Registration number: 3043097
South Eastern Power Networks plc
Annual Report and Financial Statements
for the Year Ended 31 March 2024
SOUTH EASTERN POWER NETWORKS PLC
CONTENTS
Company Information 1
Strategic Report 2 to 31
Directors' Report 32 to 33
Corporate Governance Statement 34 to 44
Statement of Directors' Responsibilities 45
Independent Auditor's Report 46 to 55
Profit and Loss Account 56
Statement of Comprehensive Income 57
Balance Sheet 58
Statement of Changes in Equity 59
Cash Flow Statement 60
Notes to the Financial Statements 61 to 94
SOUTH EASTERN POWER NETWORKS PLC
COMPANY INFORMATION
Directors
Andrew John Hunter (Chairman)
Hing Lam Kam
Neil Douglas McGee
Basil Scarsella
Charles Chao Chung Tsai
Loi Shun Chan
Duncan Nicholas Macrae
Kee Ham Chan
Christopher Clarke
Paul Jeffery
Jenny Yu
Company secretary
Andrew Pace
Registered office
Newington House
237 Southwark Bridge Road
London
SE1 6NP
United Kingdom
Auditor
Deloitte LLP
Statutory Auditor
1 New Street Square
London
EC4A 3HQ
United Kingdom
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
About us:
Who we are
South Eastern Power Networks plc (the "Company") is a wholly owned subsidiary of the UK Power
Networks Group (the “Group”). The Company is responsible for operating and maintaining the
network, the safe, reliable and efficient electricity supply to existing customers and the timely,
cost-effective connections to new ones.
What we do
As an electricity distribution network operator (“DNO”), we provide electricity infrastructure to deliver
electricity supply to over 2.4 million homes and businesses. The Company looks after the electricity
network for people who live and work in the South East of England, including South London, Kent,
East Sussex and parts of Surrey and West Sussex, covering a variety of customers and locations.
The Company operates within a regulatory framework under licence from the Office of Gas and
Electricity Markets ("Ofgem"). Ofgem works with government, industry and consumer groups to
establish a regulatory framework to promote a sustainable electricity network which delivers value for
customers. Ofgem sets the price control which determines what the Company can charge its
customers and the level of “allowed” revenue. In addition, Ofgem establishes incentives for
outperformance and innovation relating to outputs, including safety performance, network reliability,
customer service, the environment and efficiency.
In addition to allowed revenues, the Company collects income to cover the cost of connecting new
customers to the network.
How we charge customers
The prices we charge customers are set by Ofgem under the regulatory framework. Customers are
charged through their electricity supplier. We recognise the importance of delivering value for
customers and seek to deliver the lowest possible prices by driving efficiency and innovation. We are
continuously balancing the competing demands of value for money, the need to innovate, efficiency,
safety and the overall resilience of the network.
Regulatory Framework
The current regulatory framework is based on network regulation, known as the "RIIO" model where
Revenues = Incentives + Innovation + Outputs. Under the RIIO model there is an emphasis on
delivering good operational performance in areas such as network reliability and customer service,
while delivering the lowest possible prices for customers.
Allowed revenue covers the cost of operating and maintaining the network through an “in year”
allowance for regulatory expenditure plus the regulatory return and regulatory depreciation on the
regulatory expenditure which enters the Regulatory Asset Value (“RAV”), pass-through costs,
incentives, tax and pensions. The Company has the opportunity to outperform the allowed revenue
either by delivering the agreed cost outputs at below the agreed allowance or through out
performance against incentive mechanisms.
The RIIO-ED1 framework ran from 1 April 2015 until 31 March 2023. The new price control,
RIIO-ED2, operates from 1 April 2023 to 31 March 2028 and was agreed following final determination
and after extensive review and consultation with Ofgem. Ofgem set the framework so that the
fourteen DNOs in Great Britain (including the Company) provide a safe and reliable service, deliver
value for money, operate efficiently, innovate, and maintain the resilience of their networks for current
and future customers.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
The RIIO-ED2 framework has grouped the outputs into three consumer-facing output categories with
a range of incentive mechanisms attached.
Meet the needs of consumers and network users
• Delivering high quality customer service - Incentives to drive the DNOs to continue to improve the
quality of services to customers and effectively resolve any complaints.
• Support for consumers in vulnerable situations - An incentive framework with stretching targets
and common metrics to drive further improvements in the support delivered to consumers in
vulnerable situations.
• Provide a quality service for consumers seeking a connection - A package of incentives to drive
quality services for both minor and major connections customers.
Maintain a safe and resilient network
• World class levels of reliability - Proposals for the Interruptions Incentive Scheme (“IIS”) to deliver
world class levels of reliability and funding for DNOs to improve service provision for their ‘worst
served customers’.
• Asset resilience - A Network Asset Risk Metric output to hold companies accountable for their
investment decision.
• Environmental and information resilience - A package of measures, including new strategy
requirements and uncertainty mechanisms to ensure DNO's improve resilience in key areas of
their operations.
Networks for Net Zero
• Delivering an environmentally sustainable network - Funding, including uncertainty mechanisms,
for the DNOs to undertake activities to deliver an environmentally sustainable network with annual
reporting to track progress.
The Group’s business plan for RIIO-ED2 lays out its DNOs’ commitments to deliver measurable
outputs against specific targets.
The business plan can be found at: https://ed2.ukpowernetworks.co.uk.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Our purpose, vision and values
The Company's vision and values are set out by the Group and guides the decisions taken by the
Company. The Group's vision is to be consistently the best performing DNO Group and Distribution
System Operator ("DSO") within an agreed set of values.
Our purpose
To deliver electricity to the South East of England.
Our vision
There are four aspects to our vision:
An employer of choice
• the safest, with a strong safety record.
• an organisation that employees are proud to work for.
• creating a diverse and inclusive DNO and DSO.
• having a highly skilled and healthy workforce for both today and the long term.
• strong and collaborative relationships with Trade Unions.
A respected and trusted corporate citizen
• the most reliable networks.
• the best customer satisfaction.
• meeting the needs of customers in vulnerable circumstances, both now and in the future.
• the most socially and environmentally responsible in its sector.
• the most innovative in its sector.
• employing an efficient, sustainable and ethical supply chain.
Sustainably cost efficient
• delivering electricity at the lowest possible cost for customers.
• delivering frontier efficiency in the work the Group does.
• delivering on commitments in a collaborative way with others.
• delivering growth in the Services and Connections business.
Enabling the net zero transition for all
• operating an independent DSO to maximise customer participation and efficiency in the
network.
• collaborating with local authorities and stakeholders on regional decarbonisation plans.
• provide our customers and employees with information and support on low carbon
technologies.
• play a leadership role in addressing inequality and unfairness resulting from the energy
transition.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Our values
The Company delivers high performance underpinned by the values of the UK Power Networks
Group, which are embedded in its culture. The Group's values that the Company has adopted are as
follows:
Integrity:
We will do what we say we will do and build trust and confidence by being honest to
colleagues, partners and customers.
Continuous improvement
: We are committed to learning, development, innovation and
achievement.
Diversity and inclusiveness
: We recognise and encourage the value that difference and
constructive challenge can bring.
Respect:
We will treat partners and customers in the way in which we would want to be treated.
Responsibility:
We will act in an ethical, safe and socially/environmentally aware manner.
Unity:
We are stronger together and this comes from a shared vision, a common purpose, supportive
and collaborative working.
Sustainability is embedded in the Group's culture. The Group contributes support to the UK’s ambition
to reduce carbon emissions to net zero by 2050, (“Net Zero”) both in connecting renewable energy to
its networks and facilitating the uptake of low carbon technologies. The Group's ambition is to be the
most environmentally and socially responsible in its sector and to facilitate the transition to a Net Zero
future. This is discussed on pages 23 to 29.
Our Strategy
The Group's long-term success is linked to its vision to be consistently the best performing DNO and
DSO in the UK. The Board and Executive Management Team (“EMT”) develops, and executes, the
Group’s strategy in order to support this vision.
Further information on the Groups strategy can be found within the UK Power Networks Holdings
Annual report and Financial Statements for the year ended 31 March 2024.
Our key stakeholders
The Company has identified the following as its key stakeholders, for further details on engagement
with these stakeholders, refer to pages 21 to 23. Although the Company has no employees of its own,
it considers the employees of other Group companies to be key stakeholders.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Why we engage
The community
As a network operator the Company recognises that its activities have a significant impact on the
communities in which it operates. Being a respected and trusted corporate citizen is a key part of
the Group’s vision and we work closely with communities and their representatives to identify
areas where we can play an active, beneficial role.
Customers
Customer engagement helps build a sustainable business, as it anchors the Company to the
needs and expectations of customers and shapes its long-term vision and objectives. The Group
carries out a broad, inclusive programme of engagement on an ongoing basis to deepen its
understanding of the evolving needs of its customers.
Employees
The Company recognises that the Group's employees are fundamental to the achievement of its
objectives and to its longer-term success and has articulated being an Employer of Choice as one
of the four pillars to its vision. A diverse workforce, with a range of backgrounds, abilities, skills and
experience, is considered to be vital to achieving the best outcomes.
Suppliers
Good relationships with suppliers are key to delivering value efficiently and effectively. The resilience
of the Company’s supply chain will be important to meeting the future demands of the network.
Ofgem
The Group is regulated by Ofgem under the distribution licence which sets the requirements that the
networks need to deliver for customers.
Shareholders
The support and engagement of the Group’s shareholders is important to the success of the business
in reaching its long-term objectives.
Operating review
Overview
The year ended 31 March 2024 was the first year of the new RIIO-ED2 price control, which will run for
a period of five years to 31 March 2028. The new price control has established a more challenging
regulatory framework in respect of incentive targets and the allowed rate of return which has been
reduced relative to RIIO-ED1. This has made financial outperformance more challenging for the
Company. Importantly however, the price review provides certainty in the revenue the Company will
earn over the price control period. The key performance indicators ("KPIs") used by the Board of
Directors in their monitoring of the performance of the Company focus on the areas of safety, network
performance, reliability, and customer service. During the year the Company has continued to perform
well in terms of Network Reliability and Customer Service. Whilst the Group continues to deliver good
Safety performance, based on industry benchmarking, there was a small increase in lost time
incidents ("LTIs") compared to the prior year. More detail is provided in the following paragraphs.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Safety
The Group’s highest priority is the safety of employees, supply chain, and members of the public. The
risks associated with work carried out by the Group's employees can be high, requiring robust
management systems, and appropriate risk mitigation being put in place. In order to reinforce the
importance which, the Group places on safety, a comprehensive safety awareness campaign is
regularly undertaken for all employees, to see that safety remains front of mind at all times.
Lost time incidents ("LTIs"), defined as the number of injuries to employees or contractors which result
in lost time of one day or more, is a key safety measure. The circumstances of each LTI are reported
and investigated in detail with the aim of preventing the recurrence of such incidents. Findings from
the investigations are used to improve training and safety procedures as well as raise awareness
across the organisation.
The Group recorded 3 LTIs in the year ended 31 March 2024 which is an increase from 1 LTI
recorded in the prior year. The Group remains focused on ensuring safety is the highest priority and in
response to the increase in LTIs in the year has implemented additional safety measures including
enhancements to its behavioural safety performance ("Stay Safe") as well as greater levels of field
inspections and improved communications.
Network performance
The principal measures used to assess network performance are customer minutes lost ("CMLs") and
customer interruptions ("CIs").
CMLs are the average length of time customers are without power for three minutes or longer and
represent availability of electricity supply. CIs, the number of interruptions per 100 customers, are an
indicator of network reliability.
The Company's performance has improved compared to the prior year, with a 6% reduction in CMLs
and a 9% reduction in CIs.
Year ended
31 March
2024
Year ended
31 March
2023
* Customer Minutes Lost per customer (CMLs)
36.6
38.9
* Customer Interruptions per 100 customers (CIs)
49.8
54.6
* The CMLs and CIs disclosed above exclude the impact of exceptional weather events (as defined by Ofgem) and are
provisional, pending Ofgem’s annual review. The comparatives have been restated to reflect any changes resulting from
Ofgem’s prior year assessment.
Customer satisfaction
The regulator ("Ofgem"), measures customer satisfaction by surveys of customers across all licensed
networks and relating to interruptions, minor connections and general enquiries. This rating is referred
to as the Broad Measure of Customer Satisfaction or “BMCS”.
The Company's average score has remained the same as prior year at 94% and ranked third out of
the fourteen electricity distribution networks in Great Britain.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Customer satisfaction for low carbon technologies
For RIIO-ED2, the Group has developed an independent Low Carbon Technology Customer
Satisfaction survey. The Company's average score for the year ended 31 March 2024 was 94%.
Employee engagement
The Group recognises the importance of recruiting, developing and retaining high calibre people. It is
through its people that the Group achieves success in safety, reliability, customer service, cost
efficiency and innovation. Positive employee engagement is key to attracting good people and to
continuously improve the work environment by engaging with employees through multiple channels,
listening to what they say, acting on their feedback and seeing they are informed about the business.
During the year the Group achieved an employee engagement score of 765 (2023: 709), through its
annual employee engagement survey, its highest ever score. The survey is anonymously completed
by the Group’s employees, independently carried out by Best Companies and scored against the Best
Companies Index.
In December 2023, the Inclusive Top 50 UK Employers List put UK Power Networks in second place
on performance across a range of areas (up from sixth place in 2022). The announcement came
alongside the Group’s National Equality Standard ("NES") reaccreditation. Further details on
employee engagement can be found on page 22.
Financial review
Year ended
31 March
2024
Year ended
31 March
2023
Financial key performance indicators (£m)
Turnover
479.5
581.6
EBITDA
311.0
367.3
Profit after tax
118.9
168.6
Gross capital expenditure on tangible assets
288.3
255.0
Capital expenditure on tangible assets net of
customer contributions received
224.4
195.5
Overview
The Company’s financial performance for the year was negatively impacted by the new RIIO-ED2
price control, which established a more challenging regulatory regime, with a lower allowed rate of
return and more challenging incentive mechanisms. In addition, revenues are profiled, with lower
revenues in the first year which increase over the duration of the price control period. As a result of
these factors, as well as an increase in capital and operating expenditures to achieve commitments
during RIIO-ED2, there is a reduction in turnover and overall profitability versus the prior year, which
is typical in the first year of a new price control. Notwithstanding these external factors the Company
has performed well in the first year of RIIO-ED2 and remains profitable with good cash flow from
operations and a low level of gearing.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Market update
The UK Electricity sector is continuing to experience significant changes due to fluctuating wholesale
electricity prices and inflationary pressures. The Company has continued to deliver on its operational
and financial targets by focusing on efficiencies and cost control measures in a high inflation
environment.
The increase in wholesale electricity prices since the end of 2021 has resulted in a number of
electricity suppliers going out of business. A financial impact of electricity supplier failures on the
Company is that all DNOs have been required to pay claims under the supplier of last resort (“SOLR”)
scheme managed by Ofgem. It was agreed with Ofgem that the majority of the SOLR claims, would
be recovered by tariff increases during the same period as the settlement of the claims. For the year
ended 31 March 2024, £18.0m (2023: £76.4m) of material SOLR claims were incurred, and an
equivalent amount of revenue recognised. In addition, cost of sales includes SOLR claims of £2.8m
(2023: £1.7m). that fall below the materiality threshold defined by Ofgem and therefore are only
recoverable through revenues in two years’ time once tariffs are updated.
Turnover
Turnover decreased from £581.6m in the prior year to £479.5m for the year ended 31 March 2024.
This is partially due to the reduction of SOLR related revenue of £58.4m. Excluding SOLR revenues,
turnover decreased by £43.7m. This reduction is primarily the impact of the new regulatory price
control, including the profiling of revenue and lower permitted rate of return, as explained above.
EBITDA/ Operating profit
Earnings before interest, tax, depreciation and amortisation (“EBITDA”) decreased by £56.3m from
£367.3m to £311.0m. This is the result of lower revenue under RIIO-ED2 combined with higher costs,
which include inflationary cost increases, and are largely as a result of additional expenditure and
resources needed in order to see that the Company meets its RIIO-ED2 commitments throughout the
price control period. The Company continues to deliver a positive EBITDA margin of 65% (2023:
63%).
The EBITDA measure excludes the effect of interest, taxation, depreciation and amortisation from
earnings and reflects the operational performance of the business. The closest statutory measure is
operating profit which is presented in the profit and loss account. Removing the effect of depreciation
and amortisation from operating profit provides a clearer measure of operating efficiencies within the
business and enables comparison with industry peers. It is also the basis for certain of the Group’s
covenant metrics. Operating profit is reconciled to EBITDA as follows:
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Year ended
31 March
2024
Year ended
31 March
2023
Operating profit (£m)
206.5
267.3
Depreciation of tangible fixed assets (£m)
98.1
93.1
Amortisation of intangible assets (£m)
6.4
6.9
EBITDA (£m)
311.0
367.3
Profit after tax
Profit after tax decreased by £49.7m from £168.6m to £118.9m. This is largely attributable to the
£56.3m decrease in EBITDA.
Capital expenditure
Gross capital expenditure is a measure of the Company’s investment in the electricity distribution
network during the year. Capital expenditure net of customer contributions, as calculated in the table
below, is also monitored because the contributions received from customers as payment for
connections to the network, are directly attributable to those network assets.
Gross capital expenditure on tangible assets was £288.3m, an increase of £33.3m compared to the
prior year due to higher capital work volumes arising from additional investment commitments during
RIIO-ED2. This expenditure relates predominantly to improvements to the electricity networks.
Capital expenditure net of customer contributions increased by £28.9m to £224.4m.
Year ended
31 March
2024
Year ended
31 March
2023
Gross capital expenditure on tangible assets (£m)
288.3
255.0
Less: Customer contributions received in the year (£m)
(63.9)
(59.5)
Capital expenditure net of customer contributions (£m)
224.4
195.5
Gross capital expenditure on tangible assets is disclosed in note 10 to the financial statements and
customer contributions received are disclosed in note 20 to the financial statements.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
RAV gearing
The proportion of debt measured against the RAV of the business reflects the capacity of the
business to source additional finance. This is a key metric for the Company’s covenant arrangements
with pension trustees and providers of finance and is monitored on a regular basis. The RAV gearing
ratio remains within pension and bank covenant targets, the ratio increased from 57% at 31 March
2023 to 59% at 31 March 2024. The increase reflects an increase in net debt which was
proportionately higher than the growth in the RAV during the year.
As at
As at
31 March
2024
31 March
2023
* Regulatory asset value (RAV) (£m)
2,436.1
2,330.1
**RAV gearing
59%
57%
* RAV is the Regulatory Asset Value of the business. The 31 March 2024 RAV presented is provisional at the date the accounts
are signed. Discussion with Ofgem may result in RAV being increased or decreased. The prior year comparatives have been
restated to reflect the latest agreed position; however, this is still subject to change following final RIIO-ED1 close out
assessment by Ofgem.
