Registration number: 02366942 (England and Wales)
Northern Electric plc
Annual Report and Consolidated Financial Statements
for the Year Ended 31 December 2021
Northern Electric plc
Contents
Company Information 1
Strategic Report 2 to 20
Directors' Report 21 to 27
Independent Auditor's Report 28 to 37
Consolidated Income Statement 38
Consolidated Statement of Comprehensive Income 39
Consolidated Statement of Financial Position 40 to 41
Statement of Financial Position 42 to 43
Consolidated Statement of Changes in Equity 44
Statement of Changes in Equity 45
Consolidated Statement of Cash Flows 46
Statement of Cash Flows 47
Notes to the Financial Statements 48 to 120
Northern Electric plc
Company Information
Directors
A P Jones
S J Lockwood
J N Reynolds
Company Secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
Tyne and Wear
NE1 6AF
Registration number
02366942 (England and Wales)
Auditor
Deloitte LLP
Statutory Auditor
London
United Kingdom
United Kingdom
Page 1
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021
The directors present their annual report and audited financial statements for the year ended 31 December 2021 of
Northern Electric plc (the "Company"), which have been drawn up and are presented in accordance with the Companies
Act 2006.
Business model
The Company is part of the Northern Powergrid Holdings Company and its subsidiaries group of companies (the
“Northern Powergrid Group”) and acts as a holding company of Northern Powergrid (Northeast) plc (“NPg Northeast”),
Integrated Utility Services Limited (“IUS”) and Northern Powergrid Metering Limited (“NPg Metering”), collectively,
(the “Group”).
NPg Northeast is an authorised distributor under the Electricity Act 1989 and holds an electricity distribution licence
granted by the Secretary of State. As a distribution network operator (“DNO”), NPg Northeast is regulated by the office of
Gas and Electricity Markets (“Ofgem”), which in turn, is governed by the Gas and Electricity Markets Authority
(“GEMA”). The completion of the 2020/21 Regulatory Year (on 31 March 2021), represented the end of year six of the
current RIIO-ED1 price control, which became effective on 1 April 2015 and is due to end on 31 March 2023 (the “ED1
period”). NPg Northeast distributes electricity , to approximately 1.6 million customers connected to its electricity
distribution network within its distribution services area in the northeast of England. As NPg Northeast is the largest
contributor to the Group in terms of revenue, the Strategic Report predominantly concentrates on the performance and
progress of that entity throughout the reporting year.
The majority of revenue generated by NPg Northeast is controlled by a distribution price control formula which is set out
in the electricity distribution licence. The price control formula does not directly constrain profits from year to year, but is
a control on revenue that operates independently of a significant portion of the NPg Northeast’s costs. Allowed revenue is
recovered from electricity suppliers via the application of Distribution use of System charges. These charges account for
approximately 15% of the electricity end user’s overall electricity bill. NPg Northeast’s opening base allowed revenue
(excluding the effects of incentive schemes and any deferred revenues from the prior price control) has been set to remain
constant for each Regulatory Year from 1 April 2016 through to 31 March 2023. Nominal opening base allowed revenues
will increase in line with inflation (as measured by the United Kingdom’s Retail Prices Index “RPI”).
IUS provides engineering contracting services and NPg Metering rents meters to energy suppliers.
Strategy
In common with the Northern Powergrid Group, the Group operates a strategy based on six core principles (the “Core
Principles”), which comprise Financial Strength, Customer Service, Operational Excellence, Employee Commitment,
Environmental Respect and Regulatory Integrity. The Core Principles (which are applied by the Northern Powergrid
Group’s parent company, Berkshire Hathaway Energy Company (“Berkshire Hathaway Energy”)), set out the basis on
which the Company and Group generates shareholder value over the longer-term and defines the standards by which the
Northern Powergrid Group holds itself accountable. Each Core Principle is defined by a strategic objective which is
intrinsically linked to the commitments made in the NPg Northeast’s 2015 to 2023 regulatory well-justified business plan
(the “Business Plan”).
Submitted to Ofgem in March 2014, the Business Plan described the long-term strategy and commitments that the NPg
Northeast would achieve during the ED1 period in order to deliver sustainable growth with regard to those with whom
NPg Northeast interacted and served. Developed after a period of consultation with stakeholders, the Business Plan
focused on a number of priorities (described throughout the Strategic Report) including minimising costs, improving flood
defences, enhancing customer service, prioritising employee safety, supporting vulnerable customers, protecting the
environment and transitioning to low carbon technologies. The directors refer to the values established by the Core
Principles and the commitments contained within the Business Plan when considering the consequence of decisions they
make.
Following the publication of RIIO-ED2 (“ED2”) Business Planning guidance by Ofgem in August 2020, NPg Northeast
commenced the development of its regulatory business plan for the ED2 period (1 April 2023 to 31 March 2028) (the
“ED2 Plan”), ahead of submission to Ofgem in December 2021. As part of this process, NPg Northeast continues to work
with the Customer Engagement Group (“CEG”), which was established for the purpose of providing independent scrutiny
and challenge to ensure that customers’ interests are adequately reflected in the ED2 Plan. Ahead of the implementation of
the ED2 Plan on 1 April 2023, NPg Northeast will participate in open hearings with Ofgem and interested stakeholders and
consultations before Ofgem publishes its final determination in December 2022 (for further detail, see Regulatory
Integrity).
Page 2
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
The delivery of the Business Plan is supported by an annual business plan (the “Annual Plan”) which is submitted to the
Northern Powergrid Group’s shareholder each financial year and is designed to phase progress towards the achievement of
each commitment over the duration of the ED1 period. The phasing ensures that the deliverables in both plans can be
measured effectively by using a mix of financial and non-financial Key Performance Indicators (“KPI”).
The Strategic Report focuses on each Core Principle and the performance of each KPI throughout the year in order to
provide a summary of the success in achieving each strategic objective, progress made against certain Business Plan
commitments and performance in relation to the Annual Plan.
Page 3
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
FINANCIAL STRENGTH
Strategic objective:
Strong finances that enable improvement and growth.
KPI 2021 2020
Operating Profit £ 184.2 million £ 185.6 million
Cash from operating activities £ 275.6 million £ 260.5 million
Cash used in investing activities £ 214.5 million £ 206.4 million
Credit Rating (Standard & Poor's) A A
Business Plan commitment
: To build on the efficiencies achieved to date and in doing so, reduce base costs by 3.1% in
2015 to 2023 compared to the previous price control period.
Performance during the year:
The Group continued to maintain good control in respect of both its capital and operating
costs by effectively managing the financial risks that could have had an adverse impact on its business. At half way
through the ED1 Period, NPg Northeast has implemented efficiencies equivalent to a 4% reduction in base costs relative to
the prior regulatory period.
Revenue:
The Group's revenue at £493.7 million was £39.4 million higher than the prior year due to increased distribution
revenues and higher meter rentals, partially offset by lower contracting volumes.
Operating profit and position at the year-end:
The Group's operating profit of £184.2 million was £1.4 million lower
than the previous year, primarily reflecting higher depreciation (£10.6 million), Storm Arwen costs (£15.5 million) and bad
debts (£5.3 million) offset by higher revenues (£39.4 million). The statement of financial position on pages 40 and 41
shows that, as at 31 December 2021, the Group had total equity of £1,466.3 million (2020: £1,280.2 million). The directors
consider the Group to have a strong financial position which, when coupled with the preference of Berkshire Hathaway
Energy for operating with lower levels of debt than equivalent companies in the sector, creates a stable base for continued
strong performance during the ED1 period.
In April 2022, the Group issued a £350 million bond at 3.25% maturing in 2052, the funds will be used for general
corporate purposes including the repayment of debt maturities in 2022.
Finance costs and investments:
Finance costs net of investment income at £40.3 million were £5.9 million lower than the
prior year reflecting changes in financing in the prior year.
Taxation
: The effective tax rate in the year was 46.6%. Tax charge for the year was £67.8 million which was £27.5
million higher than prior year of £40.3 million primarily due to the impact the tax rate change had on the deferred tax
balance. Details of the income tax expense are provided in Note 10 to the financial statements.
Share capital:
The Company has one class of ordinary shares which carries no right to fixed income. Details of
cumulative non-equity preference shares are contained in the borrowings Note 21. There were no changes to the
Company's share capital during the year.
Cash flow:
The Group aims to collect from customers and pay suppliers within contracted terms. Any surplus cash held is
remitted to Yorkshire Electricity Group plc ("YEG"), a company in the Northern Powergrid Group, and invested
accordingly, generating a market rate of return for the Group. Movements in cash flows were as follows:
•
Operating activities:
Cash flow from operating activities at £275.6 million was £15.1 million higher than the previous
year due to higher profit before depreciation and amortisation and lower pension deficit repair costs offset by adverse
working capital movements.
•
Investing activities:
Cash flow used in investing activities at £214.5 million was £8.1 million higher than the previous
year reflecting higher purchases of plant, property and equipment offset by higher receipt of customer contributions.
•
Financing activities:
Cash outflow from financing activities at £40.9 million was £14.0 million lower than the
previous year of £54.9 million, mainly due to the movement in net operating and investing cash flows.
Pensions:
The Company is a participating employer in the Group of the Electricity Supply Pension Scheme (the "DB
Scheme"), a defined benefit scheme. Further details of the Group's commitments to the DB Scheme and the associated
deficit repair payments are provided in Note 26 to the financial statements. The Group also participates in the Northern
Powergrid Pension Scheme, which is a defined contribution scheme.
Page 4
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Insurance:
As part of its insurance and risk strategy, the Group has in place insurance policies, which cover risks
associated with employees, third party motor and public liability. The Group carries appropriate excesses on those policies
and is effectively self-insured up to the level of those excesses.
Page 5
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
CUSTOMER SERVICE
Strategic objective:
Delivering exceptional customer service.
KPI 2021 2020
Broad Measure of Customer Satisfaction ("BMCS") 89.4% 91.4%
BMCS Rank (out of 14)
11 9
BMCS Power Cuts 88.9% 90.7%
BMCS General Enquiries 94.4% 94.7%
BMCS Connections 87.8% 90.4%
Stakeholder Engagement and Customer Vulnerability ("SECV") rank (out of 13)
(combined with Northern Powergrid (Yorkshire) plc)
5 3
Business Plan commitment:
To provide a reliable, better communicated and faster customer service offering through a
range of channels to suit stakeholder needs.
Performance during the year:
Storm Arwen had a significant impact upon a relatively small number of Northern
Powergrid’s customers, with some households being left without power for prolonged periods. The scale and nature of the
event meant that Northern Powergrid’s strong levels of customer service was affected, due to the number of customers
who needed help, high call volumes and overwhelming website demand. Northern Powergrid recognises the impact going
without power can have on its customers and is working with Ofgem to ensure those who were affected are properly
compensated and that improvements are made in the future.
The impact of extreme weather events such as Storm Arwen are largely excluded from the Customer Service KPIs. Under
the BMCS, an independent market research company carried out telephone surveys with NPg Northeast’s customers to
find out how satisfied they were with services related to unplanned or planned power cuts, quotations and subsequent
connections, and general enquiries. NPg Northeast recorded a decline in overall satisfaction scores at 89.4% compared to
the prior year (91.4%) which had resulted in an overall BMCS rank of 11 out of 14, falling two places from the prior year.
To further enhance the service provided to customers a number of initiatives from NPg Northeast’s customer service
improvement plan were implemented during the year. This included the continued development of the customer
relationship management (“CRM”) system, including the roll-out of CRM Go for unplanned power cuts which provides
improved real-time customer communication during an outage, the transition to a six region structure within Connections
and the continued rollout of a ‘Customer First’ training programme which was introduced to improve the proactivity and
effectiveness of communication with customers.
Activity scheduled to take place during 2022 is to focus on technology enablement including the development of the CRM
system to enhance outbound communications in support of the enduring connections solution as a self-serve offering for
low carbon technology additional load requests. In addition, the deployment of a new contact centre telephony platform
and upgrade to the Northern Powergrid Group’s external website. The program of work will be coupled with an end to end
review of our Customer Service Support teams to enable focus on external customer facing activities.
