 6,778 6,779 6,778
After five years 247,158 246,958 304,243 312,507
253,937 253,736 311,022 319,285
Analysis of borrowings:
2020 - 8.875% bonds 101,052 100,923 130,560 135,364
2035 - 5.125% bonds 152,885 152,813 180,462 183,921
253,937 253,736 311,022 319,285
The fair value of the external borrowings is determined with
reference to quoted market prices.
The fair valuation of the borrowings is based on Level 1
inputs.
The Company's 8.875% 2020 bonds are guaranteed by Northern
Powergrid (Northeast) Limited, its immediate parent company, and
Northern Electric plc. The Company's 5.125% 2035 bonds are
guaranteed by Northern Powergrid (Northeast) Limited and AMBAC
Assurance UK Limited.
The covenants associated with the 2035 bonds issued by the
Company include restrictions on the issuance of new indebtedness
and the making of distributions dependent on the scale of the ratio
of Senior Total Net Debt to Regulatory Asset Value ("RAV") of
Northern Powergrid (Northeast) Limited. The definition of Senior
Total Net Debt excludes any subordinated debt and any debt incurred
on a non-recourse basis. In addition, it excludes interest payable,
any fair value adjustments and unamortised issue costs.
At 31 December 2015, the Company had no undrawn committed
borrowing facilities.
The following tables detail the remaining contractual maturities
for the non-derivative financial liabilities. The tables have been
drawn up based on the discounted cash flows of financial
liabilities based on the earliest possible date on which the
Company can be required to pay. The tables include both interest
and principal cash flows.
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
10. BORROWINGS - continued
Less than 3 months
3 months to 1 year 1 to 5+ years Total
5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2015:
Fixed interest
rate liability -16,563 166,250 265,312 448,125
- 16,563 166,250 265,312 448,125
2014:
Fixed interest
rate liability -16,563 66,250 381,875 464,688
- 16,563 66,250 381,875 464,688
11. DEFERRED TAX
Total
GBP'000
At 1 January 2015 186
Credit to statement of profit
or loss (42)
At 31 December 2015 144
Total
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GBP'000
At 1 January 2014 210
Credit to statement of profit
or loss (24)
At 31 December 2014 186
The balance represents deferred tax on unamortised loan issue
costs in relation to the 8.875% 2020 bonds.
12. RELATED PARTY DISCLOSURES
Transactions entered into and balances outstanding at the year
end were as follows:
Interest Interest Amounts
received paid to owed from
from related related related
parties parties parties
GBP'000 GBP'000 GBP'000
(Note (Note (Notes
3) 3) 6 & 7)
Related Party
2015:
Northern Powergrid
(Northeast) Limited 17,023 - 251,370
Yorkshire Electricity
Group plc 3 21 1,536
17,026 21 252,906
2014:
Northern Powergrid
(Northeast) Limited 17,021 - 251,299
Yorkshire Electricity
Group plc 3 36 1,560
17,024 36 252,859
NORTHERN ELECTRIC FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
13. RECONCILIATION OF LOSS BEFORE INCOME TAX TO
CASH USED IN OPERATIONS
2015 2014
GBP'000 GBP'000
Loss before income tax (154) (160)
Finance costs 17,173 17,175
Finance income (17,026) (17,024)
(7) (9)
Increase in trade and other receivables (71) (66)
Cash used in operating activities (78) (75)
14. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Electric Finance
plc is Northern Powergrid (Northeast) Limited. The ultimate
controlling party and ultimate parent undertaking of Northern
Powergrid (Northeast) Limited is Berkshire Hathaway, Inc., a
company incorporated in the United States of America.
Copies of the group accounts of Berkshire Hathaway, Inc. (the
parent undertaking of the largest group preparing group accounts)
which include Northern Electric Finance plc and the group accounts
of Northern Electric plc, the smallest parent undertaking to
prepare group accounts in the UK, can both be obtained from the
Company Secretary, Northern Powergrid Holdings Company, Lloyds
Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFSSUIFMSEFL
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