** RAV gearing is the ratio of net debt (as defined within certain of the Company’s covenant arrangements), to the RAV.
Financial risk management objectives and policies
The Company is financed by a combination of equity and retained profits, bonds, and bank lending
facilities. The Company’s funding and liquidity are managed within a framework of documented
treasury policies and guidelines.
At 31 March 2024 the Company had net debt of £1,530.7m (2023: £1,453.3m) comprising bonds of
£1,287.0m (2023: £1,339.5m), loans from the European Investment Bank (EIB) of £165.0m (2023:
£165.0m) and other bank loans of £99.7m (2023: £99.6m), offset by cash and cash equivalents of
£21.0m (2023: £150.8m). The Company’s principal financial assets are its cash balances, trade and
other receivables and loans to Group undertakings.
The Company’s activities expose it to a number of financial risks, the most important of which are
interest rate risk, credit risk and liquidity risk.
Interest rate risk
The interest rate exposure on the Company’s debt is partially hedged in order to provide the desired
mix of fixed, floating and index linked interest rates to achieve a balanced debt portfolio with a similar
profile to that of the cost of debt allowance within Ofgem’s price control.
The use of financial derivatives is governed by the Group’s treasury policies which provide written
principles on the use of financial derivatives to manage interest rate risks. The Group does not use
derivative financial instruments for speculative purposes.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Credit and liquidity risk
The Company’s credit risk is primarily attributable to its trade receivables. The amounts presented in
the balance sheet are net of an impairment allowance for expected credit losses. The credit risk on
liquid funds and financial instruments is limited because the counterparties are large, recognised
banks with investment grade credit-ratings assigned by international rating agencies.
The Company does not have a significant concentration of credit risk, with exposure spread over a
large number of counterparties and customers.
The Company generates cash primarily from use of system charges which are payable within 14 days
of the demand for payment. Payments to suppliers and contractors are made in accordance with
negotiated terms. Other principal cash outflows include interest, taxation and dividends. The Group
plans its working capital requirements to take account of expected cash inflows and outflows.
Liquidity risk is managed by spreading debt maturities over a range of dates which provides comfort
that the Company is not subject to excessive financing risk in any one year. The Company is able to
raise finance in financial markets supported by cash flows generated by the RAV which in part
determines the level of allowed revenue that may be recovered. The Company is required by the
distribution licence to maintain an investment grade credit rating.
Pension commitments
A significant proportion of the Group’s employees are members of two funded defined benefit pension
schemes: the UK Power Networks Group of the Electricity Supply Pension Scheme ("the UKPN
Group Scheme"); and the UK Power Networks Pension Scheme ("the UKPNPS"). Both defined
benefit schemes are closed to new members. A defined contribution pension scheme, introduced in
2011, is open to all new employees. There is automatic enrolment to the scheme in the first month of
employment with the choice to opt out if the employee does not wish to participate in the scheme.
The Company’s share of the Group's defined benefit pension obligations at 31 March 2024 amounts
to a surplus of £120.7m (2023: surplus of £174.1m) in the UKPN Group scheme and a deficit of
£13.7m (2023: deficit of £19.4m) in the UKPNPS scheme. The sensitivity of the valuation to changes
in discount rate is shown in note 3 to the financial statements and further detail on the assumptions
used to estimate the defined benefit obligation is provided in note 19.
Taxation
The Company operates entirely within the United Kingdom and is subject to all the main charges
which fall under UK legislation. These include corporation tax, VAT, national insurance, regulatory
licence fees, local authority fees (such as road permits issued under the New Roads and Street
Works Act) and relevant rates.
The Company has a significant long term capital expenditure programme which generates a charge
against taxable profit through capital allowances. The timing of the tax relief on these allowances has
the effect of delaying the payment of corporation tax and giving rise to a deferred tax liability. At 31
March 2024 the Company’s net deferred tax liability was £257.8m (2023: £251.4m).
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Factors likely to affect future development and performance
The Company’s business model is considered robust with stable income streams supported by
regulated price controls. The Company’s key long-term objectives are not expected to change
significantly.
The Company will be making significant additional investment under RIIO-ED2. The Company could
be impacted by conditions in the external market, including global trade, supply chain lead times and
the availability of skilled workers or contractors which may impact the Company’s ability to achieve its
targets. Any increase in inflation could negatively impact costs and cash flow in the short-term,
however, the Company benefits from increased future revenues which are linked to inflation.
Going concern
The Company’s business activities together with details regarding its risk management policies and its
future development, performance and position are set out in the preceding paragraphs of this
Strategic Report. Further detail in respect of its financial instruments and hedging activities are
included in the relevant notes to the financial statements.
The Directors have performed an assessment of going concern based on detailed cash flow forecasts
for a period of at least 12 months from the date of these financial statements as well as taking into
consideration the following factors:
• The Company continues to perform well, is profitable with strong underlying cashflows and with
predictable revenues regulated by Ofgem under an established price control mechanism.
• At 31 March 2024, the Company had £145m of undrawn committed borrowings under the
revolving credit facility and the flexibility provided by centralised Group treasury arrangements
which allow short term funding from other Group companies if required.
• The net current asset position of £190.4m and to the financial covenants applicable to the
Company's financing facilities.
• The impact of a higher inflationary environment, which negatively impacts costs but increases
future revenues after a time lag.
• The Company has a successful track record of raising finance, supported by investment grade
credit ratings.
In assessing going concern the Directors have considered reasonably possible downside scenarios
which could negatively impact the Company. These include an increase in costs resulting from storm
events, higher than expected inflation, lower than expected revenues, which could be attributable to
the impacts of weather or other events on consumption and a reduction in connections income.
Given the significant amount of liquidity available to the Company during the 12 months following the
approval of these financial statements, the Company’s forecasts under all reasonable scenarios show
that there is significant headroom in respect of available liquidity and compliance with financial
covenants. Stress testing has been performed and indicates that the level of decline in the Company’s
financial performance resulting in a financial covenant breach is considered remote. Accordingly, the
Directors are satisfied it is appropriate to adopt the going concern basis of accounting in the
preparation of these financial statements.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Risk management
The UK Power Network Holding Limited's Board ("Group Board") has the overall responsibility for risk
management, determines the Group’s risk strategy, assesses, and approves risk appetite and
monitors risk in line with strategic priorities. The objective of the risk management process is to
manage risk appropriately and support strategic goals. It is designed to manage rather than eliminate
risk and provide reasonable not absolute assurance.
Managing risks
The Group has an embedded risk awareness culture to understand and manage significant business
risks. The risk management framework sets out policies, procedures and responsibilities designed to
assess, mitigate, monitor and report risks. A subcommittee of the Group Board, the Risk Management
and Compliance committee, oversees the risk management function and makes annual assessments
of changes to significant risks and the effectiveness of the risk management processes.
An integrated risk management process is utilised to manage risk exposure. This includes a Risk and
Control Policy and a framework to ensure that risk management is an integral part of management
practice and linked with the ability to achieve business objectives. The framework and policy are
supported by procedures that assess the risk and control environment, the internal control framework
and business continuity management.
Key risks are defined as those which could result in very serious injuries (including fatalities) or have a
significant potential to damage the assets or profitability of the Group, and which require attention by
executive management. Risk assessment scores are determined based on impact, probability and
control effectiveness and are used to classify risks as extreme, high, medium, low or negligible.
Risk registers are maintained for each key business area and are regularly reviewed and monitored.
Potential new and emerging risks, including climate-related risks, are identified and assessed. A
summary of key Group risks is reviewed several times a year by Executive Management and reported
to the Risk Management and Compliance Committee and Group Board.
Principal risks and uncertainties
The Company’s principal risks and uncertainties are managed at a Group level, and a summary of
actions to mitigate them, are set out in the following pages. These risks are consistent with the prior
year and represent those considered material to the Group, there may be other risks, unknown or
currently considered immaterial which could become material.
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Risk
Mitigation
Health and safety incidents
There is a risk that a fatality or serious
injury occurs involving an employee, a
contractor, a member of the public or a
third party.
The Group aims to create and foster a culture in which
safety is the highest priority in the minds of everyone
who works for and on behalf of the Group. Safety
measures include:
Any such incident could lead to a
prosecution or a fine and have an
adverse impact on the reputation of the
Company.
- A health and safety strategy and action plan which
sets out the policies and procedures of the Group and
includes task risk assessments and on-site inspections
to see that safety procedures are followed.
- A range of “Stay Safe” training programmes aimed at
staff, contractors and members of the public, to
promote safety and increase awareness of the dangers
of working with electricity.
- Active monitoring, investigation and reporting of safety
incidents, including near misses, to the Safety, Health
and Environmental Committee which reviews the
completion of follow up actions to improve safety
procedures.
- Communication of incidents and lessons learnt
through monthly safety messages to employees with
innovative renewal of health and safety messaging to
keep safety fresh and front of mind across the
organisation.
- Control and monitoring of the health and safety
practices of contractors to see that the Group’s safety
procedures are understood and followed.
- The Group maintains accreditation to 45001 (Health &
Safety Management).
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Risk
Mitigation
Inadequate response to major adverse
events
Adverse events include risks relating to
weather patterns, in particular the
severity or frequency of storms, high
winds or flooding which can have a
negative impact in the form of increased
damage and expenditure to the network.
Senior Management addresses this risk in three main
forums: the Organisational Resilience Leadership team,
the Incident Leadership team and the Strategic
Operational team. Mitigating measures include:
- Business Continuity Plans and policies and
procedures giving clear guidance of actions to be
taken, roles and responsibilities.
An inadequate response to a major event
could result in a failure in the Company’s
performance (e.g. power outages at key
facilities, safety incidents, poor customer
service and/or breach of licence
conditions) resulting in significant
financial and reputational damage.
- Scenario planning to stress test the business
continuity plans for each business unit.
- Regular communications via email, the intranet and
frequent video briefings from the CEO, keeping
employees informed of the response plan, procedures
and changing risks.
- Monitoring by senior management of key performance
areas which could be impacted by the event e.g.
network safety and performance, customer satisfaction
levels, employee health and absenteeism, PPE
allocation, adherence to new policies and procedures,
financial impacts.
- Review and reprioritisation of work on the network as
required, in response to the changing risks. This
includes recovery plans to monitor work back-logs
against strategic targets and resume work as quickly as
possible if projects are impacted by the event.
- The Group has a well developed plan for dealing with
storms and other major weather events setting out
roles, responsibilities and co-ordination processes for
employees.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Failure of network assets
There are significant risks associated
with network assets where failure of
asset management procedures, systems
or equipment could result in a major
outage, major fine or a serious
injury/fatality. Customer service and
continuity/quality of supply are important
regulatory requirements and poor
performance in these areas can result in
financial penalties. Any significant
incident could cause adverse publicity
and impact negatively on the reputation
of the Company.
- The reliability of the Group's network is a key
performance indicator and is closely monitored.
Investment in the network is prioritised to those projects
which are likely to have a beneficial impact on
reliability. The Group strives to continually innovate to
improve the ways in which it identifies and manages
the risk of outages.
- The results of Inspection and Maintenance
programmes, Compliance Monitoring, Asset Health
index monitoring and other asset risk assessments are
reported to senior management on a monthly basis and
feed into long term asset management plans.
- The Group maintains accreditations in 55001 (Asset
Management), 9001 (Quality) and 14001
(Environment).
Achieving output and cost efficiency
targets
Output and cost efficiency targets are
agreed with the Regulator within the price
control framework.
- Clearly defined targets are set in the Strategic Plan
and aligned with business performance targets.
Supply chain disruption, higher levels of
inflation and the availability of employee
and contractor resourcing can impact
delivery of targets.
- The planning cycle includes bottom up budgeting as
well as top down target setting with specific actions to
deliver on agreed cost targets. Clear accountabilities
are established for each target, incentive area and
RIIO-ED2 commitment.
- Unit cost efficiency monitoring provides timely
information to executive management to optimise
performance against the regulatory contract. Efficiency
targets are cascaded down to operational teams to
drive accountability for performance.
If the business does not meet the output
and cost efficiency targets this could
negatively impact financial performance.
- The Asset Portfolio Planning tool tracks long term
projects allowing monthly review of actual versus
planned expenditure and monitoring progress at a
project level.
- Management actively manages costs to limit the
impacts of inflation. The Group is able to offset higher
costs via an increase in future revenue tariffs linked to
inflation.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Risk
Mitigation
Network unable to meet accelerated
demand
The Group has a role in facilitating the
transition to net zero.
- An ongoing research and engagement programme to
understand the needs, expectations and low carbon
ambitions of customers and other stakeholders. The
objective is to improve services and solutions for
customers and deliver 9/10 customer satisfaction.
Risk of not meeting the accelerated
demand on the network resulting from
the uptake of low carbon technologies
under the challenging timelines set by the
government.
- Deliver timely network capacity upgrades based on
regular forecasts of the impacts on the network from
electric vehicles, heat pumps, renewable generation
and battery storage.
- Ongoing monitoring of the capacity of the network
through physical monitors and using advanced
analytical capabilities.
- Supporting local authorities to develop regional
investment plans for the electricity network.
- Strong co-ordination with the Electricity System
Operator (“ESO”) to manage issues across the
distribution and transmission boundary.
- Detailed resource planning for a range of Net Zero
scenarios as part of workforce and supplier chain
resilience plans with the aim of increasing the flexibility
of delivery capabilities.
Regulatory compliance risk
The Group is subject to extensive
regulatory and legislative obligations.
These include obligations set by the
regulator ("Ofgem") as well as statutory
requirements, including taxation.
- The Group’s Governance and control framework sets
out responsibilities and accountabilities. The Group
reviews key compliance risks supported by the Group’s
risk management framework and internal audit.
Compliance obligations may be impacted
by the prevailing political and economic
climate. This includes the outcome of the
UK General Election.
- The Group operates a Regulatory Compliance
programme to understand regulatory risks and
obligations and implement controls and processes to
meet compliance requirements. These are monitored
on a monthly basis.
- The Strategy and Regulation team includes
specialists focused on ensuring compliance.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Risk
Mitigation
Non-compliance with regulatory and
legislative obligations could result in
lower financial returns reputational
damage, breach of licence conditions or
fines.
- The Group has extensive engagement and
consultation with Ofgem, the Government and HMRC.
Relevant external advice is sought when required.
Supply Chain Capacity and Long Lead
Times
Supply chain performance pressures
have increased globally. This is resulting
in increased risks of price fluctuations,
extended lead times for critical materials,
insolvency of key suppliers and scarcity
of skilled contractor workforce. If these
challenges are not managed effectively, it
may impact the Group's ability to deliver
against its targets.
- The Group has well established processes for
governing contract management and supplier
relationships, as well as for continued monitoring of key
contractors’ financial and stability indicators.
Management reviews these processes to have
sufficient agility to respond to the increasing pressures.
- Long term integrated management plans are devised
and routinely reviewed to enable forward ordering of
materials to manage long lead times and to source
skilled contracted labour.
- The Group closely monitors supplier performance
using leading key risk indicators to assess trends in the
quality and timely delivery of materials against its Key
Material Stock Policy.
- The Group continually assesses the supply chain for
limited suppliers of critical materials, mitigation plans
are established where dual sourcing cannot be
ascertained.
Major Failure or Cyber security breach
of IT Systems:
A failure or cyber security breach of core
IT systems could have a considerable
impact on business operations. If the
breach or failure is related to control
systems, the Group’s ability to operate
the network could be impacted. Data
breaches could result in legal or
regulatory non-compliance with resulting
financial penalties and reputational
damage.
- The UK Government has warned of heightened cyber
threats. The UK National Cyber Security Centre
("NCSC") published cyber guidance and advised UK
organisations to take action. The Group meets this
guidance and has put in place additional measures to
manage the risk.
- A Cyber Security Improvement Programme operates
to reduce risks, strengthen controls and maintain
compliance with changes in standards and legislation.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Risk Mitigation
- The Group focuses its activities across three domains:
operating a cyber security management system;
maintaining cyber hygiene; and proactively testing
resilience.
- All security policies and standards are closely aligned
to ISO 27001 and are compliant with the requirements
of applicable legislation.
- The Group operates a training programme to see that
its employees are aware of cyber risks and know how
to minimise and manage those risks, as well as how to
respond in the event of a suspected breach.
Political and economic climate
Political and global events can affect
aspects of the Company’s business. This
includes events such as the conflict in the
Ukraine and disruption to global supply
chains.
- The Group regularly monitors exposure to economic
factors through budgeting and forecasting and
sensitivity analysis.
Changes in the macroeconomic
environment, such as credit markets,
inflation and interest rates could
negatively impact financial results and
the Group’s access to funding.
- The Group maintains investment grade credit ratings
for its DNOs which supports access to financing when
required. Debt covenant and credit metrics are
monitored monthly and debt maturities are spread out.
- A proportion of the Company’s debt is inflation linked
to provide an inflation hedge.
- Close collaboration and mitigation planning with
suppliers has maintained supply chain resilience.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Our approach to responsible business
A key element of the Group’s vision is to deliver the services that our customers want at the lowest
possible cost. Achieving this in a sustainable way is at the core of the Group's strategy.
Stakeholder engagement
The Company is focused on delivering on its responsibilities across a range of key stakeholders.
These include customers, particularly those in the most vulnerable circumstances. The Company and
the Group engages with a wide range of stakeholders, from local authorities to low carbon technology
installers, as well as partners and employees, to understand issues and shape actions that deliver the
best outcomes for our customers and communities. Purposeful engagement with stakeholders is
critical to understand the diverse needs that the Group serve, how those needs are changing, and the
role the Company can play in supporting them. The insights gained through engagement allow the
Group to inform its strategy, improve services and deliver better performance improvements. Set out
below is how the Group engages with its key stakeholders, identified on pages 5 to 6:
The Community
• The Group regularly engages with local community groups, councils, businesses and customers
through a programme of events and forums to understand the key issues and shape actions that
deliver the best outcomes for communities.
• The Group maintains a Priority Services Register (“PSR”) which, in the event of a power cut,
allows it to deliver specific support to customers living in vulnerable circumstances. Many different
services can be made available to over 2.5 million customers on the PSR.
• The PSR helps the Group to identify and provide extra care to update customers who need it most
in the event of a power cut. The Group continually enhances its support to meet customers’
changing needs.
• The Group works with community energy groups, charities and local organisations to share and
learn from examples of best practice, provide energy efficiency advice and advise on the most
efficient way communities can reduce their carbon emissions.
Customers
• An important source of customer feedback is an independent survey of circa 300 customers a
week, which feeds into Ofgem’s Broad Measure of Customer Satisfaction (“BMCS”) score. This is
supplemented by an additional internally driven feedback mechanism in which customers give
almost instant feedback on the service they have received.