Page 6
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Connections to the network
Business Plan commitment:
To further implement customer service improvements in support of the commitment to
reduce routine, small works end-to-end connections lead times by 30% during the ED1 period, actively facilitate the
development of competition from independent connections providers ("ICPs") and deliver the major works service
improvement plan as part of the Ofgem Incentive on Connections Engagement (“ICE”).
Performance during the year:
Reducing end-to-end connections lead times continued to pose a challenge and, as such,
work to improve the level of customer service within the small works connections business (measured by the BMCS
connections KPI) continued. In support of this, the process whereby one individual assumes responsibility throughout each
connections process from creating a quotation on site (using the quote-on-site technology) to the final delivery of the
connection itself was further embedded. By continuing to introduce further enhancements, NPg Northeast is confident that
whilst a 30% reduction in end-to-end lead times will be challenging, (currently at 19%) it remains achievable by the end of
the ED1 period.
NPg Northeast continued to comply with the processes set out in Standard Licence Condition 52 and the Competition in
Connections Code of Practice. This included the provision of dual quotations, enabling ICPs to self-determine points of
connection to the existing network and self-approve designs, and by facilitating the self-connection of new assets to the
NPg Northeast’s low and high voltage networks by suitably accredited ICP operatives as a contestable activity.
In relation to NPg Northeast’s ICE commitments for the 20/21 regulatory period, the 18 actions included in the service
improvement work plan were successfully delivered.
Page 7
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Corporate responsibility
Business Plan commitment:
To build effective relationships with stakeholders whilst maximising the value of contact
with customers, especially those who are vulnerable and hard to reach.
Performance during the year
: In May 2021, NPg Northeast (together with Northern Powergrid (Yorkshire) plc) put
forward its SECV submission to Ofgem in respect of work undertaken during the 2020/21 Regulatory Year. The material
provided an overview of activities and case studies in areas such as support for vulnerable customers, decarbonisation,
safety, environment, customer service, reliability and availability. Following the review by Ofgem's panel, NPg Northeast
achieved fifth place (of five) in the context of the DNOs, a step down from third place in the prior Regulatory Year. In
response, an external assessment of the approach to engagement, fuel poverty provision and support provided to vulnerable
customers was undertaken and improvement plans were subsequently established.
During the year, NPg Northeast continued to develop its routine engagement activity by enhancing existing relationships
with elected representatives at the local council and parliamentary level as well as with civic leaders from Local Enterprise
Partnerships, particularly during periods of severe weather and when providing support to vulnerable customers. In
addition, virtual one-to-one and group engagement sessions were held (and attended by the CEG) for the purpose of
understanding stakeholders’ priorities and opinion on commitments developed and the level of proposed investment set out
in the draft and then subsequent ED2 Plan. The feedback, along with an understanding of customers’ willingness to accept
various proposals provided invaluable insight, enabling the board and senior managers to critically evaluate a range of
stakeholder opinions in order to inform the finalisation of the ED2 Plan.
The continuing challenges of the Pandemic and restrictions meant that the way in which NPg Northeast and its partners
provided support to vulnerable customers has continued to be primarily via website and telephone advice and support. This
enabled more people to access the services and has continued as part of a hybrid delivery model. Where necessary and
safe, partners have looked to deliver face-to-face advice and share energy efficiency advice and tools to those who cannot
use online channels. NPg Northeast’s Community Partnering Fund (in conjunction with Northern Gas Networks) funded
15 organisations who deliver a range of services including fuel poverty and energy efficiency advice, electrical and gas
safety, help recruit vulnerable customers to the Priority Services Register and support with Pandemic resilience. An
additional £50,000 was shared with groups directly working to alleviate food and fuel poverty across the region as a direct
result of increasing pressure on households due to rising fuel prices.
OPERATIONAL EXCELLENCE
Strategic objective:
High-quality, efficient operators running a smart reliable energy system.
2020/21 2019/20
KPI Actual Target Actual Target
Customer minutes lost ("CML") 36.8 <55.2 44.1 <57.0
Customer interruptions ("CI") 45.3 <60.0 47.0 <60.7
KPI 2021 2020
High voltage restoration time (minutes) 51.8 64.0
Network investment (million) £187.6 £189.0
Business Plan commitment:
To enhance the reliability of the network in support of the commitment to achieve 8% fewer
unplanned power cuts and reduce the average length of unplanned power cuts by 20% during the ED1 period.
Performance during the year:
CML and CI are the KPIs set by Ofgem and used by NPg Northeast to measure the quality
of supply and system performance. Both CML and CI are measured on a regulatory year basis. CML measures the average
number of supply minutes lost for every connected customer due to both planned and unplanned power cuts that last for
three minutes or longer. CI measures the average number of supply interruptions per every 100 connected customers due
to planned and unplanned power cuts that last for three minutes or longer. Performance during the year was better than
Ofgem's target for both CML and CI.
Page 8
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
In relation to high voltage restoration, the NPg Northeast’s high-voltage restoration performance during the year averaged
51.8 minutes (2020: 64.0 minutes), after allowing for severe weather incidents and other exemptions (as referenced in
Customer Service above).
In respect of the Business Plan commitments, NPg Northeast together with its affiliate (Northern Powergrid (Yorkshire)
plc) had achieved 26% fewer unplanned power cuts and a reduction of the average length of unplanned power cuts by
34.5% (relative to the prior regulatory period). Progress remains on track to achieve the continuous improvement target of
30% for the number of unplanned power cuts and 20% to 40% for the average duration.
NPg Northeast invested £187.6 million during the year through its approved Network investment strategy (2020: £189.0
million), which has been designed to deliver improvements in Network performance and increase resilience. Various
major projects were undertaken to reinforce the primary Network, refurbish transformers, rebuild overhead lines, remove
and replace oil-filled cables, change deteriorated poles, replace switchgear and install and commission new remote-control
points. Routine Network maintenance was completed in addition to work required to support the Pandemic.
Further Network enhancements included the continued roll-out of the automatic power restoration system on the high
voltage Network. At low voltage the implementation of next generation innovative low voltage technology devices
continued with the addition of low-cost Network monitoring sensors which detect developing faults so that they can be
proactively managed whilst gathering of Network condition information. Initiatives were also implemented as a result of
the Reliability Improvement Plan including increasing the use of mobile generation to restore supplies and enhancements
to vegetation management practices.
By the end of the ED1 Period, NPg Northeast expects to deliver a more resilient Network and enhanced outputs to
customers that exceed those originally targeted in the Business Plan. Additional investment in priority areas such as to
underground overhead lines in areas of outstanding natural beauty and remove fluid and gas filled cables from the Network
has been offset by efficiency savings and the use of new technologies. Additionally, progress has been made on NPg
Northeast and its affiliate’s new £53.1 million (in 2012/13 prices) green investment programme that was agreed with
Ofgem in early 2021 which will help accelerate progress to net zero and provide vital regional economic stimulus.
CLIMATE CHANGE ADAPTATION
Strategic objective:
Operate a highly reliable and resilient Network
Business Plan commitment:
To adapt to the effects of climate change by establishing and maintaining flood defences at
all high-risk substations to national standards, delivering a programme of vegetation management and working
collaboratively with regional infrastructure providers and local resilience forums.
Performance during the year:
The climate is changing and, despite international efforts to reduce greenhouse gas
emissions, it is expected to continue to change over the course of the century. NPg Northeast has worked to understand the
risks and opportunities presented by climate change and has established initiatives in response such as industry leading
flood mitigation programme and a robust vegetation management programme.
Page 9
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
NPg Northeast has focused on two climate pathways, one which is in line with the 2oC global warming considered in the
Paris agreement and the second representing the worst-case scenario of a global mean surface temperature rise of 4.3oC by
2081 to 2100.
By using the latest projections (UKCP18) to carry out a full risk assessment, NPg Northeast has identified and prioritised
key climate related risks and their impact on the Network. Once identified, the key risks were included in the Electricity
Networks Association’s Climate Change Adaptation Report which was submitted to the Department for Environment,
Food and Rural Affairs (“Defra”) in March 2021 on behalf of all gas and electricity network operators. The report then
contributed to the National Adaptation Plan and accordingly, the risks were covered in detail in NPg Northeast and its
affiliates Climate Change Adaptation report submitted to Defra in December 2021 in line with the requirements of the
Adaptation Reporting Power under the Climate Change Act 2008 (available to view on the Northern Powergrid Group
website). In July 2021 NPg Northeast and its affiliate published its draft Climate Resilience Strategy for 2023 to 2028 in
line with the requirements of Ofgem and the final version was published in December 2021 (also available on the Northern
Powergrid Group website).
NPg Northeast and Northern Powergrid (Yorkshire) plc have followed the approach laid out in the supplementary Green
Book Guidance on ‘Accounting for the Effects of Climate Change’ published by Defra in November 2020 and in response,
has developed a climate resilience framework in line with the National Infrastructure Commission’s report (Anticipate,
React, Recover: Resilient Infrastructure Systems - published in May 2020) detailing its approach to Climate Resilience.
In respect of its routine activity, during 2021, NPg Northeast and its affiliate invested £5.0 million on flood mitigation
works, and £8.6 million on the continuation of the vegetation management programme.
Response to storm Arwen
NPg Northeast and its affiliate have robust processes and procedures in place in the form of a Major Incident Management
Plan (“MIMP”), which is deployed during extreme weather events. Employees are well practiced at operating under MIMP
conditions. Nonetheless, storm Arwen was the most significant weather event that NPg Northeast had faced in more than
two decades.
A MIMP was triggered on 26 November 2021, following which, to mitigate the loss of supply, switching of the Network
commenced and safety response activities were initiated. Whilst initial repairs to the Network were hampered by the
strength of the wind, 90% of all affected customers had their power restored by 28 November 2021. However, the severity
of the damage caused to the Network in more remote rural locations meant supplies to all affected customers were not
restored until 8 December 2021.
A full review of the response to storm Arwen has been undertaken with oversight from both Ofgem and the Department
for Business, Energy and Industrial Strategy (“BEIS”).
EMPLOYEE COMMITMENT
Strategic objective:
High-performing people doing rewarding jobs in a safe and secure workplace
2021 2020
KPI Actual Target Actual Target
Northern Powergrid Group occupational safety and
health administration ("OSHA") rate 0.29 0.09 0.13 0.13
Preventable vehicle accidents 23 14 17 15
Lost time accidents 1 0 0 1
Medical treatment accidents 2 1 2 1
Operational incidents 6 4 4 5
Absence rate 3.3% 2.8%
Health and safety
Page 10
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Business Plan commitment
: To deliver world class safety performance and halve the accident rate during the ED1 period.
Performance during the year
: In common with the Berkshire Hathaway Energy group, the Northern Powergrid Group
measures its safety performance in terms of the OSHA rate, which is a measure used in the United States (“US”) to capture
safety incidents down to minor levels of medical treatment. The Northern Powergrid Group failed to meet its target of 0.09
in 2021 having achieved an OSHA rate of 0.29 (2020: 0.13), which equated to seven recordable incidents (four of which
were lost time) against the goal of two or fewer. Whilst this was very disappointing, none of the incidents themselves were
serious and additional training is to be implemented to reduce the exposure to minor slips, trips and falls - and even dog
bites. NPg Northeast also had a poor year in terms of preventable vehicle accidents, with twenty three recorded against a
target of fourteen. This was largely attributed to the lack of passengers acting as ‘spotters’ as a consequence of social
distancing in vehicles.
In respect of the Business Plan commitment, at 31 December 2021, NPg Northeast’s accident rate had been reduced by
58%, which was ahead of the target to achieve a 50% reduction by 31 March 2023. NPg Northeast successfully retained its
ISO 45001 accreditation scheme for its health and safety management system.