• Panels formed of representative groups of customers are consulted to assess current key issues,
such as how to improve our processes and customer-facing technologies.
• Based on the feedback from extensive engagement and research the Group is enhancing its
service to customers in the following ways:
- Improving our Low Carbon Technology connection journey by using automation and technology,
in order to speed up the connections process for our customers. For the year ended 31 March
2024 the Company achieved a Low Carbon Technology customer satisfaction score of 94% which
reflects the level of services provided to customers in this area.
- Working with partners to promote the benefits of smart meter technology. The integration of
smart meters with our communication channels allows us to proactively confirm if a power cut is
network related.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Employees
• A comprehensive annual employee engagement survey by an external survey provider “Best
Companies” in which employees provide their views on key matters pertinent to the success of the
Group and their own engagement.
• Leadership conferences conducted by the executive management team and the Group's internal
communications through its team briefs, internal webinars, local engagement forums, have all
been used during the year to conduct meaningful engagement with our employees.
• The values of Equality, Diversity, and Inclusion are key considerations in the Group’s recruitment,
training, and communication programmes. A range of training is provided to employees to increase
awareness and promote an inclusive culture, such as inclusive behaviour training. Through various
forums, employees are asked to share their views on diversity and inclusiveness in the work place
and make recommendations for improvement. A Steering Committee made up of senior managers
meets quarterly to support and monitor the Group’s Diversity & Inclusion strategy and initiatives.
• There is a Confidential Reporting facility in the event that employees wish to raise any issues
confidentially, issues will be reported to the CEO, with any serious instances being reported to the
Board.
Suppliers
• The Group has published guidance to suppliers, both current and prospective, on how to operate
in accordance with UK Power Networks vision, values and standards. It outlines its approach to
business ethics and sustainable procurement and clarifies the standards and behaviours it expects
to be adopted throughout the supply chain.
• The Group assesses its suppliers through a pre-qualification platform Achilles Utilities Vendor
Database (“UVDB”). As an industry-recognised risk management framework, Achilles UVDB
provides a fair, open and transparent means of supplier selection for potential tender opportunities.
• The Group is a signatory to the Prompt Payment Code, which sets standards for payment
practices and best practice, working towards adopting 30-day payment terms as the norm, and to
avoid any practices that adversely affect the supply chain.
• The Group’s Logistics team works closely with suppliers to forecast demand and maintain high
inbound performance levels. The Group’s materials contracts are long-term, enabling suppliers to
invest in manufacturing equipment and work in partnership with the Group.
• The Group has an alliance model with key strategic partners which works to promote closer
working relationships and common practices on shared projects, with a focus on capital delivery.
Ofgem
• The Group regularly engages with Ofgem through formal consultation processes, and with other
industry bodies in various forums, to share information, to ensure the Group understands its
obligations as set out by Ofgem, and to ensure the Group’s interests are represented in industry
discussions.
• The CEO and Executive management team regularly engage Ofgem with the overall aim of
developing a regulatory price control framework that contains the right balance of customer
focused outputs and economic incentives, which help to deliver the Government’s energy
objectives and de-carbonisation targets. All key communications and engagements with Ofgem
are discussed at Board meetings.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Shareholders
• The Group’s shareholders are represented on the Board of Directors, and as such receive regular
reporting on financial and operational matters and are directly involved in strategic decision
making.
Sustainability at UK Power Networks
The Group has worked to embed its values, and the importance of the environment, within the
business by:
• Making a clear environmental commitment to customers as part of its social contract;
• Incentivising sustainability as part of the Group's short-term incentive plan;
• Embedding the environment in its corporate governance structure, including an ESG committee;
• Engaging with its employees on sustainability;
• Building on the UN’s strategic development goals in developing its Environmental Action Plan and
• Setting long-term objectives for its environmental performance.
Managing environmental impact
There are robust policies and procedures in place for compliance with all relevant environmental
legislation and industry codes of practice. The Electricity Act specifically requires the Group to
consider natural beauty, flora, fauna and geological or physiographical features of special interest,
and sites, buildings and objects of architectural, historic or archaeological interest, and do what is
reasonable to mitigate any effects. Relevant activities include environmental permitting, pollution
prevention, waste management and the preservation of historic and natural habitats.
Where practicable and achievable, the Group seeks to surpass the basic level of environmental
compliance and work to enhance positive impacts on the environment, whether that be improving
biodiversity opportunities at suitable locations, circular economy initiatives, minimising waste and
maximising recycling, or working with its supply chain to improve its environmental performance.
The Group consults with relevant stakeholders, including statutory authorities and other appropriate
bodies, to help mitigate the impact of its operations on the environment. At a local level, good
relationships are maintained with local authorities to work collaboratively on initiatives to help reduce
the impact of issues such as noise pollution and litter, to the benefit of local communities. Members of
the Group's Environment team represent the Group on the Electricity Networks Association (“ENA”)
Environment Committee, helping to see that best practice is implemented from knowledge shared
across the electricity and gas sectors.
Given the uncertainty around future climatic changes, the Groups’ approach needs to be flexible and
collaborative to accommodate changing risks and customer and stakeholder priorities, today and into
the future. As homes and businesses decarbonise, the Group has a role in providing network capacity
when it is needed at the location it is needed. The Group regularly monitors the utilisation of the
network and customer satisfaction in relation to the services it provides. The Group is also assessing
the impact of climate-related risks on its network and implementing appropriate mitigation measures,
as detailed on pages 25 to 26.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
The Group operates in an industry characterised by long term investment to ensure a stable energy
supply for customers. This creates both risks and opportunities in relation to future performance. Set
out below is a summary of the Group Board’s strategy for responding to climate change, its risk
management activities, and the use of metrics and targets to measure progress against the Group’s
strategy.
Governance
The Group Board provides strategic direction with respect to the Group’s environmental performance.
Its Environment, Social and Governance (“ESG”) Board Sub-Committee, meets four times a year to
review the Group's progress against core ESG metrics, as well as reporting on specific projects and
initiatives that support the delivery of these metrics. The Committee also provides oversight of the
future development of strategy and policy as the external ESG environment evolves, and reports
performance against ESG targets.
This governance is cascaded through the organisation. In addition, a Senior Management
Environmental Action Plan Committee has been established, to discuss progress on environmental
targets and lead implementation of initiatives to support the achievement of these targets. The
Committee is chaired by the Director of Connections and Health, Safety and Sustainability and meets
on a monthly basis.
The Group’s Environmental Management System meets the ISO 14001:2015 standard requirements
and is subject to external verification and audit. This system is implemented by relevant business
leads and appropriate managers within the organisation who are responsible for identifying, managing
and mitigating their respective environmental risks and opportunities, with guidance and assurance
from the Environment team.
Strategy
The Group actively engages with a wide range of stakeholders, including customers, its supply chain,
community bodies, local government, industry experts and the Regulator, regarding its strategy and
long-term objectives. The Group’s business plan includes strategies to address climate-related risks
and sets out how the Group will contribute to the UK’s ambition to reduce carbon emissions.
The Group has set an ambition to be the leading socially and environmentally responsible
organisation in its sector. The Group’s strategy is focused on:
• Decarbonisation in line with its verified Science Based Target (“SBT”)
• Reducing the impact on limited resources
• Increasing natural diversity
• Reducing pollution produced by its business operations and network activity.
In addition to decarbonising its own activities the Group has a role to play in facilitating the timely
connection of low carbon technologies to its networks. The Group needs to be demand-driven and be
able to adapt to the needs of customers. To fast track this process the Group has established an
independent DSO to maximise customer participation and efficiency in the network. The DSO will play
a key role in balancing an increasingly complex, interconnected, and low carbon electricity network.
The answer is not always to build a bigger network but to support the need to create a smarter
network and support the transition to Net Zero while keeping customer bills as low as possible.
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SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
The Group’s strategy is to build its data resources and have early visibility of emerging customer and
system needs by drawing on different types of market data, for example from Low Carbon technology
suppliers, surveys of customer attitudes and engagement with local authorities. This will be combined
with an in depth understanding of the Group’s low voltage networks gained from smart metering data,
advanced analytics and sensor technologies. In this way the Group aims to anticipate demand and
invest in the right capacity at the right time to accommodate the roll out of low carbon technologies at
an efficient cost.
To ensure continued alignment of its KPIs with the Group’s vision and strategy, including climate
related issues, for the year ended 31 March 2024 it has introduced a new KPI which relates to
customer satisfaction in relation to low carbon technology work. For further information on this KPI
refer to page 8.
Innovation is central to achieving the Group’s strategy for responding to environmental challenges.
The Group seeks new ways to improve what it does for customers by identifying, developing and
applying smart solutions to make the network more efficient, greener, safer and more reliable.
Through its innovation team and smart grid team the Group is working towards ‘a smart grid for all’
that enables customers and communities to benefit from a decentralised, decarbonised and digitised
electricity system.
Risk management
The Group takes an integrated governance approach to managing climate-related risks through its
established corporate risk management policies and procedures, which can be found on pages 14 to
20. Risks are generally assessed at the Group level. Certain risks, including climate-related risks are
also assessed on a DNO and specific asset basis as required, to reflect the different geographical
location and infrastructure. For example, the network infrastructure at LPN comprises a higher
proportion of underground cabling than EPN and SPN and is therefore relatively more exposed to
flood related risks. The Group actively monitors and manages risks, including climate-related risks. Its
key activities to manage climate-related risk are as follows:
• The Group has implemented a Climate Resilience Strategy which assesses the threat and
potential impacts different climate change scenarios could have on its operations. It uses the UK
Climate Projections ("UKCP18") to identify the climate-related hazards under the highest emission
scenario, addressing eight hazards including flooding, extreme high temperatures and winds.
• As part of the Group’s Climate Resilience Strategy, a Climate Change Resilience Steering Group
has been established in order to better assess and monitor climate-related risks on the network.
This Group meets on a monthly basis and has cross directorate attendance, the meetings are
chaired by the Director of Asset Management.
• It also works actively with the Energy Networks Association to collaboratively identify and assess
the climate-related hazards to the networks and identify solutions.
• The Group has business continuity plans in place to respond to major events, which may include
climate related events that could affect its operations. These continuity plans are actively
monitored and tested as part of the Group’s resilience planning.
• Insurance policies are in place to mitigate the financial impact of significant adverse events,
including those relating to climate events and natural disasters.
• The Group’s environmental management systems are compliant with ISO14001:2015.
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Climate change and the transition to Net Zero present opportunities for the Group in terms of new
markets. As the transition to electric vehicles, renewable energy and heat decarbonisation accelerates
this is likely to result in an increase in electricity demand and related infrastructure. This could benefit
the Group in terms of higher future revenues.
The increase in potential network demand also represents a key climate related risk to the Group. The
Group must respond to this challenge so that it is a supporter not a blocker to decarbonisation and the
transition to Net Zero. Failure to respond appropriately to this risk could result in reputational and
financial damage. The Group is also exposed to physical climate risks relating to adverse changes or
variability in weather patterns. In particular, the severity or frequency of storms, high winds or flooding
can have a negative impact in the form of increased damage and expenditure to the network.
The Group’s climate risks have been assessed against various timelines to demonstrate the effect of
our investments and long-term strategy into 2100.
• Short-term environmental planning is typically aligned to the regulatory price control period. This
covers the Group’s short-term SBTs which are due to be completed by the end of 2028 and other
interim targets (e.g. No recoverable waste to landfill by 2025), further details of these can be seen
on page 28.
• Medium-term environmental planning is between 2028 to 2050 and corresponds with the target
date for the United Nations global Net Zero Coalition.
• Long-term environmental horizon planning incorporates measures from the Group’s short and
medium-term planning and beyond to 2100 which is consistent with UK Climate Projection
timeframes.
Climate resilience
The Group’s overall resilience to climate-related risks is supported by the regulatory environment and
the price controls agreed with Ofgem. The price control establishes the level of network investment
required to be made and which the Group can subsequently recover from customers. The level of this
investment is agreed with the regulator considering appropriate climate resilience and adaption plans
and formed part of the agreed RIIO-ED2 price control, which operates until 31 March 2028. This price
control includes uncertainty mechanisms which permit additional investment allowances in the event
of increased demand resulting from EVs and decarbonisation. RIIO-ED2 and the uncertainty
mechanisms therefore provide comfort in respect of the Group’s resilience to the impact of climate
risks and the required investment to support the transition to Net Zero.
The expectation is that there will be no significant change in the regulatory environment and future
price controls which enable the Group to make the necessary investment to ensure power supplies
are appropriately resilient to climate risks and support the financial resilience of the Group.
The Group has developed a Climate Resilience Strategy as part of the RIIO-ED2 Business Plan. This
strategy was developed following engagement with the Energy Networks Association and includes
best practice from the National Infrastructure Commission’s approach to resilience and the UK
Cabinet Office’s 4Rs of resilience (Robustness, Redundancy, Rapidity, Resourcefulness).
Operational resilience is assessed against the climate-related hazards determined by the latest UK
Climate Projections ("UKCP18") using the highest emissions scenario, Representative Concentration
Pathway ("RCP") 8.5, which equates to a global mean surface temperature increase of 4.3°C by
2081- 2100.
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This climate scenario was adopted and agreed by the ENA, Ofgem and applied across the energy
sector (including other DNO Groups) to provide a consistent approach. The Group is of the view that
there would be no additional benefit from performing additional climate scenarios outside of this
approach agreed with the wider industry and which represents a reasonable worst-case for the sector.
The Group worked with the Met Office and members of the ENA to assess the impact of these climate
change projections on the electricity network. As a result, 12 climate-related hazards have been
identified, of which eight have been prioritised as particularly applicable to the electricity sector:
• Extreme high temperatures
• Drought cycles
• Prolonged/heavy rainfall
• Intense short-duration rainfall
• Sea level rise
• Wetter conditions coincident with warmer temperatures and/or strong winds
• Wildfire
• Lightning
These climate-related hazards have been reviewed against the Group’s physical network systems to
identify 15 priority-asset related risks. These risks have been assessed using the ENA scoring
framework taking into consideration the ability of the network to prevent or mitigate the risk, to provide
continued service, or to enable a fast and effective response. Details of this risk assessment can be
seen on pages 26 and 27 in the consolidated UK Power Networks Holdings Limited Annual Report
and Financial Statements.
Through resilience improvements that have been in place or are planned, the main areas of residual
risk related to vegetation growth impacted overhead lines and the risk of flood damage to assets. The
results of this risk assessment were used to define the Group’s adaptation pathway to continue to
provide future resilience to climate-related hazards. Full details of the Group’s Climate Resilience
Strategy are available at https://ed2.ukpowernetworks.co.uk/additional-information/Appendix 14.
Metrics and targets
The Group’s Environmental Action Plan (“EAP”) has set out targets for reducing the Group’s impact
on the environment in relation to carbon emissions, waste, water usage, air and noise pollution, visual
amenity and biodiversity. The EAP was launched in order to enhance the environmental commitments
presented as part of the Group’s RIIO-ED2 Business Plan.
While the development of this Environmental Action Plan was an important milestone for the Group, it
does not mark the start of its activity to reduce our environmental impact. Rather, this plan builds on
the significant positive action and research it undertook during RIIO-ED1 that has led the Group to
meet, or exceed, its RIIO-ED1 commitments on carbon and SF6 emissions, waste, noise, recycling,
and pollution from fluid filled cables.
The Group has defined four strategic goals in collaboration with its customers and stakeholders.
Under these four goals it has formed specific, measurable commitments to its customers. These
commitments are how it will be measured in delivering the outcomes of the actions it has proposed in
our EAP. The commitments, and the actions that will deliver them, have both been developed based
on customer research to deliver what customers expect from the Group in protecting the environment
they live in.
Page 27
SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Environmental targets included in the RIIO-ED2 Business plan are:
Strategic
Objectives Targets
Decarbonisation
in line with our
verified Science
Based Target
(“SBT”)
- Science Based Target Initiative – exceed our
verified Well Below 2 Degree target for scope 1, 2
and 3 emissions
- Exceed minimum reduction
of 25% by 2028 compared
to a 2018/19 baseline
- Exceed an equivalent SBTi target of 1.5 for our
Business Carbon Footprint (directly controlled
emissions scopes 1 and 2 excluding network
losses)
- Exceed minimum reduction
of 42% by 2028
Reducing our
impact on the
world’s limited
resources
- Circular economy approach to high impact
materials in early RIIO-ED2
- Develop circular economy
tool and set targets for high
impact materials
- Recycle office, depot, and network waste
- 80% recycling target by
2028
- No recoverable waste to
landfill by 2025
- Re-use street works spoil
- 99.5% recovered and
reused by 2028
Increasing
natural
diversity
- Biodiversity Net Gain ("BNG") at all new grid and
primary sites
- Achieve 10-20% BNG
increase by 2028
- BNG improvement at existing sites
- Achieve aggregate BNG
increase of 30% by 2028
Reducing
pollution
produced by
our business
operations and
network activity
- Reduce nitrogen oxide (NOx) emissions from our
fleet and generators
- 33% reduction by 2028
- Fluid filled cable leak reduction
- 15% decrease by 2028
compared to beginning of
the period
Progress against these targets is reported annually in the Group's detailed Annual Environment
Report ("AER"), as required by Ofgem. This covers performance across all environmental fronts
including business carbon footprint.
This can be found at www.ukpowernetworks.co.uk/about-us/environment-and-sustainability .
The report for the year ended 31 March 2024 will be published on the 31st of October 2024.
Page 28
SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
Climate-Related Financial Disclosures
Effective for periods commencing on or after 6 April 2022, mandatory Climate-Related Financial
Disclosures (“CFD”) have been introduced under the Companies Act in the UK. The Group has
adopted the mandatory requirements for the financial year ended 31 March 2024, as detailed below.
Governance
A description of the Group’s governance arrangements in relation to assessing and managing
climate-related risks and opportunities can be found on pages 24 and 39.
Risk management
A description of how the Group identifies, assesses, and manages climate-related risks and
opportunities can be found on pages 25 and 41.
A description of how processes for identifying, assessing, and managing climate-related risks are
integrated into the entity’s overall risk management process can be found on pages 14, 25 and 41.
A description of:
• The principal climate-related risks and opportunities arising in connection with the entity’s
operations, and
• The time periods by reference to which those risks and opportunities are assessed can be found on
pages 25 and 41.
A description of the actual and potential impacts of the principal climate-related risks and opportunities
on the entity’s business model and strategy can be found on pages 25 and 41.
An analysis of the resilience of the entity’s business model and strategy, taking into consideration
different climate-related scenarios can be found on pages 26 and 27.