The challenges posed by the Pandemic in relation of safe working practices and procedures were, and remain, constantly
under review by members of the safety team, senior management team, Health and Safety Committee and the Board, in
conjunction with trade union representatives. Robust business continuity plans and risk management procedures meant that
NPg Northeast continued to adapt to new ways of working and provide essential safety and personal protective equipment.
All Group facilities were risk assessed and tailored procedures were implemented to ensure the safety of all staff in
accordance with the latest government guidance.
Improving safety performance remains a priority and the way in which this is achieved is set out in the NPg Northeast’s
safety and health improvement plan (“SHIP”). During the year, the SHIP focused on more than 50 initiatives in the areas
of enhanced engagement, operational performance, risk management, road risk, occupational health and public safety and
included the launch of the Institute of Advanced Motorists programme and the upgrade of fleet vehicles with new
technology and driver assistance packages as standard.
The mental health and wellbeing of staff continues to form an integral part of the SHIP. Existing support available to
employees includes an independent employee assistance service, which is a confidential, self-referral counselling and
information service to assist with personal or work-related problems and access to services including counselling and
physiotherapy referrals.
Employees
Business Plan commitment:
To emphasise the importance of leadership and high standards of performance by engaging,
collaborating and working with employees and their trade union representatives.
Performance during the year
: The changing circumstances of the Pandemic required the Group to continue to adjust and
adapt employee working arrangements. For those that were able, home working continued as did the Group’s support
offered to working parents or those that were requires to self-isolate. Ensuring the safety and wellbeing of all employees,
whether that was in an office, or for those key workers operating in the field environment, remained paramount. To help
employees understand the frequent changes to government advice, updates were communicated regularly via multiple
channels to ensure that all colleagues were able to continue to perform their duties safely and effectively. The Group
remains committed not only to the physical health, but to the broader wellbeing of its staff and is aware that for some, the
Pandemic has exacerbated mental health issues including isolation and anxiety. Consequently, weekly wellbeing advice
continued to be promoted alongside the standard support services which are available.
Alongside any new measures, the Group continued to ensure that all colleagues had regular conversations about their
performance with their line managers, and leadership engagement continued. Training was delivered via a number of
methods including physically (socially distanced) and online via e-learning such as Customer First training and the ‘Best
Welcome’ corporate induction.
Page 11
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
The Group has adopted the Berkshire Hathaway Energy code of business conduct ("Code of Conduct"), which details the
commitment to ethics and compliance with the law, provides reporting mechanisms for known or suspected ethical or legal
violations, and establishes minimum standards of behaviour expected of all employees. In support of this, a "speaking up"
process is in place enabling all employees to raise concerns of unethical acts, malpractice or impropriety (including bribery
or corruption), and an anonymous help line operated by an independent company is also available. All colleagues complete
an annual online training programme covering the requirements of the Code of Conduct.
During the year, 38 new recruits (2020: 40) joined NPg Northeast’s and Northern Powergrid (Yorkshire) plc’s workforce
renewal programme. At 31 December 2021, the Group had 1,393 employees (2020: 1,431). Further information
concerning how the Northern Powergrid group is supporting gender diversity in the energy industry can be found in the
Northern Powergrid Group’s gender pay gap report via the Northern Powergrid Group’s corporate website.
Page 12
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
ENVIRONMENTAL RESPECT
Strategic objective:
Leaders in environmental respect and low carbon technologies.
2021 2020
KPI Actual Target Actual Target
Total oil/fluid lost (litres) 8,986 <11,583 7,205 <11,583
SF6 gas discharges (kg) 19.20 <13.50 16.80 <14.25
Environmental incidents 0 <2 0 <4
KPI 2021 2020
Carbon footprint (tonnes) 14,496 15,110
KWh Energy Consumed 21,241,374 21,269,487
Business carbon footprint Tonnes Per km² Tonnes Per km²
Building electricity use 867 0.06 875 0.06
Substation electricity use 1,812 0.13 1,951 0.14
Fleet fuel use 2,092 0.15 2,176 0.15
Business fuel use 754 0.05 906 0.06
Other (including fugitive emissions) 645 0.04 608 0.04
Contractor emissions 8,326 0.58 8,385 0.58
Total carbon footprint (tonnes) 14,496 1.01 14,901 1.04
Note: KWh energy consumed relates to depot energy and fleet fuel usage.
The chosen business carbon footprint intensity ratio is based on the Company’s licence area which equals 14.394 km.
The methodology adopted to calculate energy and business carbon footprint data is aligned with international standards, those required by Defra and
BEIS and is compliant with ISO 14064-1:2006.
Business Plan commitment:
Deliver Environmental “RESPECT” (Responsibility, Efficiency, Stewardship, Performance,
Evaluation, Communication and Training) and in doing so reduce oil and fluid loss by 15% and our business carbon
footprint by 10% during the ED1 period.
Performance during the year:
NPg Northeast and IUS operates a United Kingdom Accreditation Service scheme for
environmental management and is certified to the environmental management systems standard ISO 14001:2015. The ISO
14001 standard is designed to enhance environmental performance, fulfil compliance obligations and achieve
environmental objectives, all of which contribute to the achievement of NPg Northeast’s KPIs. A full recertification
assessment was carried out in March 2020 and surveillance audits are carried out twice per calendar year, the last one
being conducted in October 2021. Continued certification was confirmed following each audit.
NPg Northeast’s and IUS’ carbon footprint reporting framework is certified under the Certified Emissions Measurement
and Reduction Scheme for compliance with ISO 14064-1:2006. The last full audit was undertaken in August 2021, where
continued certification was confirmed. Remote working and less travel have led to a further reduction in NPg Northeast’s
carbon footprint to 14,496 tonnes (2020: 14,901 tonnes). This improvement (combined with Northern Powergrid
(Yorkshire) plc) demonstrated a carbon footprint reduction of 49% at 31 December 2021, well ahead of the original 10%
commitment and in line with the forecast of 50% by the end of the ED1 Period.
In support of the target to further reduce oil and fluid loss, the 2021 annual environmental improvement plan included
replacing fluid-filled cables and locating cable fluid leaks more quickly. This was hampered by a small number of leaking
cable circuits where location prohibited sufficient fluid recovery resulting in a total fluid loss of 8,986 litres (2020: 7,205).
In relation to the Business Plan commitment, at 31 December 2021, NPg Northeast and its affiliate (Northern Powergrid
(Yorkshire) plc) had achieved a 43% reduction in oil and fluid loss, well ahead of the original 15% commitment and on
target to achieve a 49% reduction by the end of the ED1 Period.
Page 13
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
To maintain its strict policy of environmental protection and legal compliance, NPg Northeast continues to assess
environmental risks and mitigate threats through programmes of work such as fluid-filled cable replacement,
undergrounding overhead lines in areas of outstanding natural beauty, installing flood defences, implementing secondary
containment in high-risk substations and removing equipment containing polychlorinated biphenyl from the network.
Whilst prevention is paramount, in the event NPg Northeast’s activity does result in a leak or spill, the services of an
appointed 24-hour a day environmental response consultancy is used to minimise the effects of any incident.
In respect of NPg Metering, whenever practicable, meters are recycled and reinstalled. In addition, meters and their
components are always disposed of using an approved agent to ensure that the Northern Powergrid Group’s environmental
obligations are met.
NPg Northeast takes its environmental responsibilities very seriously and has a proven track record of lowering emissions
and minimising the wider environmental impact of Network activity. Reducing the level of internal carbon footprint is a
key priority and consequently, plans have been developed to become carbon net neutral by 2040. This includes initiatives
such as increasing ultra-low emission or zero emission vehicles to 40% of NPg Northeast’s fleet of vehicles by 2028 and
the adoption of science-based targets.
Science-based targets are a set of goals developed to provide a clear route to reducing greenhouse gas emissions.
Emissions reduction targets are considered science based if they are consistent with keeping global warming below 1.5°C
above pre-industrial levels. Targets are calculated by taking the world’s carbon budget (consistent with 1.5°C) and
deriving the corresponding reduction required each year to meet that carbon budget. NPg Northeast’s science-based targets
were verified by the Science-based Targets Initiative on 23 December 2021.
In respect of NPg Northeast’s wider environmental impact, plans have been developed to achieve zero waste to landfill by
2035 and, to divert 90% of waste from all of NPg Northeast’s operations by 2028. In addition to safeguarding the
environment from its direct activity, NPg Northeast also operates a habitats programme which is aimed at protecting
natural habitats and increasing the variety and variability of species and ecosystems at 200 of NPg Northeast’s and its
affiliates’ major sites.
Page 14
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Environmental Sustainability
Strategic focus:
Enable significant growth in customers connecting low carbon technologies, support all pathways to net
zero emissions and significantly reduce our own carbon footprint.
Performance during the year:
As the country takes action to make significant reductions in its carbon emissions
following the establishment of a net zero carbon emissions target by 2050, the way in which electricity is produced and
used is expected to have a substantial impact on the Network over time. NPg Northeast laid out its intention to act as a key
facilitator in the country’s net zero transition by placing decarbonisation at the heart of its investment and actions for the
ED2 period.
The volume and total capacity of decentralised energy generation and customer has continued to grow steadily and, given
the greater range of load and generation technologies now connected to the Network, NPg Northeast is developing and
actioning innovative solutions that will reduce the need for traditional and potentially expensive reinforcement of the
Network. In the past year, NPg Northeast has continued to engage with the market for flexibility by consulting on
investment solutions where there was an option for customers to support the Network by changing their energy
consumption and generation patterns, facilitating a more efficient and greener Network. To understand how to most
efficiently prepare the Network for the future needs of its customers, NPg Northeast has continued to build on its views of
potential pathways to net zero in its region through its publication of Distribution Future Energy Scenarios in May 2021.
From an innovation perspective, NPg Northeast continues to run and develop a portfolio of projects in the priority areas of
smart meters, digital-enabled customer service and affordability. The field trial phase of the Boston Spa Energy Efficiency
Trial has commenced which has the potential to deliver a 4% reduction in domestic energy use which in turn gives rise to a
£20 saving to customers annually - vital for both decarbonisation and caring for vulnerable customers. The success of the
Silent Power vans (which now address 25% of all generator restorations for small faults) has led to the exploration of
whether larger, multi-phase, or even high voltage capable units can be developed, while at a smaller scale it is being
established if fixed domestic units can be used at single premises to support vulnerable customers.
As NPg Northeast transitions into the ED2 period, decarbonisation will continue to become central not only to the NPg
Northeast’s strategy, but the way in which NPg Northeast contributes more broadly to the evolution of the energy industry
and the stakeholders with whom it interacts. NPg Northeast has been progressive in its ambition to reduce its own business
carbon footprint. However, more is required and it is acknowledged that NPg Northeast has a key role to play in
facilitating regional decarbonisation by fulfilling the functions of Distribution System Operation (DSO). This means
investing in people, processes and systems in order to actively manage the Network and to optimise the use of assets and
generated energy in the region.
As part of NPg Northeast’s ED2 Plan submission, a number of strategic objectives shaped the development of the
accompanying DSO strategy. This included ‘flexibility first’, involving deploying flexible solutions as an alternative to
Network reinforcement, ‘whole system collaboration’ in order to engage with the wider market on whole system energy
solutions, ‘data and digitalisation’, to facilitate solutions in areas such as open data, ‘openness and transparency’, to
collaborate in joint planning with our stakeholders and, finally, fostering a ‘workplace and workforce fit for the future’, to
build regional and national skills.
Collectively, these objectives have been developed to achieve a number of outcomes and benefits, including to enable
open energy data sharing, transform the way decisions and plans are made throughout NPg Northeast, support the
development of new flexible energy markets, increase customer and Network flexibility and facilitate a whole system
energy system. During the remainder of the ED1 Period, NPg Northeast will continue to build on the significant activity
that has already been undertaken to decarbonise its operations and reduce the impact that it has upon its stakeholders as it
prepares for the implementation of the ED2 Plan.