Metrics and targets
A description of the targets used by the entity to manage climate related-risks and to realise climate
related opportunities and of performance against those targets can be found on page 28. A
description of the key performance indicators used to assess progress against targets used to
manage climate-related risks and realise climate-related opportunities and of the calculations on
which those key performance indicators are based can be found on page 29 of the consolidated UK
Power Networks Holdings Limited Annual Report and Financial Statements.
Section 172 (1) statement
During the year, the Directors acted in the way they considered, in good faith, most likely to promote
the long-term success of the Company for the benefit of its members as a whole, with due regard to
stakeholders and the matters set out in Section 172(1) of the Companies Act 2006 (“Section 172”).
The Directors recognise their responsibility to each of the Company's stakeholder groups and to wider
society. The Directors endeavour to ascertain the interests and views of the Company's stakeholders
and consider these when making decisions.
The Directors acknowledge their responsibility for setting and monitoring the culture, values and
reputation of the Company. When making decisions, the Directors have regard to all stakeholders but
also acknowledge that not every decision will result in each stakeholder’s preferred outcome. The
Directors strive to balance the different and competing priorities and interests of its stakeholders in a
way compatible with the long-term, sustainable success of the business and which maintains a
standard of business conduct aligned to its values and purpose.
Page 29
SOUTH EASTERN POWER NETWORKS PLC
STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2024
The below sets out how the Directors had regard to the factors outlined in Section 172, the key
disclosures and where to read more about them for the year ended 31 March 2024:
a) The likely consequences of any decision in the long term:
• About us - pages 2 and 3
• Risk management - pages 14 to 20
• Our approach to responsible business - pages 21 to 29
• Opportunity & risk - pages 41 and 42
b) The interests of the Group's employees:
• Our purpose, vision & values - pages 4 and 5
• Our key stakeholders - page 6
• Employee engagement - page 8
• Stakeholder engagement - Employees - page 22
• Board engagement - page 38
• Remuneration - page 44
c) The need to foster the Group's business relationships with suppliers, customers and others:
• Our key stakeholders - pages 5 and 6
• Stakeholder engagement - pages 21 and 22
• Board engagement - page 38
d) The impact of the Group's operations on the community and the environment:
• Our key stakeholders - page 6
• Our approach to responsible business - pages 21 to 29
e) The desirability of the Group maintaining a reputation for high standards of business conduct:
• Our purpose, vision & values - pages 4 and 5
• Risk management - pages 14 to 20
• Our approach to responsible business - pages 21 to 29
• Board engagement - page 38
• Opportunity & risk - pages 41 and 42
f) The need to act fairly as between members of the Group:
• Our purpose, vision and values - pages 4 and 5
• Our key stakeholders - pages 5 and 6
• Our key performance indicators - pages 6 to 8
• Stakeholder engagement - pages 21 and 22
• Board engagement - page 38
Anti-corruption and anti-bribery
The Company is committed to achieving high standards. Being a trusted corporate citizen is a key
pillar of the Company’s vision and strategy. A zero-tolerance approach is taken to bribery and
corruption and the Group has strong policies and procedures in place to mitigate against it. These
include an employee code of conduct, an anti-bribery and ethics policy and a conflicts of interest
policy. Regular training is provided to employees. Agency workers, contractors and other individuals
working with the company are also required to follow these anti bribery and anti-corruption policies. In
addition, the Group operates a whistleblowing policy and has in place a confidential, independent
whistleblowing hotline.
Page 30
SOUTH EASTERN POWER NETWORKS PLC
DIRECTORS' REPORT FOR THE YEAR ENDED 31 MARCH 2024
The Directors present their Annual Report including the Audited Financial Statements of the Company
for the year ended 31 March 2024.
Details of the Company’s financial risk management objectives and policies, future developments,
going concern and the Section 172 statement on the duties of the Directors are included in the
Strategic Report and form part of this report by cross reference.
Dividends
Dividends of £62.0m (2023: £85.6m) were paid during the year.
Political contributions
The Company made no political contributions during the year (2023: £nil).
Directors of the Company
The Directors who held office during the year and subsequently were as follows:
Andrew John Hunter (Chairman)
Hing Lam Kam
Neil Douglas McGee
Basil Scarsella
Charles Chao Chung Tsai
Loi Shun Chan
Duncan Nicholas Macrae
Kee Ham Chan
Chi Tin Wan (resigned 1 July 2023)
Christopher Clarke
Paul Jeffery
Jenny Yu (appointed 1 July 2023)
None of the Directors had a service contract with the Company in the current or prior year.
The Company has made qualifying third party indemnity provisions for the benefit of its directors
which were made during the year and remain in force at the date of this report.
Business relationships
The Company has identified its key stakeholders as: employees of the Group, customers, suppliers,
the communities affected by the Company's operations, the regulator and shareholders. Further
information about how the Group has regard to the interests of these stakeholders, and how it fosters
good business relationships with them, can be found on pages 21 to 23.
Climate-related risks
The Group's strategy in adressing the risks and oppurtunities relating to climate change is discussed
on pages 23 to 29.
Page 32
SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
The Company has adopted the Wates Corporate Governance Principles for Large Private
Companies, as issued by the Financial Reporting Council (FRC), 2018.
The Company is a wholly owned subsidiary of UK Power Networks Holdings Limited and forms part of
the UK Power Networks Holdings Group (the “Group”). The Group operates a range of governance
principles and practices on a group-wide basis, which are adopted and implemented by its
subsidiaries, including the Company, to the extent they are relevant to their operations.
Information on how the corporate governance principles have been applied to the Company in the
context of the Group can be found in this report as follows:
Principle 1 - Purpose and Leadership
Purpose, values, vision and strategy
An effective board develops and promotes the purpose of a Company and ensures that its values,
strategy, and culture align with that purpose.
• Our purpose, vision and values - pages 4 and 5
• Our key stakeholders - pages 5 and 6
• Our strategy - page 5
• Corporate governance overview - pages 35 to 44
Principle 2 - Board composition
Chair, balance and diversity, size and structure, effectiveness
Effective board composition requires an effective chair and a balance of skills, backgrounds,
experience, and knowledge, with individual directors having sufficient capacity to make a valuable
contribution. The size of a board should be guided by the scale and complexity of the Company.
• Corporate governance overview - pages 35 to 44
Principle 3 - Directors’ responsibilities
Accountability, committees, integrity of information
The board and individual directors should have a clear understanding of their accountability and
responsibilities. The board’s policies and procedures should support effective decision-making and
independent challenge.
• Our key stakeholders - pages 5 and 6
• Stakeholder engagement - pages 21 to 23
• Corporate governance overview- pages 35 to 44
• Directors’ Responsibility statement- page 45
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
Principle 4 - Opportunity and Risk
Opportunity, risk, responsibilities
A board should promote the long-term sustainable success of the Company by identifying
opportunities to create and preserve value and establishing oversight for the identification and
mitigation of risks.
• Our key stakeholders - pages 5 and 6
• Our strategy - page 5
• Operating review - pages 6 to 8
• Financial review - pages 8 to 12
• Risk management - pages 14 to 20
• Our approach to responsible business - pages 21 to 29
• Corporate governance overview - pages 35 to 44
Principle 5 - Remuneration
Setting remuneration, policies, delegating remuneration decisions
A board should promote executive remuneration structures aligned to long-term sustainable success
of the Company, taking into account pay and conditions elsewhere in the Company.
• Our key performance indicators - pages 6 to 8
• Corporate governance overview - page 44
Principle 6 - Stakeholder Relationships and Engagement
External impacts, stakeholders, workforce
Directors should foster effective stakeholder relationships aligned to the Company’s purpose. The
board is responsible for overseeing meaningful engagement with stakeholders, including the
workforce, and having regard to their views when taking decisions.
• Our key stakeholders - pages 5 and 6
• Stakeholder engagement - pages 21 to 23
• Corporate governance overview - pages 35 to 44
Corporate governance overview
The Group Board is responsible to the Shareholders for the performance of the Company in both the
short and the longer term and seeks to balance competing objectives in the best interests of the
Company, with the aim of enhancing shareholder value. As part of this responsibility the Group Board
oversees the Company's strategy and has evaluated its development during the reporting period.
The Group Board has overall responsibility for leading and controlling the Group as well as the
financial and operational performance of the Company. The Group Board and its subcommittees meet
on a regular basis to conduct the affairs of the Group. The Board considers and acts on matters
pertaining to the Company within this forum.
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
Governance framework
The Group Board is collectively responsible for the oversight of the management of the Group and
acts in the Group’s best interests. The Group Board has established formal committees with specific
matters and responsibilities to assist in the execution of its duties and to allow detailed consideration
of complex issues. These specific matters and responsibilities are significant to the Group as a whole
because of their potential strategic, financial and reputational implications and impact on
stakeholders.
Each Committee provides reports to the Group Board on matters discussed during each Committee
meeting, to ensure that all Directors have visibility of, and the opportunity to discuss, the matters
being considered by each Committee. Details of the terms of reference of each committee can be
found on pages 38 and 39.
Below the Group Board and Board Committees, day-to-day responsibility for managing the Group is
delegated to the UK Power Networks Chief Executive Officer (“CEO”), Basil Scarsella and the
Executive Management Team (“EMT”). The CEO and EMT operate within the Delegations of
Authority, governance structure and terms of reference defined in the Group’s Corporate Governance
Framework.
The EMT comprises the CEO of the Group and Executive Directors for each of the distinct business
areas, or Directorates. To support the EMT in fulfilling their duties, management committees have
been formed with delegated authority for specific matters. Within each Directorate, the Senior
Management Team holds clearly defined responsibilities aimed at facilitating efficient operations to
realise the Group's objectives. Formal definitions outline lines of responsibility and levels of authority.
How the Group Board operates
The Group's Board of Directors is the principal decision-making forum for the Group. It has overall
responsibility for leading the Group and for its financial and operational performance. It sees that there
is a balance in strategy between promoting long-term growth and delivering short-term objectives,
with due regard to risk. It considers key stakeholders in its decision making and, in doing so, sees that
Directors comply with their duty under section 172 of the Companies Act 2006 (see pages 29 and 30).
The Group Board and Board Committees meet regularly, and on an as needed basis, to oversee the
management of the Group as a whole and where appropriate to consider and act on matters
pertaining to individual subsidiary companies.
Key matters reserved for the Group Board
There is a formal schedule of matters specifically reserved for the Group Board’s decision which is
reviewed regularly.
Key matters reserved for the Group Board include:
• Safeguarding of Group assets by identifying, evaluating and managing risk.
• System of internal control and its effectiveness.
• Internal audit reviews.
• Annual review of and relationship with external auditors.
• Group’s memorandum and articles of association.
• Prosecution, defence, or settlement of material litigation and/or legal and regulatory compliance.
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
• Grant of guarantees and indemnities other than those issued in the ordinary course of business.
• Annual review of Group Board effectiveness including terms of reference of Committees establish by
the Group Board.
• Group treasury and financing policies.
• Overall group strategy and corporate vision and driving performance.
• Group structure.
• Development and protection of brand.
• Annual accounts and regulatory reports.
• Significant changes in accounting policies.
• Group Board structure, composition and succession including appointments to the Board.
• Group remuneration policy including reward policy and framework.
• Group capital structure and dividend policy.
• Oversight of material ESG issues.
Composition of the Company Board
The Board of the Company ("the Board") comprises the Chief Executive Officer ("CEO") of the Group,
eight Directors appointed to represent the shareholders and two Sufficiently Independent Directors
("SIDs") appointed to comply with regulatory licence conditions.
The role of the SIDs as defined by the Regulator is to mitigate the risk that Directors with executive
roles within the wider ownership group could become conflicted at times of crisis.
The CEO of the Group is the only Executive Board member. The other Directors do not hold executive
roles and therefore maintain an acceptable level of independence from the executive management of
the Company. The positions of the Chairman of the Board and CEO are held by separate individuals
with a view to maintaining effective segregation of duties between management of the Board and the
day-to-day management of the Company. As such, the appointment of an independent Chairman is
not deemed necessary.
The Board of the Company is identical to the board of the parent UK Power Networks Holdings Ltd
("the Group Board") with the exception of three additional Directors in the parent company and the
two SIDs who are not members of the Group Board but do attend Group Board and Board Committee
meetings.
A total of 5 meetings of the Group Board were held during the year with 9 to 11 members of the
Company's Board present at each meeting.
Directors’ responsibilities
The Board is responsible to the Shareholders for the performance of the Company in both the short
and longer term and seeks to balance competing objectives in the best interests of the Company with
the objective on enhancing shareholder value.
The powers of the Directors have been set out in the Company’s Articles of Association. The Directors
make active contributions to the affairs of the Group Board which acts in the best interests of the
Company. Furthermore, the Group Board has established formal committees with specific
responsibilities to assist in the execution of its duties and to allow detailed consideration of complex
issues.
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
Board engagement
Most engagement with key stakeholders is carried out by management teams and takes place at a
business level. Reporting mechanisms are in place to collate feedback and developments from such
engagement and enable a flow of this information to the Board to inform decision making.
By receiving regular updates on business programmes and objectives, the Board monitors that
management is acting in accordance with the agreed purpose, vision and values. Processes are in
place to ensure that the Board receives all relevant business information to enable it to monitor
performance in support of the Company and Group's long-term objectives. Details of engagement
with each of the Group's key stakeholders can be seen on pages 21 to 23.
Further information on how the Group's Board considered its key stakeholders in its decision making
can be found in the UK Power Networks Holdings Limited Annual Report and Financial Statements on
page 37.
Group Board Committees
In order to assist the Group Board in fulfilling its oversight responsibilities the Group Board and Board
Committees, meet on a regular basis to oversee the management of the Group as a whole. All
Committees take part in the annual review of Group Board effectiveness which includes a review of
the terms of reference of each Committee.
• The Audit Committee assists the Group Board with its responsibilities for financial reporting,
maintaining an effective system of internal control and internal and external audit processes. Using
risk assessment methodology and taking into account the Company’s activities, Internal Audit
determines the annual audit programme which is approved and monitored by the Audit Committee.
The Audit Committee also reviews the arrangements by which staff of the Group may raise
concerns in confidence about possible improprieties and monitors any investigations into concerns
raised.
• The principal responsibilities of the Remuneration Committee include making recommendations to
the Group Board on the Group’s policies and structure in relation to the remuneration of senior
management and employees of the Group, by reference to corporate goals and objectives
resolved by the Group Board from time to time.
• The Treasury Committee oversees the treasury strategy, policy and procedure and seeks to see
that all treasury risks are identified, measured and controlled in a manner consistent with corporate
strategy and treasury policy.
• The Risk Management and Compliance Committee assists the Group Board with its
responsibilities in relation to risk management and to oversee compliance with obligations
determined by statute, legislation, regulation, contract or agreement. The Group Board is
responsible for approval of the risk management strategy while management is responsible for
implementing the Group Board’s strategy and for developing policies and procedures to identify,
manage and mitigate risks across the business.
• The Nominations Committee recommends Sufficiently Independent Directors ("SIDs") for
appointment to the Boards of the Distribution companies. The Committee selects the candidates
based on the criteria defined by condition 43A of the distribution licence which requires the SIDs to
have a sufficient level of independence from the executive management of the Company and the
shareholder companies.
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
• The Environmental, Social and Governance ("ESG") committee’s primary function is to assist the
Group Board in seeing that the Group has a suitable and sufficient strategy in place to deliver the
key ESG based commitments in the Group’s RIIO-ED2 business plan. The Committee also
provides oversight of the future development of strategy and policy as the external ESG
environment evolves, and reports performance against ESG targets on a consolidated basis.
Chief Executive Officer, Executive Management Team (EMT) and other management
committees
The Group's Executive Management Team oversees the safety, operational and financial
performance of the Group. It is responsible for making the day-to-day management and operational
decisions it considers necessary to safeguard the interests of the Group and to execute the strategy,
business objectives and targets established by the Group Board. It is supported by a number of other
management committees including the Regulatory Governance Committee, Contract Governance
Committee, Health, Safety & Sustainability Steering Committee and the Operational Performance
Committee.
Full biographies for the Group Executive Management Team are available at:
https://www.ukpowernetworks.co.uk/our-company/meet-our-executive-management-team
Purpose and leadership
The primary purpose of the Company is to deliver electricity to the South East of England. As
described on pages 4 and 5 of the Strategic report, the Company works within the purpose, vision,
values and strategy of the Group to see it is well positioned to respond to changes in the operating
environment.
The Group's Board is committed to seeing that the Group's vision and values are embedded in the
Group and reiterates them regularly. Internal bonus and incentive targets are based on the
achievement of the vision, measuring both financial and non-financial metrics. The Group also
operates a “Living Our Values” award system, which promotes and recognises employees who
demonstrate the Group's values in their work.
Through open discussion, the vision and values are reviewed internally, and from time to time are
modified to reflect the changing environment in which the Group operates. This is done through
feedback from the annual employee survey, engagement with trade unions, and regular senior
leadership forums. The vision evolved for RIIO-ED2, following such stakeholder engagement and
feedback, to include a fourth pillar “Enabling the Net Zero transition for all”.
Integrity of financial information
The consolidated financial statements of the Group and its subsidiaries (including the Company) are
prepared by the central financial reporting team based on results submitted by each Directorate. Each
Directorate is supported by an appropriately qualified finance team who provide advice to the EMT
Directors and Managers and liaise with the central financial reporting team on such matters as the
application of accounting policies, procedures and internal controls.
The role of the central financial reporting team includes liaising with the shareholders regarding such
matters as accounting policies, planning for changes in reporting requirements and to see that these
are communicated effectively to the Directorates. There is regular dialogue between the central
financial reporting team and the finance teams supporting the Directorates to ensure there is
appropriate understanding of these requirements.
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
The Group's Directorates, supported by finance partners, are accountable for the review and approval
of the monthly management accounts prior to submission to the central financial reporting team who
then undertake further reviews and challenge. The monthly accounts of each Directorate are reviewed
during EMT meetings. Consolidated year to date financial information is presented at Group Board
meetings attended by the CEO and the Finance Director. The annual report and accounts of the
Company and of the Group are presented to the Audit Committee, or a subcommittee thereof, prior to
approval by the Board.
External audit
The Audit Committee is responsible for overseeing the effectiveness of the external audit process and
seeing that appropriate measures are taken to safeguard the independence and objectivity of the
external auditor. The Audit Committee reviews the scope and extent of the external auditor’s annual
audit, seeking confirmation from the external auditor that no limitations have been placed on the
scope or nature of their audit procedures.
At the completion of the annual external audit the Audit Committee reviews with management and the
external auditor the annual financial statements and related notes, financial information and
discussion to be included in the annual report. The results of the audit and the audit report are
reviewed and enquiries are made as to whether there have been any material disagreements with
management. The Audit Committee meets with the external auditor without members of management
being present at least twice a year to discuss any matters that the external auditor or the Audit
Committee believe should be discussed privately.
The Audit Committee reports its findings to the Board in respect of the effectiveness of the external
audit process and any significant issues considered in relation to financial statements and how these
were addressed. On this basis, it advises the Board on whether the Annual Report and financial
statements taken as a whole represent a fair, balanced and understandable view to shareholders and
therein recommends the approval of the financial statements.
Independence and objectivity of external auditor
The Audit Committee reviews annually with management the fee arrangements and terms of
reference with the external auditor. In particular the nature and extent of non-audit services provided
is reviewed with reference to the approved framework within the Group’s Corporate Governance
Policy.
For each audit period a formal written statement is provided by the external auditor setting out all
relationships between the external auditor and the Group. Any proposed appointment of
ex-employees of the external audit firm to senior management positions with the Company is subject
to consent by the Audit Committee. The lead external audit partner changed during the prior year in
accordance with a five-year rotation schedule.
Page 40
SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
Opportunity and Risk
Opportunity
The Group strives to create and preserve value over the long term by consistently providing industry
leading customer service at an efficient cost by combining technical excellence and innovation within
a clear organisational structure. Whilst maintaining compliance within the regulated environment, the
Group's Board identifies and evaluates relevant opportunities to create long-term value for the
Company and its stakeholders.
The electricity sector is undergoing a significant period of change as the UK works towards Net Zero.
In the Group's role as a leading electricity provider, it is helping to build a smarter, more dynamic
electricity network as it delivers electricity to its customers. The Board and the Group's Executive
Management Team work with the industry and policymakers to facilitate the change. The Group is
connecting ever-greater volumes of low carbon generation to its network to support sectors such as
transport and domestic heating so as to decarbonise through electrification.
The Group's RIIO-ED2 business plan for 2023 to 2028 outlines our whole systems thinking to work
toward achieving Net Zero. The Directors are focused on utilising digitalised solutions across the
Groups operations and aim to instil a culture that maximises every opportunity to work smarter for its
customers. For details of achievements in the current year in relation to our strategic priority -
Innovation to facilitate Net Zero, refer to page 6 of the consolidated UK Power Networks Holdings
Limited Annual Report and Financial Statements.
In order to support this change, the Group has established a Digital Skills Academy to provide DSO
and digital future skills, deliver 510 accredited apprenticeship National Vocational Qualifications
(NVQs) in Leadership and Management and 200 Institute of Engineering and Technology (IET)
accredited technical or digital apprenticeships. The Group is aiming to achieve an “Outstanding”
OFSTED rating for training programmes over the RIIO-ED2 price control period.
The Group Board is also invested in seeing that the Group's commitment to sustainability includes
leading by example and reducing its full carbon footprint by 28% by the end of RIIO-ED2, aiming to
exceed its carbon reduction target approved by the Science Based Targets initiative (SBTi). For more
details on our environmental targets refer to page 28 of the Strategic report.
Risk
The Group’s Corporate Governance framework Policy, which outlines the governance structure within
the Group, is supported by the Risk and Control Policy and underlying procedures. The Risk and
Control Policy, in place throughout the reporting period, defines the framework in which the Group:
• proactively identifies risks to its strategy, objectives, business developments and processes and
implements internal controls to mitigate these;
• explores the effectiveness of those controls in mitigating the risks through internal audit and other
monitoring mechanisms;
• reactively monitors incidents, errors and breaches to identify control failures and determine areas
for improvement; and
• develops contingency arrangements for business continuity and emergency incidents.
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SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
The Group Board (through its Audit Committees) is responsible for the oversight of risk management
and internal controls across the Group. The responsibility for the risk management framework and
internal controls cascades from the CEO and the EMT to senior management teams responsible for
risk assessment and the implementation of appropriate mitigation. Managers are responsible for the
identification of risks and the deployment of appropriate controls within their business Directorate.
Policies are established, reviewed regularly and made available on the Group intranet to assist the
managers with establishing an appropriate control environment. The involvement of qualified and
competent employees with the appropriate level of expertise throughout the business is a key factor
for implementing an effective internal control environment.
The role of the Directorate risk review meetings is to assess new risks, review existing risks and
monitor control improvement actions. Each identified risk is defined and assessed by the risk owner.
This includes an assessment of the likelihood of the risk occurring and the associated impact, key
mitigating controls, and an assessment of the adequacy of those controls. Where appropriate control
improvement actions are defined. Significant risks and delivery of control improvement actions are
monitored and reported to the Executive and Senior Management Teams on a regular basis, and
actively managed by the designated risk owners.
Risk management is embedded into the organisational structure, with specialist teams established to
manage certain key risk areas. Specifically, there are long established teams reporting to senior
managers, responsible for health and safety, regulatory compliance, employees, cyber security,
financial reporting, procurement and legal compliance.
Emerging and principal risks are regularly reported to the Group Board facilitating the oversight of the
risk management process of the Group. Pages 15 to 20 of the Strategic report outline the key risks
and the related mitigating actions by the Group.
Internal control framework
Control procedures have been implemented throughout the Group and are designed to achieve
complete and accurate accounting for financial transactions, to safeguard the Group’s assets and for
compliance with laws and regulations. These control procedures form the Integrated Management
System, a controlled framework of policy and procedural documentation. Control procedures are
subject to regular review and formal ratification and approval. As part of the Integrated Management
System, procedural implementation and compliance is subject to regular monitoring. The Group Board
has established an internal audit function which is responsible for reviewing the effectiveness of the
Group’s systems of internal control and reports to the Audit Committee of the Group Board.
Internal audit
The Internal Audit function has responsibility for providing independent assurance to the CEO and the
Audit Committee as to the effectiveness of the policies, procedures and standards which constitute
the system of internal control, including; risk management; corporate governance; and compliance
with relevant laws and regulations. Internal Audit has a reporting line to the Audit Committee.
The relationship between Internal Audit and management requires management to be primarily
responsible for ensuring that the systems of internal control are implemented and operated so as to
provide reasonable assurance that the objectives of the business will be met and that the risks or
threats to the business are mitigated. In addition to providing independent review, the Internal Audit
function provides advice and guidance to management on the appropriateness of internal control
mechanisms and systems.
Page 42
SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
The Audit Committee reviews and approves the scope of Internal Audit’s work plan for the year and
monitors progress against the work plan. The Audit Committee reviews major findings by the internal
auditors and the status of Management actions to address the conditions reported in completed
audits.
Monitoring and corrective action
The Group has established structured performance monitoring to measure achievement against the
strategy and objectives of the Group. The structured approach includes a combination of quantitative
metrics and qualitative analysis to see that areas for improvement are identified and addressed.
In order to monitor compliance with internal controls, the Group operates a ‘three lines of defence’
approach.
• First line of defence – management control. Management undertake monitoring of their processes
to satisfy themselves that the defined controls operate economically, effectively and efficiently; and
that key risks are identified and assessed;
• Second line of defence – oversight and challenge. There are designated functions and committees
in place to test and challenge the effective operation of controls. These include central functions
and committees established by the EMT; and
• Third line of defence – assurance. Assurance is provided by the Internal Audit function and
external audits and accreditation exercises conducted by third party assurance providers.
Identified control weaknesses and corrective actions are reported to the Executive and Senior
Management Teams and monitored monthly. Significant weaknesses in internal control are reported
to the EMT and, if appropriate, to the Audit Committee.
Effectiveness review of internal control
The Group continuously makes improvements to the system of internal control through structured
review of the Integrated Management System and other targeted control reviews.
The shareholder companies, CK Infrastructure Holdings Limited and Power Assets Holdings Limited,
require that the Group conducts a bi-annual Internal Control Self-Assessment on the quality of the
internal control system covering key business processes and outlining, where necessary, material
control weaknesses.
In forming a view of the quality of the systems of internal control, the EMT consider audit findings;
compliance review findings; risks with controls assessed as sub-optimal; and status of corrective
actions related to these areas. These assessments enable the Group to identify areas where attention
is required to improve the system of internal control, business performance and operating
effectiveness.
Page 43
SOUTH EASTERN POWER NETWORKS PLC
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
Remuneration
The Company has no employees of its own, it relies on the employees of other Group companies to
deliver its services.
The Group has formed a Remuneration Committee, whose principal responsibilities include making
recommendations to the Group Board on the Group’s policies and structure in relation to the
remuneration of senior management and the employees of the Group by reference to corporate goals
and objectives resolved by the Group Board from time to time. The Remuneration Committee is
formed by members of the Board and one of the SIDs and meets on at least an annual basis. The
Remuneration Committee sees that it considers remuneration across the wider workforce when
determining senior management remuneration as well as the overall policy and practices. As a result,
the Group has clear remuneration structures that are designed to reward good performance, attract
the best talent, and are aligned to the achievement of the Group’s vision and values.
One of the key ways that employees are incentivised is through the Group Incentive Plan (employee
bonus scheme), which is applicable to all of the Group’s employees. Sixty per cent of the Group
Incentive Plan is based on the Group’s achievement of key aspects of its vision, including safety,
reliability, customer service, cost efficiency and sustainability. The management team also has a
target relating to employee engagement. The remaining forty per cent of the Company Incentive Plan
is based on achievement of individual and team annual objectives which are designed to support the
Group’s vision and strategy.
The Group targets are shared by all employees, including the Executive and Senior management
teams, in order to reinforce a common purpose across the Group. The balance for the EMT is
seventy-five per cent on the Group’s achievement and twenty-five percent on individual objectives.
The Group also operates a long-term incentive plan for its EMT to promote achievement of
sustainable, good long-term performance.
The remuneration of directors is disclosed in note 6 of the financial statements.
Page 44
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 46
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of South Eastern Power Networks PLC (the ‘company’):
! give a true and fair view of the state of the company’s affairs as at 31 March 2024 and of its profit for the
year then ended;
! have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice,
including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland”; and
! have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
! the profit and loss account;
! the statement of comprehensive income;
! the balance sheet;
! the statement of changes in equity;
! the cash flow statement; and
! the related notes 1 to 22.
The financial reporting framework that has been applied in their preparation is applicable law and United
Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical
Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. The non‐audit services provided to the company for the year are
disclosed in note 5 to the financial statements. We confirm that we have not provided any non‐audit services
prohibited by the FRC’s Ethical Standard to the company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
3. Summary of our audit approach
The key audit matter that we identified in the current year was the accuracy of cost
classification, which is consistent with the prior year.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 47
The materiality that we used in the current year was £14.3 million (2023: £15.5
million) which was determined on the basis of the last three year’s average profit
before tax adjusted for movements related to derivative financial instruments.
Audit work to respond to the risks of material misstatement was performed directly
by the audit engagement team.
As at 31 March 2023, we identified the accuracy and valuation of financial
instruments as a key audit matter. The exclusion of this matter for the current year
reflects the relatively lower complexity of the instruments remaining in the
portfolio compared to historical levels.
In the prior year, materiality was based on the prior year profit before tax adjusted
for movements related to derivative financial instruments. In the current year, we
determined materiality on the basis of an average of the last three years’ profit
before tax adjusted for movements related to derivative financial instruments.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern
basis of accounting included:
! obtaining an understanding of the relevant controls relating to the going concern process;
! understanding the financing facilities available to the company, including assessing all bank covenants
and facility expiry dates, and recalculating current and forecast covenant compliance;
! obtaining an understanding of the going concern forecast prepared by management, including the
downside scenarios as well as evaluating any plan for future actions;
! assessing the key assumptions, including forecast revenue and capital expenditure cash flows, on which
the assessment is based and evaluating the consistency of assumptions with other assumptions within
the going concern assessment as well as related assumptions used in other areas;
! evaluating management’s assessment of the impact of inflation and of the demand for electric capacity
within the forecast;
! testing the mathematical accuracy of the model used to prepare the going concern forecast;
! assessing the level of headroom in the forecast, with regard to both liquidity and debt covenant tests;
! assessing the outcome of the entity’s reverse stress testing;
! assessing whether any additional facts or information has become available since the date management
made its assessment; and
! evaluating the appropriateness of the going concern disclosures in the financial statements.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 48
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for
issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the
relevant sections of this report.
5. Key audit matters
Key audit matters are those that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters included those which had the
greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
The company continues to have an extensive capital investment programme. To
meet the requirements of FRS 102.17 Property Plant and Equipment (“PP&E”), it is
important that network costs are appropriately classified as either capital or
operating expenditure in nature. In the year, the company capitalised £274.3 million
(2023: £250.0 million) in relation to network assets, as disclosed in Note 10.
The classification of activities between capital (additions or enhancements to
network assets) and operating expenditure (maintenance or network repair) is
impacted by judgements undertaken by management. Management uses the cost
reflectivity model to apply these judgements to the total costs spent on the network
to determine what is capitalised and what is expensed.
Due to the judgements and complexity within the cost reflectivity model, we have
identified the accuracy of cost classification to be a key audit matter as well as a
potential fraud risk, specifically in relation to the indirect costs of £117.0 million
(2023: £104.0 million). We identify this key audit matter as a potential fraud risk as
management might be incentivised to fraudulently overstate capital expenditure and
understate operating expenditure, in the determination of the cost drivers that
underpin the classification of expenditure.
The classification of costs has been disclosed as a critical accounting judgement in
note 3, and the fixed asset note is included in note 10 to the financial statements.
We performed the following procedures:
• obtained an understanding of relevant controls over the application of the
policy in relation to classification of expenditure;
• assessed whether the company’s accounting policies in relation to
capitalisation comply with FRS 102.17 Property, Plant and Equipment;
• tested the implementation of these policies through assessing the capital
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 49
nature of a sample of costs against the capitalisation policy;
• agreed a sample of cost inputs to the cost reflectivity model to supporting
documentation, including invoices;
• assessed the proportion of capitalised overhead costs using historical
comparisons and expected changes based on enquiry and our sector
knowledge;
• assessed the assumptions and judgements made by management in relation
to cost drivers used for each cost category as well as consistency with the
prior year and challenged any changes by performing inquiries with
operational teams and assessing the historical trends and changes to
capitalisation rates;
• tested the integrity and mechanics of the cost allocation model to assess its
mathematical accuracy; and
• assessed the appropriateness of the company’s disclosures of its
capitalisation policy, including the judgement involved in assessing
expenditure as capital and the judgement relating to the allocation of
overhead cost.
The results of our procedures were satisfactory and on the basis of these we
concluded the accuracy of cost classification is appropriate.
6. Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use
materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as
follows:
£14.3 million (2023: £15.5 million)
We determined materiality on the basis of an average of the last three year’s profit before
tax adjusted for movements related to derivative financial instruments. We have also
considered a range of additional metrics including cash generated from operations and
shareholders’ equity.
Materiality of £14.3 million represents 7.5% of the average of the last three year’s profit
before tax adjusted for movements related to derivative financial instruments, 9.0% of
current year profit before tax before tax adjusted for movements related to derivative
financial instruments, 1.1% of shareholders’ equity and 4.2% of cash generated from
operations. The prior year materiality of £15.5 million was determined on the basis of the
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 50
prior year profit before tax adjusted for movement related to derivative financial
instruments.
As a profit‐making entity, profit before tax, adjusted for movements related to derivative
financial instruments, is a key metric used by users of the financial statements.
These movements do not form part of the company’s core business performance and
have therefore been excluded from our benchmark.
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole.
Performance materiality was set at 70% of materiality for the 2024 audit (2023: 70%). In determining
performance materiality, we considered the following factors:
a) our assessment of the company’s control enviroment and our ability to rely on internal controls across
a number of areas of the audit;
b) the stability of the business, the outcome of our risk assessment process; and
c) the low number of corrected and uncorrected misstatements identified in prior years.
We agreed with the Audit Committee that we would report to the Audit Committee all audit differences in
excess of £0.7 million (2023: £0.8 million), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the company and its environment, including wider UK
Power Networks Holdings Limited group‐wide controls as relevant to the Company , and assessing the risks of
material misstatement at the company and group level. All the audit work is performed directly by the audit
engagement team.
Our controls approach is consistent with prior year other than we did not adopt a control reliance approach to
Distribution Use of System (“DUoS”) revenue and instead have taken a substantive audit approach to all
revenue balances.
We have taken a controls reliance approach in performing our audit of the balances in operating expenses.
We have taken a substantive audit approach on all other areas not mentioned above.
The wider UK Power Networks Holdings group control environment that the company is included within contains
a number of IT systems, applications and tools used to support business processes and reporting.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 51
With the involvement of our IT specialist, we performed testing of General IT Controls (“GITCs”) of the
accounting system, typically covering controls pertaining to user access management, change management as
well as controls over key reports generated from the accounting system and its supporting infrastructure
(database and operating system).
Our procedures enabled us to place reliance on IT controls pertaining to the accounting system.
Management has considered transition and physical risks when factoring in climate change as part of their risk
assessment process when considering the principal risks and uncertainties facing the company, as explained in
the strategic report on page 25. We have:
! assessed how the directors considered climate change in their assessment of the impact on the
financial statements, including the going concern assumption, based on our understanding of the
business environment;
! assessed how the impact of climate change has been considered within individual financial statement
lines which are supported by forward looking forecasts and estimates; and
! read the climate risk disclosures included throughout the strategic report section of the annual report
to consider whether they are materially consistent with the financial statements and our knowledge
obtained in the audit.
8. Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information
contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
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, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 52
concern basis of accounting unless the directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
10.Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11.Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non‐compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non‐
compliance with laws and regulations, we considered the following:
! the nature of the industry and sector, control environment and business performance including the
design of the company’s remuneration policies, key drivers for directors’ remuneration, bonus levels
and performance targets;
! results of our enquiries of management, internal audit, the directors and the audit committee about
their own identification and assessment of the risks of irregularities, including those that are specific
to the company’s sector;
! any matters we identified having obtained and reviewed the company’s documentation of their
policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of
any instances of non‐compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual,
suspected or alleged fraud; and
o the internal controls established to mitigate risks of fraud or non‐compliance with laws and
regulations.
! the matters discussed among the audit engagement team and relevant internal specialists, including
tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the
organisation for fraud and identified the greatest potential for fraud in the accuracy of cost classification. In
common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the
risk of management override.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 53
We also obtained an understanding of the legal and regulatory framework that the company operates in,
focusing on provisions of those laws and regulations that had a direct effect on the determination of material
amounts and disclosures in the financial statements. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules, pensions legislation, and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the
financial statements but compliance with which may be fundamental to the company’s ability to operate or to
avoid a material penalty. These included the company’s compliance with the Ofgem licence requirements.