Page 15
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
REGULATORY INTEGRITY
Strategic objective:
Trustworthy, fair and balanced.
KPI:
Completion of a quarterly regulatory compliance affirmation process.
Business Plan commitment:
To manage the Group's business to the highest behavioural standards and adhere to a policy
of strict compliance with all relevant standards, legislation and regulatory conditions.
Performance during the year:
In order to assure compliance with distribution licence and other regulatory obligations,
NPg Northeast operates a regulatory compliance affirmation process, under which ownership of approximately 2,000
regulatory obligations are assigned to 74 responsible managers. Those responsible managers are required to review
compliance with the relevant obligations on a quarterly basis and report on any identified non-compliances or perceived
risks which are then addressed by members of the senior management team. To minimise the risk of NPg Northeast
breaching its licence conditions and other statutory requirements (which could lead to financial penalties), the board
reviews the outcomes of each exercise. Each quarterly regulatory compliance affirmation process was completed
satisfactorily during the year.
NPg Northeast submitted its annual Data Assurance Report to Ofgem in February 2021, which included risk assessments
of the regulatory returns to be submitted for the Regulatory Year ahead (April 2021 to March 2022), together with a report
detailing the assurance work actually carried out in the year ended 28 February 2021 and the findings of that work.
Ofgem is undertaking its review process to determine the charges that DNOs are able to levy over the next price control
period (the ED2 period), which will run from April 2023 to March 2028. This process is following the sector-specific
methodology that Ofgem published in December 2020 and March 2021. These decisions indicated the outputs and
uncertainty mechanisms that are likely to apply and also set working assumptions for the allowed cost of capital
parameters, all of which are subject to finalisation. The process is expected to conclude with final determinations in
December 2022, with draft determinations in mid-2022.
In December 2021, NPg Northeast published and submitted to Ofgem its finalised business plan for the ED2 period. The
ED2 Plan involves £661.3 million in annual investment, a 41% increase on the comparable measure over the ED1 period
(April 2015 to March 2023). It is now subject to regulatory evaluation by Ofgem as part of its ongoing price review
process.
PRINCIPAL RISKS AND UNCERTAINTIES
The Northern Powergrid Group operates a structured and disciplined approach to the management of risk as part of its
overall risk management policy and in support of its financial reporting practices. A system is in place to facilitate the
identification of new and emerging opportunities and risks, including those associated with the achievement of the
Northern Powergrid Group’s strategic objectives and Core Principles. This includes regular reviews of the macro
environment as well as risks that arise from within functional business areas. Once identified, key risks and their respective
controls and mitigation plans are continually assessed and formally reviewed on a quarterly basis by the Risk Advisory
Board (“RAB”) in order that they are managed to an acceptable level in accordance with the Northern Powergrid Group’s
risk appetite. The RAB routinely reports its findings to the board to ensure the directors are sufficiently appraised of the
risk exposure associated with the pursuit of the Group’s long-term strategy.
The risk management programme includes regular reviews of the crisis management, disaster recovery and major incident
plans. To determine the level of disaster preparedness and responsiveness against threats to business continuity, risk
management plans and processes are periodically tested. This self-evaluation approach is reinforced by that of the
Berkshire Hathaway Energy group, which benchmarks risk management activities across its business units and shares
significant lessons learned. The business continuity and disaster recovery plans were fully tested as a result of the
Pandemic, and whilst adaptation and flexibility was required, operational performance remained resilient and employees
continued to perform their duties safely.
Page 16
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Principal Risks
Cyber and Information Security
Unauthorised access or compromise of the Information Technology or Operational Technology networks, resulting in loss
of network control and availability. Unauthorised access or loss of large volumes of data or sensitive data.
Mitigations:
•
Robust cyber security risk mitigation programme is in place.
• Accreditation under the ISO 27001 Information Security standard for operational, customer, employee and financial
information.
• Compliant to the Network Information Security Directive and the Basic Cyber Assessment Frameworks.
•
Compliance with the Centre for Internet Security Critical Security Controls.
•
Monitored by the Information Security Executive Committee and the board.
Regulatory and policy positioning
Decisions taken resulting in negative impacts to our business model.
Mitigations:
•
NPg Northeast policy position supporting the expanded role of DSO was published in December 2021.
•
Innovation projects in place to develop and demonstrate future technologies and commercial practices.
• NPg Northeast engages in a robust regulatory and stakeholder engagement programme the latter of which is scrutinised
by the CEG.
• NPg Northeast is actively involved in consultations on the ED2 price controls.
Network resilience
Loss of the operational network due to significant weather events, targeted physical attack or catastrophic asset failure
resulting in sustained or widespread loss of essential supply.
Mitigations:
•
Major incident and crisis management policies, plans and governance arrangements are in place.
•
An industry mutual aid agreement exists.
•
Network investment ensures grid resilience.
•
Grid resilience programme and audits.
• Vulnerable site protocols.
• Climate resilience strategy and framework.
Page 17
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Safety
Fatality or serious harm caused to an employee or a third party.
Mitigations:
•
Overseen by the Health and Safety Committee.
•
Clear policies and procedures exist that comply with legislation to ensure the safety of the employees and customers.
• Safety Health and Improvement Plan.
•
Health and safety training is provided to employees on a continuous basis.
•
Enhanced audit programme and inspection regimes are in place.
•
ISO45001 safety management system in place.
Environment and climate protection
Failure to prevent network assets from having a significant negative impact on the environment.
Mitigations:
•
Incident response process and robust policies and procedures in place
• Programme to reduce fluid loss and the Company’s business carbon footprint and remove assets containing
polychlorinated biphenyl from the network.
•
Investment in technology to minimise environmental incidents and ‘self-heal’ the network.
•
Asset inspection and maintenance programme.
• Environment improvement plan and Environment Action Plan.
• Path to carbon neutrality by 2040.
• Waste management and habitat protection programmes.
• Science-based targets approved by the Science-based Targets Initiative.
•
ISO14001 environmental management system in place.
Resource availability
Access to and availability of skilled resource resulting in an inability to deliver work programmes.
Mitigations:
•
Mix of direct labour and contracted resource is used.
•
Workforce renewal programmes in place to recruit and retain employees.
•
Ongoing training and development builds internal capability.
•
Employee engagement and health and well-being initiatives are in place.
•
Diversity, equality and inclusion plan.
Efficiency and output performance
Failure to maintain cost and output performance competitiveness in the industry.
Mitigations:
•
Robust business planning process.
• Financial controls in place including detailed review of actuals against budget, competitive tendering process, and
capital expenditure approvals process.
•
Monthly executive business performance review.
•
Comprehensive “Efficient Output Delivery” programme.
Page 18
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Financial risks
The exposure to interest rate, tax, liquidity and treasury risks.
Mitigations:
•
Monitored by the Treasury department.
• The Group is financed by long-term borrowings at fixed rates has access to short-term borrowing facilities at floating
rates of interest.
• As at 31 December 2021, 95% of the Group's long-term borrowings were at fixed rates and the average maturity for the
long-term borrowings was 22 years.
•
Financial covenant monitoring is in place.
•
Regulatory adjustments control the effect of taxation changes.
Pandemic
Infection rate leads to high staff absence.
Mitigations:
•
Pandemic mitigation plan in place.
•
Crisis management and business recovery procedures.
•
Geographical distribution of facilities and staff.
•
Briefings and advice provided on safety, health and well-being.
•
Response aligned with UK Government advice and formulated with the oversight of BEIS.
Internal control
A strong internal control environment exists within the Group to support the financial reporting process, the key features
of which include regular reporting, a series of operational and financial policies, investigations undertaken by internal
audit and a stringent process for ensuring the implementation of internal audit recommendations. In addition, the Group
utilises comprehensive business planning procedures, regularly reviews KPIs to assess progress towards its goals, and has
a strong internal audit function to provide independent scrutiny. Financial controls include a centralised treasury operations
and established procedures for the planning, approving and monitoring of major capital expenditure. The RAB monitors
the effectiveness of internal controls and reports on its findings to the board and Berkshire Hathaway Energy. As part of
the statutory reporting process, the Group’s external auditor reviews and tests a number of internal controls and reports
their findings to the board.
Controls which are applicable to financial decisions are governed via a schedule of delegations of authority which are
approved by the board (and applies to the Northern Powergrid Group) for the purpose of enabling the senior management
team to make decisions up to certain financial limits, above which point the decision making reverts to the directors. These
limits reflect the board’s level of risk appetite and are reviewed on an annual basis.
In accordance with Berkshire Hathaway Energy’s requirements to comply with the US Sarbanes-Oxley Act, the Group
undertakes a quarterly risk control assessment confirming that the effectiveness of the system of internal controls have
been reviewed during the year. A self-certification process is in place, in support of this review, whereby certain senior
managers are required to confirm that the system of internal control in their area of the business is operating effectively.
Consequently, the directors believe that a robust system of risk assessment and management is in place.
The Northern Powergrid Group does not have a specific human rights policy. However, in accordance with the Core
Principles, it remains fully committed to operating ethically and responsibly and with fairness and integrity. This is
implemented through the policies and procedures it has in place which are applicable to all stakeholder groups and
encompasses employees’ health, safety and welfare, dealings with customers (particularly those who are vulnerable), the
impact of the Northern Powergrid Group on the environment and the contribution to sustainability.
To ensure that the Northern Powergrid Group maintains the highest level of ethical standards in the conduct of its business,
Berkshire Hathaway Energy's Code of Conduct has been adopted, further details of which can be found on page 9. The
Northern Powergrid Group has robust procedures in place to meet the requirements of the Bribery Act 2010. Every
employee must undertake training in respect of the Northern Powergrid Group’s anti-corruption and anti-bribery policy
each year.
Page 19
Northern Electric plc
Strategic Report for the Year Ended 31 December 2021 (continued)
Section 172(1) statement
The information pursuant to Section 414CZA of the Companies Act 2006 has been reported throughout the Strategic
Report, Principal Risks and Uncertainties, Directors Report and Corporate Governance Statement. Consequently, the detail
which describes how the directors have had regard to the matters set out in Section 172(1) (a) to (f) when performing their
duty under Section 172 can be found on the pages referenced below:
(a) the likely consequences of any decision in the long term; (Page 2 and 3)
(b) the interests of the Group's employees; (Page 7 and 8)
(c) the need to foster the Group's business relationships with suppliers, customers and others; (Pages 4-6 and 18)
(d) the impact of the Group's operations on the community and the environment; (Page 9 and 10)
(e) the desirability of the Group maintaining a reputation for high standards of business conduct; and (Page 11)
(f) the need to act fairly as between members of the Company. The Company has one class of ordinary shares which are all
held by Northern Electric plc, a company owned by the Northern Powergrid Limited. The Company also has one class of
preference shares, further details of which can be found in Note 21.
Non-financial information statement
The non-financial reporting information pursuant to Section 414CA of the Companies Act 2006 has been reported
throughout the Strategic Report and principal risks and uncertainties. Detail in respect of the relevant policies, risks and
associated mitigations and non-financial KPIs can be found on the pages referenced below:
• Business model: page 2;
• Environmental: page 8;
• Employees: pages 7 - 8;
• Social Matters: pages 4 - 5;
• Respect for Human rights: page 16; and
• Anti-Corruption and Anti-bribery matters: pages 8 and 13.
Approved by the Board on 4 May 2022 and signed on its behalf by:
A P Jones
Director
Page 20
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021
The directors present their annual report and the audited consolidated financial statements for the year ended 31 December
2021.
Dividends
During the year, an interim dividend of £26.0 million was paid (2020: £25.4 million). The directors recommend that no
final dividend be paid in respect of the year (2020: £nil).
The Company's dividend policy is that dividends will be paid only after having due regard to available distributable
reserves, available liquid funds and the financial resources and facilities needed to enable the Company and Group to carry
on its business for at least the next year. In addition, the level of dividends is set to maintain sufficient equity so as not to
jeopardise the Company’s and NPg Northeast’s investment grade issuer credit ratings. These strict parameters align with
the conditions set out in NPg Northeast’s distribution licence and are considered carefully by the board so as to ensure that
the payment of any dividend does not cause NPg Northeast to breach any licence obligations in the future.
Directors of the Company
The directors who held office during the year under review and to the date of signing this report were:
T E Fielden (resigned 15 February 2021)
T H France (resigned 14 April 2022)
C D Haack (resigned 14 April 2022)
A P Jones (appointed 14 April 2022)
P A Jones (resigned 14 April 2022)
S J Lockwood (appointed 14 April 2022)
J N Reynolds
During the year, none of the directors had an interest in any contract which was material to the business of the Company or
Group. During the year and up to the date of approval of the Directors' Report, an indemnity contained in the Company's
(and each company within the Northern Powergrid Group’s) Articles of Association was in force for the benefit of the
directors of the Company and as directors of associated companies, which was a qualifying indemnity provision for the
purposes of the Companies Act 2006.
Future developments and future outlook
The financial position of the Group, as at 31 December 2021, is shown in the consolidated statement of financial position
on pages 40 and 41. There have been no significant events since the year end and the directors intend that:
• NPg Northeast will continue to implement its well-justified business plan and will develop its business by efficiently
investing in the network and improving the quality of supply and service provided to customers.
• IUS will develop its business by concentrating on its core skills of engineering contracting thereby delivering a high
standard of service to its existing clients and pursuing opportunities to increase its portfolio of clients.
• NPg Metering will retain its focus on pursuing opportunities in the market for meter asset provision as the smart meter
roll-out programme develops.
There are no plans to change the existing business model of the Company, or any of the companies within the Group.
Research and development
The Group supports a programme of research (see page 15 for further details) that is expected to contribute to higher
standards of performance and a more cost-effective operation of its business. During the year, the Group invested £0.8
million (2020: £1.4 million) (Note 5 to the financial statements) in its research and development activities.
Page 21
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021 (continued)
Political donations
During the year, no contributions were made to political organisations (2020: £nil).
Financial instruments
Financial risk management
Details of financial risks are included in the Principal Risks and Uncertainties on page 19 of the Strategic Report and in
Note 30 to the financial statements.
Financial derivatives
As at 31 December 2021 the Group held one derivative financial instrument (2020: one) to mitigate the interest rate risk on
a floating interest rate loan. More details on derivative financial instruments are available in Note 31 to the financial
statements.
Employment of disabled persons
The Group’s policy is to provide all protected groups, including disabled people, with equality at work in respect of
employment, training, career development and promotion, having regard to their aptitudes and abilities. Should any
member of staff become disabled during their employment, the Group will make reasonable adjustments, wherever
possible.
Engagement with employees
A constitutional framework agreed with trade union representatives exists in respect of employee consultation. The board
and senior management team keep employees and trade union representatives informed of and involved as appropriate in
developments that may impact them now or in the future. This approach has been chosen as the most effective way of
interacting with employees due to the combination of collectively bargained and personal contract holders. In support of
this process, the Director of People and Customer Service (and nominated representatives on an interim basis) routinely
reports to the board and the Health and Safety Committee to ensure that the views of employees are considered and to
facilitate the discussion of and any subsequent decision making in respect of employee related concerns or issues.
Employee engagement continues to show improvement with local action plans augmented by routine communication
channels including regular colleague briefings, meaningful conversations between colleagues and their line manager,
council meetings with trade union representatives, and utilising the Northern Powergrid Group's intranet.
During the year, the President and Chief Executive Officer and members of the board and senior management team of the
Northern Powergrid Group continued to provide colleagues with updates on the Northern Powergrid Group's response to
the Pandemic and financial, organisational, safety and customer service performance through weekly recorded electronic
briefings. In addition, group wide text messages were used to quickly disseminate key information concerning the
Pandemic or the invoking of major incident responses. Where appropriate, the executive directors and the senior
management team engaged with employees during operational and office-based site visits and induction and graduation
events ensuring safety measures were maintained throughout.
In accordance with Section 414C of the Companies Act 2006 further disclosures details concerning the Group’s
relationship with employees (including the principal decisions taken during the year) and information concerning
greenhouse gas emissions can be found in the Strategic Report (Employee Commitment and Environmental Respect).
Business relationships
As referenced throughout the Strategic Report, the NPg Northeast’s business model is to provide and maintain a reliable,
safe and cost-effective Network. To achieve this objective, NPg Northeast delivers its service to fulfil the needs of the
stakeholders with whom it interacts, a concept which underpinned the formulation of the Business Plan and will be
repeated as the ED2 Plan commences. Consequently, fostering business relationships is a prerequisite of the activity
performed by NPg Northeast’s and the Group in the pursuit of its goals.
The Group’s policy in respect of engaging with stakeholders is governed by the Core Principles and the Code of Conduct.
The Core Principle of ‘Regulatory Integrity’ defines the Northern Powergrid Group’s commitment to comply with all laws
wherever it does business and the expectation that all employees (including directors) manage their activities in a manner
that is compliant with all standards, regulations and corporate policies. In addition, the Code of Conduct requires
adherence to the highest level of ethical conduct and fair dealings with all customers, suppliers and competitors.
Page 22
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021 (continued)
Relations with suppliers is managed using a supplier registration system which supports a robust and transparent
procurement process and ensures strict compliance with the prevention of slavery and human trafficking. As a
consequence, the system allows the Group to make informed decisions which align with its values when awarding
contracts. When considering suppliers, the board advocates prompt payment practices which are reviewed regularly by the
internal audit function and the implementation of procedures to reduce the risk of modern slavery in supply chains - as set
out in the Group’s annual Modern Slavery Act statement which is reviewed and approved by the board each year.
Customers, whether they are domestic or commercial, are the primary stakeholder group served by the Group and
therefore the services offered are all tailored to provide a benefit or enhance an experience. Further detail of the Group’s
(and in particular NPg Northeast’s) relationship with customers, the support programmes provided and the decisions made
during the year is discussed in the Strategic Report (Employee Commitment). The independent scrutiny and challenge
provided by the CEG during the year has helped determine those areas most important to customers and what they expect
to be achieved during the ED2 period.
As outlined in the Regulatory Integrity section of the Strategic Report, engagement with Ofgem was prevalent during the
year and included participation in various consultations concerning the ED2 period. Given the implications on NPg
Northeast’s long-term strategy, the relationship with Ofgem, the evolving ED2 framework, the transition to DSO as well as
the effects of the Pandemic were regular items on the board agenda throughout the year.
Vote holder and issuer notificatio
n
There have been no disclosures to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer
Notification Rules).
Directors' biographies
Alex P Jones
Mr Jones joined the Northern Powergrid Group in January 2015 and became Finance Director in March 2022. He is a
Chartered Accountant having completed his training with KPMG, spending seven years in their Restructuring practice.
Prior to becoming Finance Director, Mr Jones was the Director of Performance and Planning, leading on the development
of the Northern Powergrid Group’s long term business plan. He has also spent time leading the Northern Powergrid
Group’s engineering and major projects operations teams.
Stephen J Lockwood
Appointed in April 2022, Mr Lockwood joined the Northern Powergrid Group in 1983 and became Group Financial
Controller in 2016. Prior to this he held a number of finance roles in the Northern Powergrid Group. Mr Lockwood is a
qualified Chartered Management Accountant and Chartered Tax Advisor.
John N Reynolds OBE
Mr. Reynolds was appointed in January 2011 as a director of Northern Powergrid Holdings Company and in October 2017
as Chairman of the audit committee and a director of the Company. Mr Reynolds is the Chief Executive Officer of Castle
Water. He is a Fellow of the Institution of Engineering & Technology, a Fellow of the Energy Institute and is a former
commission member of the Water Industry Commission for Scotland. Mr Reynolds chaired the Church of England Ethical
Investment Advisory Group, and is a former council member of the Central Finance Board of the Methodist Church. He is
the author of a number of books and articles on business ethics. Mr. Reynolds previously held senior management roles at
HSBC and Houlihan Lokey.
Page 23
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021 (continued)
CORPORATE GOVERNANCE STATEMENT
In accordance with Disclosure and Transparency Rule (DTR) 7.2.9, the directors have elected to set out the information
required by DTR 7.2.1 to DTR 7.2.7 R in the group annual report and audited consolidated financial statements of
Northern Powergrid Holdings Company, a copy of which can be found on the Northern Powergrid Group's corporate
website.
Audit committee
The board of Northern Powergrid Holdings Company has established an audit committee for the Northern Powergrid
Group under delegated terms of reference which carries out the functions required by DTR 7.1.3 R.
Composition:
• J N Reynolds, non-executive Director (Chairman)
• T E Fielden, Finance Director (resigned 15 February 2021)
• A P Jones, Finance Director (appointed 20 April 2022)
• M Knowles, independent member - Northern Powergrid Holdings Company
• S J Lockwood, Director of Finance (Interim) (appointed 11 February 2021, resigned 14 April 2022)
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable
law and regulations.
. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors
are required to prepare the group financial statements in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements also comply with
International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board
(“IASB”). Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group and
Company for that period.
In preparing these financial statements, International Accounting Standard 1 requires the directors to:
•
Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the Company's and the Group's
financial position and financial performance; and
• Make an assessment of the Company's and the Group's ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company's and the Group's transactions and disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' responsibility statement pursuant to DTR 4
Each of the directors as at the date of the annual report and financial statements, whose names and functions are set out on
page 16 in the Directors' Report confirms that, to the best of their knowledge:
• the financial statements, prepared in accordance with applicable UK law and in conformity with IFRS, give a true and
fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the
consolidation taken as a whole;
Page 24
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021 (continued)
• the Strategic Report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties it faces; and
• the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders.
Page 25
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021 (continued)
Going Concern
A review of the Group's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Report of the Directors and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Group, and
companies may lend within the Group. For that reason, financial health is considered with reference to the Northern
Powergrid Group.
When considering if to continue to adopt the going concern basis in preparing the annual report and financial statements,
the directors have taken into account a number of factors, including the following:
• The Northern Powergrid Group's main subsidiaries, NPg Northeast and NPg Yorkshire are stable electricity
distribution businesses operating an essential public service and are regulated by the Gas and Electricity Markets
Authority (“GEMA”). In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to have
regard to the need to secure that licence holders are able to finance the activities, which are the subject of obligations
under Part 1 of the Electricity Act 1989 (including the obligations imposed by the electricity distribution licence) or by
the Utilities Act 2000;
• The Northern Powergrid Group is profitable with strong underlying cash flows. The Northern Powergrid Group, NPg
Northeast and NPg Yorkshire hold investment grade credit ratings;
• The Northern Powergrid Group is financed by long-term borrowings with an average maturity of 16 years and has
access to short-term committed borrowing facilities of £242 million provided by Barclays Bank plc, Lloyds Bank plc,
HSBC UK Bank plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings which allow access to a range of
financing options. A successful bond issue by the Northern Powergrid Group in April 2022, demonstrates that the
Northern Powergrid Group’s bonds remain attractive to investors and there is an active market with strong appetite to
invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in
trading performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall
due for at least the 12 months from the date of these accounts. The directors have had discussions with the bank who
have indicated that they would continue to provide the short term facilities to the Northern Powergrid Group for the
foreseeable future on acceptable terms; and
• Consideration was also given to the obligations contained in NPg Northeast's and Northern Powergrid (Yorkshire)
plc’s licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation
that the Group will have sufficient financial and operational resources available for the continuation of business for a
period of at least 12 months. The board determined any material variations to the assumptions used when providing
those certificates were unlikely within the eight-year period or beyond.
Consequently, after making enquiries, the directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. In addition, a letter of support was
received from Northern Powergrid Holdings Company. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and financial statements.
Page 26
Northern Electric plc
Directors' Report for the Year Ended 31 December 2021 (continued)
Disclosure of information to the auditor
Each director has taken steps that they ought to have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the company's auditor is aware of that information. The directors confirm that there
is no relevant information that they know of and of which they know the auditor is unaware.