As a result of performing the above, we identified accuracy of cost classification as a key audit matter related
to the potential risk of fraud. The key audit matter section of our report explains the matter in more detail and
also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
! reviewing the financial statement disclosures and testing to supporting documentation to assess
compliance with provisions of relevant laws and regulations described as having a direct effect on the
financial statements;
! enquiring of management, the audit committee and in‐house legal counsel concerning actual and
potential litigation and claims;
! performing analytical procedures to identify any unusual or unexpected relationships that may
indicate risks of material misstatement due to fraud;
! reading minutes of meetings of those charged with governance, reviewing internal audit reports and
reviewing correspondence with HMRC; and
! in addressing the risk of fraud through management override of controls, testing the appropriateness
of journal entries and other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement
team members including internal specialists, and remained alert to any indications of fraud or non‐compliance
with laws and regulations throughout the audit.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
Page 54
Report on other legal and regulatory requirements
12.Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
! the information given in the strategic report and the directors’ report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
! the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13.Matters on which we are required to report by exception
Under the Companies Act 2006 we are required to report to you if, in our opinion:
! we have not received all the information and explanations we require for our audit; or
! adequate accounting records have not been kept, or returns adequate for our audit have not been
received from branches not visited by us; or
! the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made.
We have nothing to report in respect of this matter.
14.Other matters which we are required to address
Following the recommendation of the group Audit Committee, we were appointed by the board in 2004 and
were reappointed following an audit tender in 2017 to audit the financial statements for the year ending 31
March 2018 and subsequent financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is 20 years, covering the years ending 31 December 2004 to
31 March 2024.
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in
accordance with ISAs (UK).
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTH EASTERN POWER NETWORKS PLC
15.Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Marianne Milnes FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
22 July 2024
SOUTH EASTERN POWER NETWORKS PLC
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2024
Note
2024
£ m
2023
£ m
Turnover
4
479.5
581.6
Cost of sales
(34.0)
(92.3)
Gross profit
445.5
489.3
Distribution costs
(232.6)
(216.3)
Administrative expenses
(6.4)
(5.7)
Operating profit
5
206.5
267.3
Finance costs (net)
7
(43.1)
(55.4)
Profit before tax
163.4
211.9
Taxation
8
(44.5)
(43.3)
Profit for the financial year
118.9
168.6
The above results were derived from continuing operations.
The notes on pages 61 to 94 form an integral part of these financial statements.
Page 56
SOUTH EASTERN POWER NETWORKS PLC
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2024
2024
£ m
2023
£ m
Profit for the year 118.9
168.6
Unrealised gain on cash flow hedges
1.1
0.3
Reclassified to profit or loss from hedge reserve
1.2
1.1
Remeasurement losses on defined benefit pension schemes
(51.4)
(74.3)
Other comprehensive loss
(49.1)
(72.9)
Total comprehensive income for the year
69.8
95.7
The components of other comprehensive income are presented net of related tax effects.
The notes on pages 61 to 94 form an integral part of these financial statements.
Page 57
SOUTH EASTERN POWER NETWORKS PLC
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2024
Share
capital
£ m
Hedging
reserve
£ m
Profit and
loss
account
£ m
Total
£ m
At 1 April 2022
145.1 (7.7) 1,182.4 1,319.8
Profit for the year
- - 168.6 168.6
Remeasurement losses on defined benefit
schemes
- - (74.3) (74.3)
Unrealised gain on cash flow hedges
- 0.3 - 0.3
Reclassified to profit or loss - 1.1 - 1.1
Total comprehensive income
- 1.4 94.3 95.7
Dividends
- - (85.6) (85.6)
At 31 March 2023
145.1 (6.3) 1,191.1 1,329.9
Share
capital
£ m
Hedging
reserve
£ m
Profit
and loss
account
£ m
Total
£ m
At 1 April 2023
145.1 (6.3) 1,191.1 1,329.9
Profit for the year
- - 118.9 118.9
Remeasurement losses on defined benefit
schemes
- - (51.4) (51.4)
Unrealised gain on cash flow hedges
- 1.1 - 1.1
Reclassified to profit or loss
- 1.2 - 1.2
Total comprehensive income
- 2.3 67.5 69.8
Dividends
- - (62.0) (62.0)
At 31 March 2024
145.1 (4.0) 1,196.6 1,337.7
The notes on pages 61 to 94 form an integral part of these financial statements.
Page 59
SOUTH EASTERN POWER NETWORKS PLC
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2024
Note
2024
£ m
2023
£ m
Cash generated from operations
1
20
340.6
347.8
Corporation tax paid
(25.0)
(31.4)
Net cash flows from operating activities
315.6
316.4
Cash flows from investing activities
Proceeds from sale of tangible assets
0.2
0.1
Gross capital expenditure on tangible assets
(286.5)
(253.2)
Capital expenditure on intangible assets
(9.2)
(4.7)
Short-term loans to Group undertakings repaid/(advanced)
1
14.5
(36.5)
Interest received
11.1
7.9
Net cash flows used in investing activities
(269.9)
(286.4)
Cash flows from financing activities
Equity dividends paid
(62.0)
(85.6)
Interest paid
(63.2)
(59.1)
Proceeds from long-term borrowings
49.8
99.6
Repayment of short-term borrowings
(100.1)
-
Net cash flow used in financing activities
(175.5)
(45.1)
Net decrease in cash and cash equivalents
(129.8)
(15.1)
Cash and cash equivalents at beginning of year
150.8
165.9
Cash and cash equivalents at end of year
21.0
150.8
Reconciliation to cash at bank and in hand
Cash at bank and in hand
21.0
50.8
Cash equivalents
2
-
100.0
Cash and cash equivalents
21.0
150.8
1
Cash flows relating to short-term loans advanced to Group undertakings are presented as an investing activity in the cash flow
statement. In previous years these cash flows were included in cash generated from operations as part of changes in debtors
working capital. Restating the comparative has increased the prior year cash generated from operations by £36.5m and
increased the cash used in investing activities by the same amount.
2
Cash equivalents are short term deposits with banks with maturities of less than 3 months.
The notes on pages 61 to 94 form an integral part of these financial statements.
Page 60
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
1 General information
South Eastern Power Networks plc (the "Company") is incorporated in the United Kingdom under the
Companies Act 2006.
The Company is a private company limited by shares and is registered in England and Wales.
The principal activities of the Company and the nature of the Company's operations are set out in the
Strategic Report on pages 2 to 31.
The address of its registered office is:
Newington House
237 Southwark Bridge Road
London
SE1 6NP
United Kingdom
2 Accounting policies
The principal accounting policies adopted by the Company are set out below. They have all been
applied consistently throughout the current and prior year.
The financial statements have been prepared under the historical cost convention, modified to include
certain items at fair value, and in accordance with Financial Reporting Standard 102 (FRS 102) issued
by the Financial Reporting Council (FRC).
The functional currency of the Company is pounds sterling because that is the currency of the primary
economic environment in which the Company operates.
Certain exemptions are allowed in the financial statements on the basis that the Company meets the
definition of a “qualifying entity” under FRS 102, being:
“a member of a group where the parent of that Group (UK Power Networks Holdings Limited)
prepares publicly available consolidated financial statements which are intended to give a true and fair
view and the member (the Company) is included in the consolidation.”
The Company has taken the exemption not to disclose related party transactions with other wholly
owned members of the Group.
Page 61
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Going concern
The Company’s business activities together with details regarding its risk management policies and its
future development, performance and position are set out in the preceding paragraphs of this
Strategic Report. Further detail in respect of its financial instruments and hedging activities are
included in the relevant notes to the financial statements.
As discussed on page 13 of the Strategic Report the Directors have performed an assessment of
going concern based on detailed cash flow forecasts for a period of at least 12 months from the date
of these financial statements as well as taking into consideration the following factors:
• The Company continues to perform well, is profitable with strong underlying cashflows and with
predictable revenues regulated by Ofgem under an established price control mechanism.
• At 31 March 2024, the Company had £145m of undrawn committed borrowings under the
revolving credit facility and the flexibility provided by centralised Group treasury arrangements
which allow short term funding from other Group companies if required.
• The net current asset position of £190.4m and the financial covenants applicable to the Company's
financing facilities.
• The impact of a higher inflationary environment, which negatively impacts costs but increases
future revenues via higher tariffs.
• The Company has a successful track record of raising finance, supported by investment grade
credit ratings.
In assessing going concern the Directors have considered reasonably possible downside scenarios
which could negatively impact the Company. These include an increase in costs resulting from storm
events, higher than expected inflation, lower than expected revenues, which could be attributable to
the impacts of weather or other events on consumption and a reduction in connections income.
Given the significant amount of liquidity available to the Company at 31 March 2024, the Company’s
forecasts under all reasonable scenarios show that there is significant headroom in respect of
available liquidity and compliance with financial covenants. Stress testing has been performed and
indicates that the level of decline in the Company’s financial performance to result in a financial
covenant breach is considered remote. Accordingly, the Directors are satisfied it is appropriate to
adopt the going concern basis of accounting in the preparation of these financial statements.
Page 62
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Intangible assets - IT software and development costs
IT software acquired from third parties is included at cost and amortised in equal annual instalments
over an expected useful life of 4 to 8 years.
IT development expenditure is written off, except where the Directors are satisfied as to the technical,
commercial and financial viability of individual projects. In such cases, the identifiable expenditure is
capitalised as an intangible asset and amortised over the period during which the Company is
expected to benefit. This period is between 4 to 8 years.
Provision is made for any impairment to the carrying values of intangible assets.
Tangible assets
Tangible fixed assets are stated at historical cost, net of depreciation and provision for impairment.
The cost of tangible assets includes directly attributable incremental costs incurred in their acquisition
and installation. The carrying values of tangible fixed assets are reviewed for impairment when events
or changes in circumstances indicate the carrying value may not be recoverable.
Depreciation
Depreciation is provided on all tangible fixed assets other than freehold land, at rates calculated to
write off the cost of each asset on a straight-line basis over its expected useful life, as follows:
Asset class Depreciation rate
Network overhead and underground lines 45 to 60 years
Other network plant and buildings 20 to 60 years
Non-Network land and buildings 60 years
Furniture, fixtures and equipment 4 to 8 years
Vehicles 5 to 10 years
Assets in the course of construction are carried at cost less any recognised impairment loss.
Depreciation of these assets, on the same basis as other assets, commences when the assets are
ready for their intended use.
Customer contributions toward the cost of connection to the network are credited to the balance sheet
as deferred income on receipt, and amortised to revenue over the expected useful lives of the
relevant assets. The Company has an ongoing obligation to maintain these assets so it is appropriate
to recognise the benefit over the same period over which the assets depreciate.
Borrowing costs capitalised
Borrowing costs which are directly attributable to the construction of tangible fixed assets are
capitalised as part of the cost of those assets. The commencement of capitalisation begins when both
finance costs and expenditures for the asset are being incurred and activities that are necessary to
get the asset ready for use are in progress. Capitalisation ceases when substantially all the activities
that are necessary to get the asset ready for use are complete.
Page 63
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss,
except that a change attributable to an item of income or expense recognised as other comprehensive
income is also recognised directly within the same component of other comprehensive income.
Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or substantively enacted by the balance sheet
date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at
the balance sheet date where transactions or events that result in an obligation to pay more or a right
to pay less tax in the future have occurred at the balance sheet date. Timing differences are
differences between the Company's taxable profits and its results as stated in the financial statements
that arise from the inclusion of gains and losses in tax assessments in periods different from those in
which they are recognised in the financial statements.
Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the
basis of all available evidence, it can be regarded as more likely than not that there will be suitable
taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is provided for gains on disposal of fixed assets that have been rolled over into
replacement assets only where, at the balance sheet date, there is a commitment to dispose of the
replacement assets with no likely subsequent rollover or available capital losses. Provision is made
for gains on re-valued fixed assets only where there is a commitment to dispose of the re-valued
assets and the attributable gain can neither be rolled over nor eliminated by capital losses.
Deferred tax is measured on an undiscounted basis using the tax rates and laws that have been
enacted or substantively enacted by the balance sheet date and that are expected to apply to the
reversal of the timing difference.
Pillar Two legislation was enacted in the UK in July 2023, and the Company will be within scope of
these rules for periods beginning on or after 1 April 2024. As the legislation was not effective at the
reporting date the Company has no related current tax exposure. The Company applies the
mandatory exception to recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes in accordance with the amendments provided in Section
29 of FRS 102 issued in July 2023.
Page 64
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Turnover
Turnover is stated net of VAT and trade discounts and is recognised when the significant risks and
rewards relating to the transaction are considered to have been transferred to the buyer. Turnover
from the supply of services represents the value of services provided under contracts, to the extent
that there is a right to consideration, and is recorded at the value of the consideration due. Where
payments are received from customers in advance of services provided, the amounts are recorded as
deferred income.
The majority of turnover is the revenue allowed under the regulatory price control, for the distribution
of electricity through the Company’s electricity network. Amounts invoiced are based on meter
readings of the number of units distributed, charged at the tariffs set by the Regulator. The revenue
recognised during the year includes an estimate of the sales value of units distributed between the
date of the last meter reading and the year end.
The Company’s second major revenue stream relates to connecting customers to the electricity
network and an ongoing obligation to maintain those connections. Customer contributions received as
payment for connections work are held as deferred income mainly within creditors falling due after
more than one year and released to turnover over the expected useful lives of the related network
assets.
Pensions
The Company has obligations under defined benefit pension arrangements operated by the Group.
For defined benefit schemes the amounts charged to operating profit are the costs arising from
employee services rendered during the period as well as the cost of plan introductions, benefit
changes, settlements and curtailments. They are included as part of staff costs. The net interest cost
on the net defined benefit liability is charged to profit or loss and included within finance costs.
Remeasurements, comprising actuarial gains and losses and the return on scheme assets (excluding
amounts included in net interest on the net defined benefit liability), are recognised immediately in
other comprehensive income.
The defined benefit schemes are funded, with the assets of the schemes held separately from those
of the Group, in separate trustee administered funds. Formal actuarial valuations are undertaken by
independent qualified actuaries at least triennially. Actuaries also provide valuations at each balance
sheet date using a roll forward of member data from the most recent triennial valuation and reflecting
updated financial and demographic assumptions. Pension scheme assets are measured at fair value
and liabilities are measured using the projected unit method and discounted at a rate equivalent to the
current rate of return on a high quality corporate bond or equivalent currency and term to the scheme
liabilities.
Provisions
Provisions are recognised when the Company has an obligation at the reporting date as a result of a
past event, it is probable that the Company will be required to settle that obligation and a reliable
estimate can be made of its amount. The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the balance sheet date, taking into account
risks and uncertainties. Where a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash flows (when the effect of the
time value of money is material).
Page 65
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Financial instruments
The Company has elected to apply Section 11.2c of FRS 102, which allows the recognition and
measurement provisions of the International Financial Reporting Standard IFRS 9 ‘Financial
instruments’ with the disclosure and presentation requirements of Sections 11 and 12 of FRS 102.
Financial assets and financial liabilities are initially recognised at fair value, when the Company
becomes a party to the contractual provisions of the instrument. Subsequent measurement is either at
amortised cost or fair value depending on the classification of the instrument.
Amortised cost is calculated as:
The amount at which the financial asset or liability is measured at initial recognition;
Less: The principal repayments;
Plus: The cumulative amortisation using the effective interest method of any difference between the
initial amount and the maturity amount. The effective interest rate exactly discounts estimated future
cash flows through the expected life of the instrument back to the initial carrying amount recognised.
Discounting is omitted where the effect of discounting is immaterial;
Less: Any loss allowance in respect of financial assets.
Fair value is defined as 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.
The best evidence of fair value is a quoted price in an active market. When quoted prices are
unavailable, the price of a recent transaction for a similar asset provides evidence of fair value as long
as there has not been a significant change in economic circumstances or a significant lapse of time
since the transaction took place. If the market is not active and recent transactions of a similar asset
on their own are not a good estimate of fair value, the fair value is estimated using a discounted cash
flow approach.
Financial assets
After initial recognition at fair value the financial assets held by the Company are subsequently
measured as follows:
Financial asset Subsequent measurement
Unlisted investments, trade and other receivables At amortised cost less impairment
* Derivatives not designated as hedging instruments At fair value through profit or loss
* Derivatives designated as hedging instruments Hedge accounting at fair value
* Derivatives and hedging accounting are discussed in subsequent paragraphs.
Page 66
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
The impairment loss allowance on financial assets is calculated as the expected credit loss over the
lifetime of the debt using the IFRS 9 simplified approach. The Group has established a provision
matrix derived from historical credit loss experience adjusted for forward looking factors specific to the
debtors and the economic environment.
Cash and cash equivalents comprise cash in hand, and demand deposits and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial liabilities and equity
Equity instruments
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangement. An equity instrument is any contract which grants the
holder a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Company are recognised at the proceeds received, net of direct issue
costs.
Financial liabilities
After initial recognition at fair value the financial liabilities held by the Company are subsequently
measured as follows:
Financial liability Subsequent measurement
Borrowings, trade and other payables
At amortised cost using the effective
interest rate method
* Derivatives not designated as hedging instruments At fair value through profit or loss
* Derivatives designated as hedging instruments Hedge accounting at fair value
* Derivatives and hedging accounting are discussed in subsequent paragraphs.
Other than derivative financial liabilities there are no financial liabilities which are mandatorily required
to be measured at fair value through profit or loss under IFRS 9. The Company has not elected to
measure any financial liabilities at fair value through profit or loss.
Offsetting of financial instruments
Financial assets and liabilities are only offset in the balance sheet when there is a legally enforceable
right to set off the recognised amounts and the Company intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
Derecognition of financial instruments
A financial asset is derecognised when the right to receive cash flows from the asset have expired or
the Company has transferred its right to receive cash flows from the asset, to a third party. A financial
liability is derecognised when the Group’s obligations are discharged, cancelled or expire.
Page 67
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Derivative financial instruments
The Company uses derivative financial instruments to reduce exposure to interest rate movements.
The Company does not hold or issue derivative financial instruments for speculative purposes.
Interest rate swaps are entered into for the purpose of managing the interest rate risks associated
with the borrowing requirements of the Company. Amounts payable or receivable in respect of the
swap instruments are recognised within net finance costs in the profit and loss account.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is
recognised in profit or loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss depends on the nature of the
hedge relationship. The Company designates certain derivatives as either hedges of the fair value of
recognised assets or liabilities or firm commitments (fair value hedges) or hedges of highly probable
forecast transactions (cash flow hedges). This accounting treatment is discussed below under hedge
accounting.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a
negative fair value is recognised as a financial liability. A derivative is presented as a non-current
asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and
it is not expected to be realised or settled within 12 months. Other derivatives are presented as
current assets or current liabilities.
Hedge accounting
The Company designates certain derivatives as hedging instruments within cash flow hedge and fair
value hedge relationships. At the inception of the hedge relationship, the Company formally
designates and documents the hedge relationship. The documentation includes identification of the
hedging instrument, the hedged item, the nature of the risk being hedged and how the Company will
assess whether the hedging relationship meets the hedge effectiveness requirements (including the
analysis of sources of hedge ineffectiveness and how the hedge ratio is determined).