Reappointment of auditor
A resolution to re-appoint Deloitte LLP as the Company’s auditor and authorise the directors to determine their
remuneration will be proposed at the annual general meeting.
Approved by the Board on 4 May 2022 and signed on its behalf by:
A P Jones
Director
Page 27
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Northern Electric plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true
and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2021 and of the group's
profit for the year then ended;
• the group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted
international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent statement of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated statement of cash flows; and
• the related notes 1 to 35.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable
law, United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial
reporting framework that has been applied in the preparation of the parent company financial statements is applicable law
and United Kingdom adopted international accounting standards and as applied in accordance with the provisions of the
Companies Act 2006.
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 group and the parent 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 group and parent company for the year are disclosed in note 9 to the
financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical
Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Page 28
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
- Accounting for capital spend - overhead allocation model and Storm Arwen costs; and
- Valuation of defined benefit obligations.
Within this report, key audit matters are identified as follows:
- Newly identified
- Increased level of risk
- Similar level of risk
- Decreased level of risk
Materiality
The materiality that we used for the group financial statements was £8.0m which was determined on the basis of income
before tax.
Scoping
Our scope provides full scope audit coverage of 100% of the group’s revenue, 99% of profit before tax as well as 100% of
net assets. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement
team.
Significant changes in our approach
There was no significant change in our approach except for adopting a controls reliance approach for the testing of revenue
for the first time in the current year.
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 group’s and parent company’s ability to continue to adopt the going
concern basis of accounting included:
• assessing financing facilities including nature of facilities, repayment terms and covenants;
• evaluating the linkage to business model and medium-term risks;
• assessing assumptions used in the forecasts, including forecasted information relating to next price control review
RIIO-ED2;
• calculating the amount of headroom in the forecasts, specifically relating to cash and covenants on borrowings;
• performing sensitivity analysis; and
• evaluating sophistication of the model used to prepare the forecasts, testing of clerical accuracy of those forecasts and our
assessment of the historical accuracy of forecasts prepared by management.
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 group's and parent 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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Page 29
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Accounting for capital spend - overhead allocation model and Storm Arwen costs
Key audit matter description
Total additions to property, plant and equipment in the year in, within the main trading subsidiary of the group, Northern
Powergrid (Northeast) plc were £194m (2020: £192m) with the majority of the additions to the Company’s electricity
distribution system, as disclosed in Note 11 to the financial statements. These additions include £38m capitalised
overheads (2020: £39m). A portion of overheads are capitalised to the extent that it is probable that future economic
benefits associated with the asset will flow to the Company and the cost of the item can be measured reliably in
accordance with IAS 16 and the Company’s policies. The allocation of overheads to capital results from analysis of the
costs incurred and their relevant cost drivers, this is reviewed annually.
In addition, material amounts of £7m (2020: £ nil) were initially capitalised in relation to work associated with Storm
Arwen.
The judgements around amounts capitalised associated with Storm Arwen, and the calculation of capitalised overheads
remains an area at risk of potential bias due to the level of subjectivity in the percentage of overheads capitalised, both
create a potential fraud risk. In particular, the key risk that management’s judgement in the percentage amounts capitalised
are not reflective of the capital spend and as such PPE could be material misstated as a consequence. This is as disclosed in
Note 2, including the note relating to critical judgements in applying accounting policies.
How the scope of our audit responded to the key audit matter
• We have obtained an understanding of relevant controls surrounding accounting for capital spend;
• We have analysed the capital spend and the overhead allocation percentages in the year and compared these to prior
years to identify any unusual and relevant fluctuations. We have also analysed current policies in place and assessed their
suitability in line with IAS 16, along with reviewing the approach management takes towards assessing capitalised
overheads and any change introduced in the current year; and
• We have performed testing of the total overheads including within the allocation model which are subsequently
capitalised based on management’s assessment of percentage allocation; and
• We have assessed managements initial paper to account for the spending associated with Storm Arwen and performed
testing over the amounts capitalised.
Page 30
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Key observations
Based on the work performed, and the evidence obtained, we have concluded that management’s overhead capitalisation
judgement is reasonable, with policies applied being appropriate and consistent with the requirements of IAS 16.
On testing Storm Arwen costs capitalised during the course of our work an adjustment of £2m was identified and
corrected. Reflecting the nature of this event there was an expectation that some costs would be expensed. The remaining
balance was immaterial.
We have also recommended that management controls and analysis (including consideration of any abnormal costs) over
the Storm Arwen costs, and subsequent similar expenditure, is enhanced.
Valuation of defined benefit obligations
Key audit matter description
The group operates a defined pension scheme, for which key judgement relate to the determination of the present value of
the defined benefit obligation. Within this, we also consider consistency with International Accounting Standard 19:
Employee benefits (IAS 19). In accordance with management’s actuary, the present value of the funding surplus is
£262.2m (2020: £88.1m), with an underlying obligation of £1,480.4m (2020: £1,612.6m). The present value of the defined
benefit obligation is derived and is subject to judgement in the assumption setting. Due to the continued settlements in the
year for the scheme, there continues to be an additional risk around the valuation modelling of each settlement and the
impact to the actuarial assumptions due to the change in the profile of the membership of the scheme. The accounting
policy and disclosure is found in note 25 to the financial statement.
How the scope of our audit responded to the key audit matter
• We have obtained an understanding of the relevant controls involved in the review of the actuary report at the year-end;
• We have obtained and tested the underlying data and assumptions utilised by management’s actuary in the calculation of
the pension obligations;
• We challenged the settlement model utilised and tested the underlying fata used in the model to derecognise the
obligations; and
• We considered the estimates of management’s actuary and challenged management’s assumptions and judgements by
comparing the assumptions and results to benchmarked figures. We involved our internal specialists in performing this
work.
Key observations
Based on the work performed above, and the evidence obtained, we conclude that each of the relevant assumptions used
by management to estimate the defined benefit obligation are consistent with the requirement of IAS 19. We have also
concluded that these assumptions are within a reasonable range when compared to comparable schemes and our internal
benchmarks.
Page 31
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Our application of materiality
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:
Group financial statements
Materiality
£7.9m (2020: £7.0m)
Basis for determining materiality
5% of income before tax (2020: 5% of income before tax)
Rationale for the benchmark applied
The group contains large trading entities. The industry revenue is highly regulated, therefore, there is a focus on income
before tax.
Parent company financial statements
Materiality
£4.2m (2020: £4.0m)
Basis for determining materiality
Parent company materiality equates to 16.6% of net assets (2020: 16.8%), which is capped at 53.3% of group materiality
(2020: 53.4%).
Rationale for the benchmark applied
Total equity shows how much of the value of shareholdings are in the company and as such investor value. The company
is not trading and as such incurs no revenue.
Page 32
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Performance materiality
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.
Group financial statements
Performance materiality
60% (2020: 70%) of group materiality
Parent company financial statements
Performance materiality
60% (2020: 70%) of parent company materiality
Basis and rationale for determining
In determining performance materiality, we have considered the following:
• our risk assessment, including our assessment of the group’s overall control environment and we considered it
appropriate to rely on controls on the revenue cycle; and
• the volume of uncorrected misstatements in the prior period and control deficiencies identified
In the prior year, performance materiality was set at 70% of materiality, however given the volume of uncorrected
misstatements identified and control deficiencies raised, we have reduced this to 60%.
Error reporting threshold
We agreed with the Board of Directors that we would report all audit differences in excess of £0.4m (2020: £0.1m), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Board of Directors on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its environment, including internal controls,
and assessing the risks of material misstatement at the group level. The operations of the group are mainly focused on the
United Kingdom in the electricity distribution business.
Page 33
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
The focus of our audit work was on the main regulated business, Northern Powergrid (Northeast) plc, with work
performed at a combination of the group’s offices in the North East and Yorkshire regions, and we have audited the
significant sub consolidations in the group. Other sizeable companies within the group include Integrated Utility Services
Limited, which provides contracting and maintenance services to the electricity, rail and water industries, and Northern
Powergrid Metering Limited which leases smart meters to energy providers. Our audit scope provides full scope audit
coverage 100% of the group’s revenue (2020: 100%), 99% of profit before tax (2020: 99%) as well as 100% of net assets
(2020: 100%).
A component materiality was used to perform the audit work for all component entities for FY21 this ranged from £0.3m
to £6.3m (2020: £0.1m to £4.0m). Component materiality is used to reduce to an appropriately low level of probability that
the aggregate of uncorrected and undetected misstatements in the group financial statements exceeds materiality for the
group financial statements as a whole.
At the group level, we have tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there was no risk of material misstatement of the aggregated financial information of the remaining
components bot subject to audit or audit of specific balances.
Audit work to respond to the risks of material misstatement was performed directly by the group audit engagement team.
Our consideration of the control environment
We have performed testing of business process controls across the Group through a combination of tests of inquiry,
inspection, observation and re-performance.
We have involved our IT specialists to assess relevant controls over the Group’s IT landscape which contains a number of
IT systems and tools used to support business processes. These include controls within the Oracle and Durabill systems
integral to relevant business cycles. We identified control deficiencies over this system. In response to these deficiencies,
the Group mitigated these deficiencies and we performed additional procedures. As a result of these mitigating procedures,
we relied on controls over the revenue business cycle in the current year.
Our consideration of climate related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial
statements.
The Group continues to develop its assessment of the potential impacts of environmental, social and governance (“ESG”)
related risks, including climate change, as outlined on page 11.
As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions with the
Group ESG Manager to understand the process of identifying climate-related risks, the determination of mitigating actions
and the impact on the Group’s financial statements
We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account
balances and classes of transactions and have read the annual report to consider whether they are materially consistent with
the financial statements and our knowledge obtained in the audit.
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.
Page 34
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
We have nothing to report in this regard.
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 group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
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.
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.
Page 35
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Board of Directors about their own identification and
assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the group’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, IT, actuarial and industry 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 following areas: Accounting for capital spend - overhead
allocation model and Storm Arwen costs (given that this involves key and complex judgement by management) and
valuation of defined benefit obligations. In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the group 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, 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 group’s ability to operate or to avoid a material penalty.
These included the group’s operating licence regulated by the Gas and Electricity Markets Authority (GEMA).
Audit response to risks identified
As a result of performing the above, we identified accounting for capital spend - overhead allocation model and Storm
Arwen costs,and valuation of defined benefit obligations as key audit matters related to the potential risk of fraud. The key
audit matters section of our report explains the matters in more detail and also describes the specific procedures we
performed in response to those 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 Board of Directors and legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC and Ofgem; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of
business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team
members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Page 36
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Report on other legal and regulatory requirements
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 group and the parent company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
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 by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made.
We have nothing to report in respect of this matter.
Other matters which we are required to address
Auditor tenure
Following the recommendation of the Board of Directors, we were appointed by the Board of Northern Powergrid
Holdings Company in 1998 to audit the financial statements for the year ending 31 December 1998 and subsequent
financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the
firm is 24 years, covering the years ending 31 December 1998 to 31 December 2021.
Consistency of the audit report with the additional report to the Board of Directors
Our audit opinion is consistent with the additional report to the Board of Directors we are required to provide in
accordance with ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Anthony Matthews FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP, Statutory Auditor
London
United Kingdom
4 May 2022
Page 37
Northern Electric plc
Consolidated Income Statement for the Year Ended 31 December 2021
Note
2021
£ 000
2020
£ 000
Revenue
3 493,744 454,302
Cost of sales (36,700 ) (31,660 )
Gross profit
Distribution costs
(134,169 ) (128,457 )
Administrative expenses
(138,685 ) (108,614 )
Operating profit
5 184,190 185,571
Other gains
4 1,675 72
Finance income
6 1,337 1,150
Finance costs
6
(41,657 ) (47,407 )
Profit before tax
Income tax expense
10
(67,816 ) (40,303 )
Profit for the year
Profit attributable to:
Owners of the Company
The above results were derived from continuing operations.