A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness
requirements:
• There is “an economic relationship” between the hedged item and the hedging instrument;
• The effect of credit risk does not “dominate the value changes” that result from that economic
relationship; and
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the
hedged item that the Company actually hedges and the quantity of the hedging instrument that the
Company actually used to hedge that quantity of hedged item.
Note 15 sets out details of the fair values of the derivative instruments used for hedging purposes.
Page 68
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
2 Accounting policies (continued)
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective
portion is recognised immediately in profit or loss. Amounts previously recognised in other
comprehensive income and accumulated in equity are reclassified to profit or loss in the periods in
which the hedged item affects profit or loss or when the hedging relationship ends.
Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging
instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.
Any gain or loss accumulated in equity at that time is reclassified to profit or loss when the hedged
item is recognised in profit or loss. When a forecast transaction is no longer expected to occur, any
gain or loss that was recognised in other comprehensive income is reclassified immediately to profit or
loss.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recognised in profit or loss immediately, together with any changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging
instrument and the change in fair value of the hedged item attributable to the hedged risk are
recognised in the line related to the hedged item in profit or loss. Hedge accounting is discontinued
when the Company revokes the hedging relationship, the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting. The fair value adjustment to the
carrying amount of the hedged item is then amortised to profit or loss over the remaining term of the
hedged item.
3 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 2, the Directors
are required to make judgements, estimates and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The following paragraphs consider the critical judgements and key sources of estimation uncertainty
that may have a significant effect on the amounts recognised in the financial statements.
Critical judgements in applying the Company's accounting policies
Carrying value of property, plant and equipment
Tangible fixed assets as disclosed in note 10 represent over 85% of the Company’s total asset base.
The carrying value of the Network asset of £3,674.8m (2023: £3,495.6m) is impacted by
management’s judgement in the following areas:
Page 69
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
3 Critical accounting judgements and key sources of estimation uncertainty (continued)
• the classification of activities undertaken on the electricity network as either repair and
maintenance to be expensed or improvements to be capitalised; and
• the allocation of operational overheads and non-operational support costs to capital using a range
of cost drivers.
The nature of costs to be included for capitalisation is a key judgement within the Network asset
carrying value and is based on an analysis of the activities directly attributable to capital work.
Key sources of estimation uncertainty
Valuation of defined benefit obligation
The defined benefit obligation is estimated by calculating the net present value of future cash flows
from the pension schemes projected many years into the future.
Assumptions of future inflation rates, life expectancy, the rate of salary and pension increases are set
with reference to market and economic conditions in consultation with an independent qualified
actuary. The assumptions are reviewed on an ongoing basis to reflect market and demographic
changes and the actual experience of the pension schemes.
Estimated future cash flows are discounted at a rate set by reference to market yields on high quality
corporate bonds. Advice is taken from the actuary to determine a discount rate which falls within the
norms of wider market practice.
Details of the defined benefit schemes and the assumptions used to estimate the defined benefit
obligation are set out in note 19. The sensitivity analysis below indicates how changes in the
significant assumptions might affect the amount of pension obligations recognised at 31 March 2024.
Change in Impact on scheme liabilities
assumption
UKPN Grp UKPNPS UKPN Grp UKPNPS
2024 2024 2024 2024
£m £m
Discount rate +/- 0.50%
-5.5% to 6.1% -11.0% to 12.8% (52.5) - 58.0 (14.0) - 16.3
RPI inflation +/- 0.50%
5.4% to -5.0% 10.1% to -9.4% 51.8 - (47.4) 12.9 - (12.0)
Life expectancy +/- 3 years
12.4% to -13.3% 9.2% to -9.8% 118.5 - (126.9) 11.7 - (12.6)
Rate of salary
increases
+/- 0.50%
0.3% to -0.3% 4.9% to -4.7% 3.3 - (3.3) 6.3 - (6.0)
At 31 March 2024 the Company's share of scheme liabilities was valued at £954.0m (2023: £954.3m)
for the UKPN Group scheme and £127.7m (2023: £126.5m) for the UKPNPS Scheme (as disclosed in
note 19).
Page 70
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
4 Turnover
Turnover for the year ended 31 March 2024 was £479.5m (2023: £581.6m), stated net of value added
tax, arising entirely in the United Kingdom and attributable to the continuing activity of electricity
distribution and the invoice value of other goods and services provided. This includes an estimate of
the sales value of units distributed to customers between the date of the last meter reading and the
year end.
The increase in wholesale energy prices since the end of 2021 has resulted in a number of energy
suppliers going out of business. A financial impact of energy supplier failures on the Company is that
all DNOs have been required to pay claims under the supplier of last resort (“SOLR”) scheme
managed by Ofgem. It was agreed with Ofgem that the majority of the SOLR claims, would be
recovered by tariff increases during the same period as the settlement of the claims. For the year
ended 31 March 2024, £18.0m (2023: £76.4m) of material SOLR claims were incurred, and an
equivalent amount of revenue recognised. In addition, cost of sales includes SOLR claims of £2.8m
(2023: £1.7m). that fall below the materiality threshold defined by Ofgem and therefore are only
recoverable through revenues in two years’ time.
Turnover includes the annual impact of contributions from customers towards the cost of connections
to the network. This income is initially deferred to the balance sheet and then amortised to turnover
over the expected useful lives of the related network assets. During the year the amount of customer
contributions released to turnover was £29.1m (2023: £27.8m).
5 Operating profit
Arrived at after charging:
2024
£ m
2023
£ m
Depreciation of tangible fixed assets
98.1
93.1
Amortisation of intangible assets
6.4
6.9
Operating lease rentals - land and buildings
0.1
0.1
Loss on disposal of tangible fixed assets
-
0.1
SOLR impact on operating profit
Costs of approximately £18.0m (2023: £76.4m) relating to material SOLR claims are matched by
higher revenues (refer to note 4), with no impact on operating profit. SOLR claims falling below a
certain materiality threshold, as defined by Ofgem, are only recoverable through revenues in two
years’ time and have a cost impact of £2.8m (2023: £1.7m).
Page 71
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
5 Operating profit (continued)
Auditors remuneration
The amount payable to Deloitte LLP was £100,200 (2023: £91,100) in respect of audit services and
£64,900 (2023: £58,900) in respect of non-audit services. The non-audit services are audit related
assurance services which include agreed upon procedures performed on behalf of the Regulator and
the review of the half year accounts.
Staff costs
The Company had no employees in the current or prior year.
6 Directors' remuneration
In 2014 the Company appointed two "Sufficiently Independent Directors" ("SIDs") to comply with
licence requirements. Their total remuneration for the year in return for service on the Boards of the
Group's three distribution companies was as follows:
Directors' remuneration
2024
£
2023
£
Emoluments
105,000
100,000
Remuneration of highest paid director
2024
£
2023
£
Emoluments
52,500
50,000
The directors' fees presented above are paid by UK Power Networks (Operations) Limited and
recharged to the distribution companies, including the Company, using the same apportionment as for
other central costs. The other directors of the Board did not receive any remuneration for services to
the Company in the current or prior year.
Page 72
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
7 Finance costs (net)
2024
£ m
2023
£ m
Interest payable and similar expenses
(66.0)
(70.7)
Less: investment income
19.7
15.1
Other finance income
3.2
0.2
(43.1)
(55.4)
2024
£ m
2023
£ m
Investment income
Income from other fixed asset investments
0.1
0.4
Interest receivable on Group loans
9.6
6.7
Other interest receivable and similar income
1.4
0.8
Net interest income on defined benefit pension surplus
8.6
7.2
19.7
15.1
2024
£ m
2023
£ m
Interest payable and similar expenses
Interest on bank loans
(9.7)
(3.2)
Interest on bonds
(56.7)
(57.8)
Accretion on index linked debt
(6.4)
(14.8)
Net interest on swap instruments
5.1
3.5
Interest payable on Group loans
(0.1)
(0.2)
(67.8)
(72.5)
Finance costs capitalised
1.8
1.8
(66.0)
(70.7)
Capitalised interest
Finance costs have been capitalised to tangible fixed assets on the basis of a capitalisation rate of
3.7% (2023: 4.8%), which is the weighted average of interest rates applicable to the Company's
general borrowings during the year. The cumulative amount of interest capitalised within the cost of
tangible fixed assets amounts to £23.4m (2023: £21.6m).
Page 73
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
7 Finance costs (net) (continued)
2024
£ m
2023
£ m
Other finance income
Fair value losses on financial instruments
Interest rate swaps not in hedge relationships
(1.7)
(6.2)
Amortisation of hedging adjustments
Amortisation of fair value hedge adjustments
7.2
8.6
Reclassified to profit or loss from hedge reserve
(1.5)
(1.5)
Net gain related to derivative financial instruments
4.0
0.9
Other costs
Net interest cost on defined benefit pension deficit
(0.6)
(0.6)
Other charges
(0.2)
(0.1)
3.2
0.2
Page 74
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
8 Taxation
Tax charged to profit or loss
2024
£ m
2023
£ m
Current taxation
UK corporation tax
23.5
30.6
Adjustments in respect of prior years
(1.7)
(1.1)
Total current taxation
21.8
29.5
Deferred taxation
Origination and reversal of timing differences
17.0
12.6
Adjustments in respect of prior years
5.7
1.2
Total deferred taxation
22.7
13.8
Total tax charge
44.5
43.3
The total tax assessed for the year was higher than the standard rate of 25% (2023: 19%) applied to
profit before tax. The differences are reconciled below:
2024
£ m
2023
£ m
Profit before tax
163.4
211.9
Corporation tax at standard rate
40.9
40.3
Income not taxable in determining taxable profit
(0.4)
(0.1)
Deferred tax expense relating to changes in tax rates
-
3.0
Adjustments to current tax in respect of prior years
(1.7)
(1.1)
Adjustments to deferred tax in respect of prior years
5.7
1.2
Total tax charge
44.5
43.3
Tax rate changes
The current tax rate applied during the year was 25% (2023: 19%) and deferred tax was calculated at
25% (2023: 25%) based on the standard rate of corporation tax substantively enacted at the reporting
date.
The standard rate of corporation tax increased from 19% to 25% with effect from 1 April 2023, as
substantively enacted in the Finance Bill 2021 on 24 May 2021.
Page 75
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
8 Taxation (continued)
Pillar Two
Pillar Two legislation was enacted in the UK in July 2023, and the Company will be within scope of
these rules for periods beginning on or after 1 April 2024. As the legislation was not effective at the
reporting date the Company has no related current tax exposure
The UK Power Networks Group has performed an assessment of its exposure to Pillar Two income
taxes for when it comes into effect, including under the UK domestic top-up tax (DTT) rules. Based on
the assessment the Company does not currently expect to be subject to any additional tax liabilities
under the new legislation. Further details regarding the assessment of the exposure are included in
the Group consolidated financial statements of UK Power Networks Holdings Limited, which is the
ultimate parent undertaking of the Company.
9 Intangible assets
IT software and development costs
£ m
Cost
At 1 April 2023
82.9
Additions
9.2
At 31 March 2024
92.1
Amortisation
At 1 April 2023
68.4
Charge for the year
6.4
At 31 March 2024
74.8
Net book value
At 31 March 2024
17.3
At 31 March 2023
14.5
IT software and development costs are amortised to profit or loss over an estimated useful life of 4 to
8 years.
Page 76
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
10 Tangible assets
Network
£ m
Non-network
land and
buildings
£ m
Motor
vehicles
£ m
Furniture,
fixtures and
equipment
£ m
Total
£ m
Cost
At 1 April 2023
5,094.9 21.1 1.6 110.8
5,228.4
Additions
274.3 3.1 - 10.9
288.3
Disposals
(4.8) - (0.4) -
(5.2)
At 31 March 2024
5,364.4 24.2 1.2 121.7 5,511.5
Depreciation
At 1 April 2023
1,599.3 4.8 1.5 100.3
1,705.9
Charge for the year
94.9 0.4 - 2.8
98.1
Eliminated on disposal
(4.6) - (0.4) -
(5.0)
At 31 March 2024
1,689.6 5.2 1.1 103.1 1,799.0
Net book value
At 31 March 2024
3,674.8 19.0 0.1 18.6 3,712.5
At 31 March 2023
3,495.6 16.3 0.1 10.5 3,522.5
Network assets at 31 March 2024 include land with a book value of £20.5m (2023: £20.5m). The net
book value of non-network land and buildings comprise freehold land at £0.3m (2023: £0.3m),
freehold buildings at £18.0m (2023: £15.2m) and short leasehold buildings at £0.7m (2023: £0.7m).
Also included within Network assets as at 31 March 2024, are assets in the course of construction of
£62.1m (2023: £37.7m). Approximately £10.6m of the prior year assets under construction were
completed during the current year (2023: £18.8m).
The cost of connecting customers to the network is included within network assets above. Capital
contributions received from customers as payment for connections work, are credited to the balance
sheet as deferred income and released to profit or loss over the expected useful life of the related
assets. During the year income of £29.1m (2023: £27.8m) was recognised within turnover in respect
of customer contributions.
Page 77
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
11 Debtors
Note
2024
£ m
2023
£ m
Amounts falling due within one year:
Trade debtors
58.1
60.4
Amounts owed by Group undertakings
67.9
82.4
Other debtors
0.1
0.1
Prepayments
1.8
1.8
Corporation tax receivable
5.4
2.2
133.3
146.9
Amounts falling due after more than one year:
Amounts owed by Group undertakings
134.4
134.4
Derivative financial assets
15
58.5
57.4
Prepayments and accrued income
29.7
29.7
Surplus in the UKPN Group defined benefit pension
scheme
19
120.7
174.1
343.3
395.6
476.6
542.5
Amounts owed by Group undertakings due within one year comprise a loan to the parent company
UK Power Networks Holdings Ltd of £67.0m (2023: loan to UK Power Networks Holdings Ltd of
£29.0m and a loan to London Power Networks plc of £52.5m) carrying interest at 5.58% (2023: both
carrying interest at 4.53%) and repayable on demand interest free trade balances of £0.9m (2023:
£0.9m).
Amounts owed by Group undertakings due after more than one year comprise a loan to the parent
company UK Power Networks Holdings Ltd of £134.4m (2023: £134.4m) carrying interest at 2.56%
(2023: 2.56%) and maturing in June 2026.
Page 78
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
12 Creditors
Note
2024
£ m
2023
£ m
Amounts falling due within one year:
Borrowings
13
36.8
96.5
Amounts owed to Group undertakings
38.5
33.8
Social security and other taxes
23.5
23.3
Other creditors
6.6
10.4
Accrued expenses
65.3
63.4
Deferred income
136.5
130.4
307.2
357.8
Amounts falling due after more than one year:
Borrowings
13
1,514.9
1,507.6
Deferred income
758.6
725.2
Derivative financial liabilities
29.9
28.5
2,303.4
2,261.3
Amounts owed to Group undertakings are interest free trade balances which are repayable on
demand.
Deferred income due after more than one year includes contributions received from customers as
payment for connections work, the cost of which is capitalised to network assets. This income is
released to turnover over the expected useful lives of the related network assets. Deferred income
falling due within one year includes £30.7m (2023: £29.3m) relating to customer contributions,
expected to be released to turnover within one year.
Page 79
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
13 Borrowings
2024
£ m
2023
£ m
Amounts falling due within one year
£50m 3.053% Index Linked Bond due June 2023
-
96.5
£25m 0.25% Index Linked Bond due February 2025
36.8
-
36.8
96.5
Amounts falling due after more than one year
£100m SONIA + 1.25% loan due January 2033
99.7
99.6
£10m 2.335% EIB loan due October 2025
10.0
10.0
£105m 1.614% EIB loan due October 2028
105.0
105.0
£30m 2.155% EIB loan due May 2029
30.0
30.0
£20m 2.224% EIB loan due February 2030
20.0
20.0
£25m 0.25% Index Linked Bond due February 2025
-
35.0
£50m 2.562% Index Linked Bond due June 2043
50.8
-
£270m 5.5% Bond due June 2026
269.8
269.5
£300m 5.625% Bond due September 2030
313.1
315.2
£300m 6.375% Bond due November 2031
298.9
298.7
£300m 1.75% Bond due September 2034
297.2
297.0
Adjustments for fair value hedge relationships
20.4
27.6
1,514.9
1,507.6
1,551.7
1,604.1
Borrowings are stated net of unamortised issue costs of £4.8m (2023: £5.2m) and include an
unamortised net premium on the 5.625% bond of £13.1m (2023: £15.2m) and accretion on the index
linked bonds of £12.8m (2023: £56.5m). These balances together with the interest expense are
allocated to the profit and loss account over the term of the debt.
The fair value adjustments of £20.4m (2023: £27.6m) relate to discontinued fair value hedge
relationships and are amortising to profit or loss over the remaining term of the previously hedged
debt. The amortisation for the year resulted in a gain of £7.2m (2023: £8.6m) to the profit and loss
account.
No security has been given over the assets of the Company in respect of external debt or amounts
owed to Group undertakings.
Borrowing facilities
The Company has access to an undrawn credit facility of £145.0m until April 2026.
Page 80
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
14 Financial instruments
The carrying values of the Company’s financial assets and liabilities are summarised by category
below:
Note
2024
£ m
2023
£ m
Financial assets
Measured at fair value through profit or loss
Derivative financial assets
15
56.7
57.0
Measured at fair value and designated in an effective
hedge relationship
Interest rate swaps designated as effective cash flow
hedges
15
1.8
0.4
Measured at amortised cost
Loans receivable from Group undertakings
11
201.4
215.9
Trade and other debtors excluding corporation tax
receivable, prepayments and accrued income
11
59.1
61.4
319.0
334.7
Note
2024
£ m
2023
£ m
Financial liabilities
Measured at fair value through profit or loss
Derivative financial liabilities 15
(29.9)
(28.5)
Measured at amortised cost
* Bonds and loans payable 13
(1,551.7)
(1,604.1)
Trade and other payables excluding taxation and social
security and accruals and deferred income 12
(45.1)
(44.2)
(1,626.7)
(1,676.8)
* The carrying value of bonds and loans payable includes fair value adjustments of £20.4m (2023: £27.6m) relating to
discontinued hedge relationships which are amortised to profit or loss over the term of the previously hedged debt.