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 38
Northern Electric plc
Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2021
Note
2021
£ 000
2020
£ 000
Profit for the year
Items that will not be reclassified subsequently to profit or loss
Remeasurements of post employment benefit obligations (net)
26 130,374 (28,319 )
Items that may be reclassified subsequently to profit or loss
Loss on cash flow hedges (net)
10
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 39
Northern Electric plc
(Registration number: 02366942)
Consolidated Statement of Financial Position as at 31 December 2021
Note
31 December
2021
£ 000
31 December
2020
£ 000
Assets
Non-current assets
Property, plant and equipment
11 2,993,240 2,889,678
Right of use assets
12 14,411 14,031
Intangible assets
13 48,888 51,219
Equity accounted investments
14 3,898 3,648
Retirement benefit obligations
26 262,200 88,100
Trade and other receivables
16 2,702 4,598
Other non-current financial assets
31
Current assets
Inventories
15 20,382 18,699
Trade and other receivables
16 89,290 82,492
Tax receivable
Cash and cash equivalents
17 42,140 21,874
Restricted cash
18 - 16,758
Contract assets
Other current financial assets
31
Total assets
Equity and liabilities
Equity
Share capital
19 (72,173 ) (72,173 )
Share premium
(158,748 ) (158,748 )
Capital redemption reserve
(6,185 ) (6,185 )
Cash flow hedging reserve
20 (861 ) 3,089
Retained earnings (1,228,290 ) (1,046,186 )
Equity attributable to owners of the Company
(1,466,257 ) (1,280,203 )
Non-current liabilities
Lease liabilities
22 (11,359 ) (11,295 )
Loans and borrowings
21 (985,988 ) (946,185 )
Provisions
23 (2,341 ) (2,737 )
Deferred revenue
25 (649,013 ) (641,727 )
Deferred tax liabilities
10 (182,852 ) (106,852 )
Other non-current financial liabilities
31
(1,831,553 ) (1,711,970 )
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 40
Northern Electric plc
(Registration number: 02366942)
Consolidated Statement of Financial Position as at 31 December 2021 (continued)
Note
31 December
2021
£ 000
31 December
2020
£ 000
Current liabilities
Lease liabilities
22 (3,431 ) (3,036 )
Trade and other payables
24 (103,412 ) (94,015 )
Loans and borrowings
21 (51,379 ) (77,060 )
Income tax liability
10 - (1,260 )
Deferred revenue
25 (28,645 ) (27,629 )
Provisions
23 (3,509 ) (1,498 )
Other current financial liabilities
31
(190,376 ) (205,138 )
Total liabilities (2,021,929 ) (1,917,108 )
Total equity and liabilities
(3,488,186 ) (3,197,311 )
Approved by the Board on 4 May 2022 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 41
Northern Electric plc
(Registration number: 02366942)
Company Statement of Financial Position as at 31 December 2021
Note
31 December
2021
£ 000
31 December
2020
£ 000
Assets
Non-current assets
Property, plant and equipment
11 1,555 1,562
Right of use assets
12 1,153 1,290
Investments in subsidiaries, joint ventures and associates
14 242,902 242,902
Deferred tax asset
10
553 469
246,163 246,223
Current assets
Trade and other receivables
16 3,866 1,291
Income tax asset
10 158 -
Cash and cash equivalents
17
29,036 38,148
33,060 39,439
Total assets
279,223 285,662
Equity and liabilities
Equity
Share capital
19 (72,173) (72,173)
Share premium
(158,748) (158,748)
Capital redemption reserve
(6,185) (6,185)
Retained earnings (19,319) (25,836)
Total equity (256,425) (262,942)
Non-current liabilities
Long-term lease liabilities
22 (1,062) (1,205)
Loans and borrowings
21 (1,117) (1,117)
Provisions
23
(1,850) (2,217)
(4,029) (4,539)
Current liabilities
Current portion of long-term lease liabilities
22 (144) (141)
Trade and other payables
24 (4,515) (4,029)
Loans and borrowings
21 (13,861) (9,741)
Income tax liability
10 - (4,168)
Provisions
23
(249) (102)
(18,769) (18,181)
Total liabilities (22,798) (22,720)
Total equity and liabilities
(279,223) (285,662)
Approved by the Board on 4 May 2022 and signed on its behalf by:
A P Jones
Director
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 42
Northern Electric plc
(Registration number: 02366942)
Company Statement of Financial Position as at 31 December 2021 (continued)
The Directors have taken the exemption offered under section 408 of the Act from publishing a separate statement of profit
or loss. The Company reported a profit for the financial year ended 31 December 2021 of £19.5 million (2020: £18.0
million).
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 43
Northern Electric plc
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2021
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2021
Profit for the year
- - - - 77,729 77,729
Other comprehensive expense - - - 3,950 130,374 134,324
Total comprehensive income
- - - 3,950 208,103 212,053
Dividends - - - - (26,000 ) (26,000 )
At 31 December 2021
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2020
Profit for the year
- - - - 99,083 99,083
Other comprehensive expense - - - (1,998 ) (28,319 ) (30,317 )
Total comprehensive income
- - - (1,998 ) 70,764 68,766
Dividends - - - - (25,400 ) (25,400 )
At 31 December 2020
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 44
Northern Electric plc
Company Statement of Changes in Equity for the Year Ended 31 December 2021
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2021
72,173 158,748 6,185 25,836 262,942
Profit for the year - - - 19,483 19,483
Total comprehensive income
- - - 19,483 19,483
Dividends - - - (26,000) (26,000)
At 31 December 2021
72,173 158,748 6,185 19,319 256,425
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2020
72,173 158,748 6,185 33,246 270,352
Profit for the year - - - 17,990 17,990
Total comprehensive income
- - - 17,990 17,990
Dividends - - - (25,400) (25,400)
At 31 December 2020
72,173 158,748 6,185 25,836 262,942
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 45
Northern Electric plc
Consolidated Statement of Cash Flows for the Year Ended 31 December 2021
Note
2021
£ 000
2020
£ 000
Cash flows from/(used in) operating activities
Profit for the year
Depreciation and amortisation
5 152,815 142,843
Depreciation on right of use assets
Amortisation of deferred revenue
(27,945 ) (26,284 )
Profit on disposal of property plant and equipment
4 (1,675 ) (72 )
Retirement benefit obligation
(9,000 ) (32,000 )
Finance income
6 (1,337 ) (1,150 )
Finance costs
6 41,657 47,407
Income tax expense
10
(Increase)/decrease in inventories
15 (1,683 ) 1,493
(Increase)/decrease in trade and other receivables
16 (4,902 ) 5,313
Increase in trade and other payables
24 9,491 3,737
(Increase)/decrease in contract assets
(1,379 ) 1,918
Increase in provisions
23
Cash generated from operations
Income taxes paid (31,108 ) (26,266 )
Net cash flow from operating activities 275,647 260,481
Cash flows from/(used in) in investing activities
Acquisitions of property plant and equipment
(245,135 ) (220,905 )
Proceeds from sale of property plant and equipment
Acquisition of intangible assets
13 (9,544 ) (9,145 )
Receipt of customer contributions
Interest received
Dividend income
6
Net cash flows used in investing activities (214,465 ) (206,357 )
Cash flows from/(used in) in financing activities
Proceeds from long-term borrowing draw downs
Transaction costs relating to loans and borrowings
(4,235 ) -
Repayment of long-term borrowing
(166,035 ) (166,875 )
Payments to finance lease creditors
(3,474 ) (2,784 )
Movement in intercompany treasury account
(34,901 ) (133,661 )
Movement in restricted cash
Interest expense on leases
(417 ) (374 )
Interest paid
(40,612 ) (47,016 )
Dividends paid
27
(26,000 ) (25,400 )
Net cash flows used in financing activities
(40,916 ) (54,917 )
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January 21,874 22,667
Cash and cash equivalents at 31 December
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 46
Northern Electric plc
Company Statement of Cash Flows for the Year Ended 31 December 2021
Note
2021
£ 000
2020
£ 000
Cash flows from/(used in) operating activities
Profit for the year
19,483 17,990
Adjustments to cash flows from non-cash items
Depreciation and amortisation
5 7 7
Depreciation on right of use assets
137 76
Finance income
(26,853) (26,246)
Finance costs
8,985 9,722
Income tax expense 239 (152)
1,998 1,397
Working capital adjustments
Increase in trade and other receivables
16 (2,575) (746)
Increase in trade and other payables
24 1,176 91
(Decrease)/increase in provisions
23
(220) 831
Cash generated from operations
379 1,573
Income taxes (paid)/received (4,649) 7,452
Net cash flow (used in)/from operating activities (4,270) 9,025
Cash flows from/(used in) investing activities
Interest received
853 846
Dividend income
26,000 25,400
Net cash flows from investing activities 26,853 26,246
Cash flows from/(used in) financing activities
Movement in intercompany treasury account
4,120 1,143
Interest expense on leases
(31) (18)
Interest paid
(650) (9)
Payments to finance lease creditors
(140) (20)
Interest on preference shares
(9,001) (9,001)
Dividends paid
27 (26,000) (25,400)
Foreign exchange gains/(losses) 7 (5)
Net cash flows used in financing activities (31,695) (33,310)
Net (decrease)/increase in cash and cash equivalents
(9,112) 1,961
Cash and cash equivalents at 1 January 38,148 36,187
Cash and cash equivalents at 31 December
29,036 38,148
The notes on pages 48 to 120 form an integral part of these financial statements.
Page 47
Notes to the Financial Statements for the Year Ended 31 December 2021
1 General information
The company is a public company limited by share capital, incorporated in England and Wales and domiciled in the
The address of its registered office is:
2 Accounting policies
Statement of compliance
The Group financial statements have been prepared in accordance with International Financial Reporting Standards and its
interpretations adopted by the IASB ("adopted IFRS's").
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with adopted IFRSs and under the historical cost convention as
modified by financial instruments recognised at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Group's accounting policies.
The nature of the Company's business model, strategic objectives, operations and activities are set out in the Strategic
Report.
Page 48
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Going Concern
A review of the Group's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Directors' Report and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Group, and
companies may lend within the Group. For that reason, financial health is considered with reference to the Northern
Powergrid Group.
When considering if to continue to adopt the going concern basis in preparing the annual report and financial statements,
the directors have taken into account a number of factors, including the following:
• The Northern Powergrid Group's main subsidiaries, NPg Northeast and NPg Yorkshire, are stable electricity
distribution businesses operating an essential public service and are regulated by the Gas and Electricity Markets
Authority (“GEMA”). In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to have
regard to the need to secure that licence holders are able to finance the activities, which are the subject of obligations
under Part 1 of the Electricity Act 1989 (including the obligations imposed by the electricity distribution licence) or by
the Utilities Act 2000;
• The Northern Powergrid Group is profitable with strong underlying cash flows. The Northern Powergrid Group, NPg
Northeast and NPg Yorkshire hold investment grade credit ratings;
• The Northern Powergrid Group is financed by long-term borrowings with an average maturity of 16 years and has
access to short-term committed borrowing facilities of £242 million provided by Barclays Banks plc, Lloyds Bank plc,
HSBC UK Banks plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings which allow access to a range of
financing options. A successful bond issue by the Northern Powergrid Group in April 2022, demonstrates that the
Northern Powergrid Group’s bonds remain attractive to investors and there is an active market with strong appetite to
invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in
trading performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall
due for at least the 12 months from the date of these accounts. The directors have had discussions with the bank who
have indicated that they would continue to provide the short-term facilities to the Northern Powergrid Group for the
foreseeable future on acceptable terms; and
• Consideration was also given to the obligations contained in NPg Northeast's and NPG Yorkshire’s licences to provide
Ofgem with annual certificates, confirming that the directors have a reasonable expectation that the Group will have
sufficient financial and operational resources available for the continuation of business for a period of at least 12
months. The board determined any material variations to the assumptions used when providing those certificates were
unlikely within the eight-year period or beyond.