Page 81
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
14 Financial instruments (continued)
The Company's income, expense, gains and losses in respect of financial assets are summarised
below:
2024
£ m
2023
£ m
Derivative financial assets measured at fair value through
profit or loss
Interest rate swaps not in hedge relationships
- Net interest receivable
17.9
2.9
- Fair value (losses)/gains
(1.9)
59.8
Derivative financial assets measured at fair value and
designated in effective hedge relationships
Interest rate swaps designated as effective cash flow hedges
- Net interest receivable
1.6
-
- Fair value gains deferred to hedge reserve
1.5
0.4
Financial assets measured at amortised cost
- Interest receivable on Group loans
9.6
6.7
28.7
69.8
The Company's income, expense, gains and losses in respect of financial liabilities are summarised
below:
2024
£ m
2023
£ m
Derivative financial liabilities measured at fair value through
profit or loss
Interest rate swaps not in hedge relationships
- Net interest (payable)/receivable
(14.4)
0.6
- Fair value gains/(losses)
0.2
(66.0)
Financial liabilities measured at amortised cost
Interest payable on bonds and bank loans
(66.4)
(61.0)
Accretion payable on bonds and bank loans
(6.4)
(14.8)
Interest payable on Group loans
(0.1)
(0.2)
(87.1)
(141.4)
Page 82
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
15 Derivative financial instruments
2024
£ m
2023
£ m
Derivative financial assets
Amounts falling due after more than one year
Interest rate swaps designated as effective cash flow hedges
1.8
0.4
Interest rate swaps not designated in hedging relationships
56.7
57.0
58.5
57.4
Derivative financial liabilities
Amounts falling due after more than one year
Interest rate swaps not designated in hedging relationships
(29.9)
(28.5)
28.6
28.9
Interest rate swaps are used to manage the interest rate risk on the Company’s borrowings to provide
a mix of fixed and floating rate interest aligned to the cost of debt allowance in Ofgem’s cost price
control. Under interest rate swap contracts, the Company agrees to exchange the difference between
fixed and floating rate interest calculated on agreed notional principal amounts. Interest payable and
receivable on the swaps is settled on a net basis, annually or semi-annually.
The fair value of the swap instruments at the reporting date is determined by discounting the future
cash flows implicit in the swaps. The discount rate and cash flows are derived from the forward
interest rate SONIA Overnight Index Swap (“OIS”) curve, adjusted for the Company’s own credit risk
in respect of swap liabilities and counterparty credit risk in respect of swap assets. The following
tables and discussion detail the notional principal amounts, the fair values and remaining terms of
swap contracts as at the reporting date.
Cash flow hedge interest rate swaps
Average contract
fixed interest rate
Notional principal
value Fair value
31 Mar
2024
%
31 Mar
2023
%
31 Mar
2024
£ m
31 Mar
2023
£ m
31 Mar
2024
£ m
31 Mar
2023
£ m
Maturity of outstanding contracts
Receive floating / pay fixed
5 years plus
4.7
4.7
100.0
100.0
1.8
0.4
Page 83
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
15 Derivative financial instruments (continued)
Cash flow hedge interest rate swap contracts
Receive floating / pay fixed
In January 2023 the Company entered into a fixed to floating rate contract to hedge the interest rate
exposure on a new floating rate loan carrying interest at SONIA plus a margin of 1.25%. The swaps
exchange this floating rate with an average fixed rate of 4.7% and were effective as cash flow hedges
throughout the period to the reporting date. Fair value gains of £1.5m (2023: £0.4m) were deferred to
the cash flow hedge reserve. The maturation date of the swap is aligned to the maturiity of the loan, in
2033.
Non hedge interest rate swaps
Average contract
fixed interest rate
Notional principal
value Fair value
2024
%
2023
%
2024
£ m
2023
£ m
2024
£ m
2023
£ m
Maturity of outstanding contracts
Receive fixed / pay floating
2 to 5 years
5.5%
5.5%
270.0
270.0
(4.8)
(5.5)
5 years plus
5.4%
5.4%
575.0
575.0
(23.2)
(17.9)
845.0
845.0
(28.0)
(23.4)
Receive floating / pay fixed
2 to 5 years
2.2%
2.2%
270.0
270.0
16.0
17.9
5 years plus
2.9%
2.9%
575.0
575.0
38.8
34.0
845.0
845.0
54.8
51.9
The Company is party to a number of interest rate swap contracts not designated in hedge accounting
relationships.
Receive fixed/pay floating
The floating rate payable on fixed to floating rate contracts is SONIA plus a margin of up to 3.6%.
Maturities range from 2026 to 2031. In addition to interest receivable on these instruments, fair value
losses of £0.6m (2023: losses of £96.6m) were recognised in profit or loss during the year.
Receive floating/pay fixed
The Company has re-fixed the floating rates achieved by the fixed to floating rate contracts to align
the interest rate profile of the Company more closely to regulatory allowances. The floating rate
receivable is SONIA plus a margin of 0.3%. In addition to interest payable on these instruments, fair
value losses of £1.0m (2023: gains of £90.4m) were recognised in profit or loss during the year.
Page 84
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
16 Provisions for liabilities
2024
£ m
2023
£ m
Provision for deferred tax
257.8
251.4
Other provisions
7.6
10.5
265.4
261.9
Defined benefit retirement obligations
Deficit in the UKPNPS defined benefit pension scheme
19
13.7
19.4
279.1
281.3
Movements in the deferred tax provisions and other provisions are shown below:
Deferred
tax
£ m
Other
provisions
£ m
Total
£ m
At 1 April 2023
251.4 10.5 261.9
Charged to profit or loss
22.7 (2.9) 19.8
Credited to other comprehensive income
(16.3) - (16.3)
At 31 March 2024
257.8 7.6 265.4
Explanation of provisions
Other provisions comprise tax, legal and constructive obligations which are expected to become
payable within the next two years.
Analysis of deferred tax
2024
£ m
2023
£ m
Accelerated capital allowances
231.6
213.9
Deferred tax relating to defined benefit pension schemes
26.7
38.7
Other timing differences
(0.5)
(1.2)
Net deferred tax liability
257.8
251.4
Page 85
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
17 Called up share capital and reserves
2024
£ m
2023
£ m
145,050,000 ordinary shares at £1.00 each
145.1
145.1
The Company has one class of ordinary shares which carry no right to fixed income.
Reserves
The profit and loss account represents cumulative profits or losses, including actuarial gains and
losses on remeasurement of the net defined pension liability, net of dividends paid.
The hedging reserve represents the cumulative portion of gains and losses on hedging instruments
deemed effective in hedging variable interest rate risk of recognised financial instruments or foreign
exchange risk in firm commitments or highly probable forecast transactions. Amounts accumulated in
this reserve are reclassified to profit or loss in the periods in which the hedged item affects profit or
loss or when the hedging relationship ends.
18 Commitments and contingencies
Through the ordinary course of business the Company is party to various litigation, claims and
investigations. The Directors do not expect the ultimate resolution of any these proceedings to have a
material adverse effect on the Company’s results of operations, cash flows or financial position.
Capital commitments
The total amount contracted for but not provided in the financial statements was £59.0m (2023:
£34.1m).
Lease commitments
Total future minimum lease payments under non-cancellable operating leases are as follows:
2024
£ m
2023
£ m
Land and buildings
- within one year
0.1
0.1
- between one and five years
0.5
0.5
- after five years
2.2
2.2
2.8
2.8
Page 86
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
19 Pension commitments
Defined benefit pension schemes
Defined benefit pension schemes
The Company contributes to two funded defined benefit pension schemes operated by the Group:
The UK Power Networks Group of the ESPS (the UKPN Group) scheme
This scheme is an independent section of the Electricity Supply Pension Scheme “ESPS” which was
formed in 1990 following privatisation of the Electricity Industry. The UKPN Group of the ESPS has
been closed to new members since 1994.
The UK Power Networks Pension Scheme (UKPNPS)
The UKPNPS was formed from a number of legacy arrangements with membership dating back to
1994. It has been closed to new members since 2011.
Funding levels are monitored regularly and a funding schedule is formally agreed between the Group
and the trustees every three years based on the most recent triennial actuarial valuation. The latest
funding schedule, resulting from the triennial valuation as at 31 March 2022, was agreed on 27
February 2023 for the UKPN Group scheme and 5 April 2023 for the UKPNPS scheme. Deficit repair
contributions to the UKPNPS scheme are set to eliminate the scheme's funding shortfall over the next
four years. The Company’s share of these contributions is £7.2m per annum until 29 February 2028,
increasing annually by CPI inflation. In relation to the UKPN Group scheme, the funding deficit was
cleared by 1 March 2023 removing the need for ongoing deficit repair.
A valuation at the balance sheet date, in accordance with FRS 102, was provided by actuaries using
rolled forward member data from the 31 March 2022 triennial valuation and reflecting updated
financial and demographic assumptions. These assumptions are governed by FRS 102 and do not
reflect the assumptions used by the independent actuary in the triennial funding valuations described
above.
The defined benefit scheme assets and liabilities are assigned to participating entities using an
allocation methodology based on employment records and attribution portions agreed with the
industry regulator Ofgem.
Page 87
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
19 Pension commitments (continued)
The key financial assumptions (% per annum) used to calculate scheme liabilities under FRS 102
were:
2024
%
2023
%
UKPN Group key financial assumptions
Discount rate
4.8
4.8
Future salary increases
3.4
3.5
RPI inflation
2.9
3.0
CPI inflation
2.6
2.7
Pension increases in deferment
2.9
3.1
Pension increases in payment
- pensions in excess of GMP
2.9
3.1
- post-88 GMP
2.1
2.1
2024
%
2023
%
UKPNPS key financial assumptions
Discount rate
4.8
4.6
Future salary increases
3.2
3.3
RPI inflation
2.7
2.8
CPI inflation
2.2
2.3
Pension increases in deferment
- CPI up to 5% per annum
2.2
2.3
- CPI up to 2.5% per annum
2.2
2.3
Pension increases in payment
- RPI up to 5% per annum
2.6
2.7
- RPI up to 2.5% per annum
1.9
1.9
- post-88 GMP
1.9
1.9
Page 88
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
19 Pension commitments (continued)
The following life expectancies have been assumed in the calculation of scheme liabilities:
2024
Years
2023
Years
UKPN Group life expectancy assumptions
Life expectancy for male currently aged 60
26
26
Life expectancy for female currently aged 60
29
29
Life expectancy at 60 for male currently aged 40
27
27
Life expectancy at 60 for female currently aged 40
30
30
2024
Years
2023
Years
UKPNPS life expectancy assumptions
Life expectancy for male currently aged 65
22
22
Life expectancy for female currently aged 65
25
25
Life expectancy at 65 for male currently aged 45
23
24
Life expectancy at 65 for female currently aged 45
26
26
The assumptions disclosed in the preceding tables are governed by FRS 102 and do not reflect the
assumptions used by the independent actuary in the triennial valuations which determine the
contribution rate for future years.
The amounts recognised in the balance sheet in respect of the defined benefit schemes are as
follows:
UKPN Grp
2024
£ m
UKPNPS
2024
£ m
Total
2024
£ m
Total
2023
£ m
Fair value of scheme assets
1,074.7 114.0 1,188.7
1,235.5
Present value of defined benefit obligation
(954.0) (127.7) (1,081.7)
(1,080.8)
Defined benefit pension scheme
surplus/(deficit)
120.7 (13.7) 107.0
154.7
In respect of the UKPN Group scheme, the Directors are of the view that the surplus is recoverable on
the basis that a right of refund exists under the scheme rules, assuming the gradual settlement of the
liabilities over time until all the members have left the scheme. Based on this view, the surplus is
presented as a non-current asset within Debtors (note 11).
Page 89
SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
19 Pension commitments (continued)
Amounts recognised in the profit and loss account in respect of the defined benefit schemes were as
follows:
UKPN Grp
2024
£ m
UKPNPS
2024
£ m
Total
2024
£ m
Total
2023
£ m
Current service cost
(2.8) (3.4) (6.2)
(11.7)
Past service cost
(0.3) - (0.3)
(0.5)
Net interest income/(cost)
8.6 (0.6) 8.0
6.6
5.5 (4.0) 1.5
(5.6)
Recognised in other comprehensive
income
(63.7) (4.8) (68.5)
(99.1)
(58.2) (8.8) (67.0)
(104.7)
Of the charge for the year a net expense of £6.5m (2023: £12.2m) has been included in distribution
costs and a net income of £8.0m (2023: £6.6m) included within net finance costs.
Movements in the present value of defined benefit obligations in the year were as follows:
UKPN Grp
2024
£ m
UKPNPS
2024
£ m
Total
2024
£ m
Total
2023
£ m
At 1 April
(954.3) (126.5) (1,080.8)
(1,405.7)
Current service cost
(2.8) (3.4) (6.2)
(11.7)
Past service cost
(0.3) - (0.3)
(0.5)
Interest cost
(43.8) (5.8) (49.6)
(38.0)
Actuarial (losses)/gains
(14.2) 8.6 (5.6)
310.4
Benefits paid
61.4 (0.6) 60.8
64.7
At 31 March
(954.0) (127.7) (1,081.7)
(1,080.8)
The actuarial loss (2023: gain) include a net transfer in of scheme liabilities amounting to £14.4m
(2023: £0.9m) to align the allocation of scheme liabilities across the Group to the attribution portions
agreed with Ofgem.
In June 2023, the UK High Court issued a ruling in the case of Virgin Media Limited v NTL Pension
Trustees II Limited and others relating to the validity of certain historical pension changes. The Group
is awaiting the outcome of a scheduled appeal in June 2024 and any additional hearings before taking
action. The Group’s initial view is that the ruling would not be expected to have a significant impact on
the valuation of the pension obligation.
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SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
19 Pension commitments (continued)
Movements in the fair value of scheme assets in the year were as follows:
UKPN Grp
2024
£ m
UKPNPS
2024
£ m
Total
2024
£ m
Total
2023
£ m
At 1 April
1,128.4 107.1 1,235.5
1,620.5
Interest income
52.4 5.2 57.6
44.6
Return on plan assets (excluding amounts
included in net interest cost)
(49.5) (13.4) (62.9)
(409.5)
Contributions by employer
4.8 7.5 12.3
12.1
Deficit payments
- 7.0 7.0
32.5
Benefits paid
(61.4) 0.6 (60.8)
(64.7)
At 31 March
1,074.7 114.0 1,188.7
1,235.5
The return on plan assets (excluding amounts included in net interest cost) includes a net transfer in
of scheme assets amounting to £17.1m (2023: £0.3m transfer in) to align the allocation of scheme
assets across the Group to the attribution portions agreed with Ofgem.
The fair value of scheme assets is analysed as follows:
UKPN Grp
2024
£ m
UKPNPS
2024
£ m
Total
2024
£ m
Total
2023
£ m
Equities
50.7 24.0 74.7
96.1
Liability driven investments
743.3 49.4 792.7
816.1
Credit funds
43.4 18.6 62.0
65.6
Hedge funds
- 6.6 6.6
6.9
Alternatives
1
228.9 13.1 242.0
234.0
Cash and net current assets
8.4 2.3 10.7
16.8
1,074.7 114.0 1,188.7
1,235.5
1
Investment vehicles investing in property, real estate debt, private equity, private debt and infrastructure.
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SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
20 Notes to the cash flow statement
Reconciliation of operating profit to cash flows
2024
£ m
2023
£ m
Operating profit
206.5
267.3
Adjustment for
Depreciation and amortisation of assets
104.5
100.0
Customer contributions recognised in turnover
(29.1)
(27.8)
Loss on disposal of tangible fixed assets
-
0.1
Operating cash flow before movement in working capital
281.9
339.6
Decrease/(increase) in debtors
1
2.3
(45.9)
Increase in creditors
8.2
24.6
Customer contributions received
63.9
59.5
(Decrease)/increase in provisions
(2.9)
2.3
Pension deficit repair payments
(7.0)
(32.5)
Employer pension contributions net of service costs
(5.8)
0.2
Cash generated from operations
340.6
347.8
1
In previous years changes in debtors working capital included the cash flows relating to short term loans advanced to Group
undertakings. These cash flows are now presented as part of investing activities on the face of the cash flow statement.
Restating the comparative has reduced the prior year increase in debtors by £36.5m and increased cash generated from
operations by £36.5m, while increasing the cash used in investing activities on the face of the cash flow statement by the
same amount.
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SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
20 Notes to the cash flow statement (continued)
Reconciliation of net debt
At 1 April
2023
£ m
Cash
flows
£ m
Fair value
and
exchange
rate
changes
£ m
Other
non-cash
changes
£ m
At 31
March
2024
£ m
Cash at bank and in hand
50.8 (29.8) - - 21.0
Cash equivalents
100.0 (100.0) - - -
150.8 (129.8) - - 21.0
Debt due within one year
(96.5) 100.1 - (40.4) (36.8)
Debt due after more than
one year
(1,507.6) (49.9) 7.2 35.4 (1,514.9)
(1,604.1) 50.2 7.2 (5.0) (1,551.7)
Net debt excluding
derivatives
(1,453.3) (79.6) 7.2 (5.0) (1,530.7)
Net derivative assets
28.9 (5.3) (0.1) 5.1 28.6
Net debt including
derivatives
(1,424.4) (84.9) 7.1 0.1 (1,502.1)
Other non-cash changes in net debt comprise accretion on index linked bonds of £6.4m and
amortisation of debt issue costs of £0.6m, partially offset by amortisation of bond premiums of £2.0m
and net interest receivable on derivatives of £5.1m. In addition £35.0m relating to a bond maturing in
February 2025, was reclassified from "Debt due within more than one year" to "Debt due within one
year".
21 Related party transactions
The Company has taken an exemption under FRS 102 (section 33 2.2) not to disclose transactions
with other wholly owned members of the Group.
The Company qualifies for this exemption on the basis that it is a wholly owned subsidiary of a parent
which prepares publicly available consolidated financial statements intended to give a true and fair
view of the financial position and results of the group, and the Company is included within the
consolidation.
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SOUTH EASTERN POWER NETWORKS PLC
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024
22 Parent and ultimate parent undertaking
The Company’s immediate parent is UK Power Networks Holdings Limited, incorporated in the United
Kingdom and registered in England and Wales at the following address:
Newington House
237 Southwark Bridge Road
London
SE1 6NP
UK Power Networks Holdings Limited is the parent of both the smallest and largest Group in which
the Company’s financial statements are consolidated. Copies of the financial statements of UK Power
Networks Holdings Limited may be obtained from the Company Secretary at Energy House, Carrier
Business Park, Hazelwick Avenue, Three Bridges, Crawley, West Sussex, RH10 1EX.
UK Power Networks Holdings Limited is owned by a consortium comprising:
•
CK Infrastructure Holdings Limited
(40% shareholding) incorporated in Bermuda;
•
Power Assets Holdings Limited
(40% shareholding) incorporated in Hong Kong; and
•
CK Asset Holdings Limited
(20% shareholding) incorporated in the Cayman Islands.
In the Directors' opinion UK Power Networks Holdings Limited has no single controlling party as it is
jointly controlled by the consortium.
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