Consequently, after making enquiries, the directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. In addition, a letter of support was
received from Northern Powergrid Holdings Company. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and financial statements.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that the directors have made in the
process of applying the Group's accounting policies and that have the most significant effect on amounts recognised in the
consolidated financial statements:
• The split of operating and capital expenditure and the allocation of overheads to property, plant and equipment: The
allocation of overheads to capital is derived from a detailed analysis of the costs and their cost drivers which is
reviewed on annual basis. The percentage allocation of overheads across the workstream categories are obtained from
section managers who are asked to provide reasoning and supporting evidence for the allocation. Finance then
undertake a financial impact assessment review and the rationale to ensure it complies with IFRS. The amount of
overheads capitalised in the year was £38.3 million (2020: £38.6 million), this was a decrease from 53.9% to 53.2%.
Page 49
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Key sources of estimation uncertainty
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of
the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year:
• Assumptions used when evaluation long-term pension plans - these assumptions and their possible impacts are
disclosed in Note 26.
Changes in accounting policy
New standards and amendments
Effective for periods beginning on or after 1 January 2021
- Amendment to IFRS 16 - Covid-19 related rent concessions; and
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 - Interest rate benchmark reform.
These amendments did not have a material impact on the financial statements.
The other amendments have had no material impact on the financial statements including the comparatives.
The Directors have considered new accounting standards issued that are not yet applicable and have noted no material
changes are likely to arise.
Leases
The Group applies IFRS 16 to all leases (except as noted below) which include buildings, Land and fleet vehicles. The
right-of-use assets are initially measured at the amount of the lease liability plus any initial direct costs incurred by the
lessee. Subsequently, the assets are measured under the fair value method. The corresponding lease liability is initially
measured at present value of all lease payments over the lease term and can be restated if the terms or other criteria of the
contract change. These values can be found in the Statement of Financial Position.
The Group has taken practical expedients as per below:
- For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes personal
computers, small items of office furniture and telephones), the Company has opted to recognise a lease expense on a
straight-line basis as permitted by IFRS 16. This expense is presented within ‘administrative expenses’ in the Statement of
Profit or Loss.
- Applies single discount rate to a portfolio of leases;
- Uses hindsight to determine the lease term when contract contains options to extend or terminate the lease; and
- Adjusts right of use asset by provision for onerous leases as an alternative to performing an impairment review.
The weighted average lessee’s incremental borrowing rate applied to determine the present value of the lease liabilities
during the current period was 1.753% (2020: 2.43%).
The Group recognises deprecation of right-of-use assets (within administration expenses) and interest on lease liabilities
(within finance costs) in the Statement of Profit and Loss. Within the Statement of cash flow, the Company separates the
total amount of cash paid between the principal portion and the interest, both of which are presented within financing
activities.
Right-of-use assets are depreciated over the shorter of the useful life of the asset or the lease term. For information
regarding the depreciation charge per class of asset and carrying value, please refer to Note 12 Right of use assets.
Page 50
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Revenue recognition
Recognition
The Group earns revenue from the provision of services relating to revenue from a contract to provide services is
recognised by the following means:
- Distribution use of system income is recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and fixed (per
'customer' per day) basis;
- Customer contributions for connections are amortised over the life of the corresponding asset;
- Contracting revenue is recognised in line with expenditure;
- Meter asset provision income is accounted for under lease accounting;
- Intercompany recharges for services provided are based on costs incurred; and
- Other revenue includes assessment and design fees and disconnections from the network and are recognised by reference
to the proportion of total costs of providing the service.
This revenue is recognised in the accounting period when the services are rendered at an amount that reflects the
consideration to which the entity expects to be entitled in exchange for fulfilling its performance obligations to customers.
The principles in IFRS are applied to revenue recognition criteria using the following 5 step model:
1. Identify the contracts with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when or as the entity satisfies its performance obligations
Fee arrangements
Below are details of fee arrangements and how these are measured and recognised, for revenue from the provision of
services:
• For regulated use of system income the revenue for the service is recognised on the basis of agreed charging
methodologies which is recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and fixed (per 'customer' per
day) basis.
• For fixed price for contracted service revenue is recognised based on the stage of completion and performance
obligations met for actual services provided as a proportion of the total fixed fee agreed in the contract.
• For stage payment on long-term contracts revenue is recognised by reference to stage of manufacture at the year end date
using contractual rates specified in the contract. Revenue on materials is measured at the actual amount of the material
used on the contract at the price specified in the contract.
The performance obligations involved in engineering contracting work are accounted for as follows:
• Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage
of completion of the contract activity at the end of the reporting period, based on the proportion of contract costs
incurred for work performed to date relative to the estimated total contract costs, except where this would not be
representative of the stage of completion.
• Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with
the customer.
• Where the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of the costs
incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period in which
they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is
recognised as an expense immediately.
Page 51
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
• When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus
is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs
incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for
contract work. Amounts received before the related work is performed are included in the consolidated statement of
financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the
customer are included in the consolidated statement of financial position under trade and other receivables.
Other performance obligations include but are not limited to:
- Provision of vehicles over a specified period accounted for under lease accounting; and
- Passage of milestones and completion of installation of equipment for engineering contracting.
Contract modifications
The Group’s contracts are often amended for changes in contract specifications and requirements. Contract modification
exists when the amendment either creates new or changes the existing enforceable rights and obligations. The effect of a
contract modification on the transaction price and the Group’s measure of progress for the performance obligation to
which it relates, is recognised as an adjustment to revenue in one of the following ways:
a. Prospectively as an additional separate contract:
b. Prospectively as a termination of the existing contract and creation of a new contract;
c. As part of the original contract using a cumulative catch up; or
d. As a combination of b) and c).
The facts and circumstances of any contract modification are considered individually as the types of modifications will
vary contract by contract and may result in different accounting outcomes. Judgement is applied in relation to the
accounting for such modifications where the final terms or legal contracts have not been agreed prior to the period end as
management need to determine if a modification has been approved and if it either creates new or changes existing
enforceable rights and obligations of the parties. Depending upon the outcome of such negotiations, the timing and amount
of revenue recognised may be different in the relevant accounting periods. Modification and amendments to contracts are
undertaken via an agreed formal process. For example, if a change in scope has been approved but the corresponding
change in price is still being negotiated, management use their judgement to estimate the change to the total transaction
price.
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control over those policies. A joint
venture is a joint arrangement whereby the parties that have joint control of the arrangement have the rights to the net
assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial
statements using the equity method of accounting except when classified as held for sale. Investments in associates or joint
venture entities are initially recognised at cost and adjusted thereafter to recognise the Group's share of profit or loss and
other comprehensive income of the associate or joint venture. When the Group's share of losses of an associate or a joint
venture exceeds the Group's interest in that associate or joint venture, the Group discontinues recognising its share of
future losses.
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the
investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any
excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of
the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the
Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after
reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control.
Fixed asset investments are stated at cost less provision or amounts written off for impairment in value.
Page 52
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Investments in subsidiaries
Investments in subsidiaries are account for at cost less impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Trade receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of
business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using
the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is
established when there is objective evidence that the Group will not be able to collect all amounts due according to the
original terms of the receivables.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the average cost method.
The cost of finished goods and work in progress comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their present location and condition. At each
reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its
selling price less costs to complete and sell; the impairment loss is recognised immediately in profit or loss.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the
effective interest method.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are
subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount
due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting
date and are discounted to present value where the effect is material.
Page 53
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Impairment of non-financial assets
At the balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an
indication that the asset may be impaired.
Where the recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources
received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of
money is material, the initial measurement is on a present value basis.
Dividends
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in
the period in which the dividends are approved by the Company’s shareholders.
Tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a change
attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other
comprehensive income.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively
enacted by the reporting date in the countries where the Group operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements and on unused tax losses or tax credits in the Group. Deferred
income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up against
deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered
based on current or future taxable profit.
Amortisation
Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their
expected useful economic life as follows:
Asset class Amortisation method and rate
Software development up to 10 years
Amortisation of intangible assets is performed on a straight-line basis over the asset's expected economic useful life.
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings drawn
up to 31 December 2021.
Page 54
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.
The purchase method of accounting is used to account for business combinations that result in the acquisition of
subsidiaries by the Group. The cost of a business combination is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. Any excess of the cost of the business
combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities
recognised is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between the Company and its subsidiaries,
which are related parties, are eliminated in full.
Intra-group losses are also eliminated but may indicate an impairment that requires recognition in the consolidated
financial statements.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by
the Group. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the
Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original
business combination and the non-controlling shareholder’s share of changes in equity since the date of the combination.
Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests
having a deficit balance.
Financial instruments
Initial recognition
Financial assets and financial liabilities comprise all assets and liabilities reflected in the statement of financial position,
although excluding property, plant and equipment, investment properties, intangible assets, deferred tax assets,
prepayments, deferred tax liabilities and employee benefits plan.
The Group recognises financial assets and financial liabilities in the statement of financial position when, and only when,
the Group becomes party to the contractual provisions of the financial instrument.
Financial assets are initially recognised at fair value. Financial liabilities are initially recognised at fair value, representing
the proceeds received net of premiums, discounts and transaction costs that are directly attributable to the financial
liability.
All regular way purchases and sales of financial assets and financial liabilities classified as fair value through profit or loss
(“FVTPL”) are recognised on the trade date, i.e. the date on which the Group commits to purchase or sell the financial
assets or financial liabilities. All regular way purchases and sales of other financial assets and financial liabilities are
recognised on the settlement date, i.e. the date on which the asset or liability is received from or delivered to the
counterparty. Regular way purchases or sales are purchases or sales of financial assets that require delivery within the
timeframe generally established by regulation or convention in the marketplace.
Subsequent to initial measurement, financial assets and financial liabilities are measured at either amortised cost or fair
value.
Page 55
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Classification and measurement
Financial instruments are classified at inception into one of the following categories, which then determine the subsequent
measurement methodology:
Financial assets are classified into one of the following three categories:
· financial assets at amortised cost;
· financial assets at fair value through other comprehensive income (FVTOCI); or
· financial assets at fair value through the profit or loss (FVTPL).
Financial liabilities are classified into one of the following two categories:
· financial liabilities at amortised cost; or
· financial liabilities at fair value through the profit or loss (FVTPL).
The classification and the basis for measurement are subject to the Group’s business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets, as detailed below:
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at
FVTPL:
· the assets are held within a business model whose objective is to hold assets in order to collect contractual cash flows;
and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
If either of the above two criteria is not met, the financial assets are classified and measured at fair value through the profit
or loss (FVTPL).
If a financial asset meets the amortised cost criteria, the Group may choose to designate the financial asset at FVTPL. Such
an election is irrevocable and applicable only if the FVTPL classification significantly reduces a measurement or
recognition inconsistency.
Financial assets at fair value through other comprehensive income
A financial asset is measured at FVTOCI only if it meets both of the following conditions and is not designated as at
FVTPL:
· the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets; and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investments that is not held for trading, the Group may irrevocably elect to present
subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.
If an equity investment is designated as FVTOCI, all gains and losses, except for dividend income, are recognised in other
comprehensive income and are not subsequently included in the statement of income.
Financial assets at fair value through the profit or loss
Financial assets not otherwise classified above are classified and measured as FVTPL.
Financial liabilities at amortised cost
All financial liabilities, other than those classified as financial liabilities at FVTPL, are measured at amortised cost using
the effective interest rate method.
Financial liabilities at fair value through the profit or loss
Financial liabilities not measured at amortised cost are classified and measured at FVTPL. This classification includes
derivative liabilities.
Page 56
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Derecognition
Financial assets
The Group derecognises a financial asset when:
- the contractual rights to the cash flows from the financial asset expire;
- it transfers the right to receive the contractual cash flows in a transaction in which substantially all of the risks and
rewards of ownership of the financial asset are transferred; or
- the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain
control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of the
consideration received is recognised as a gain or loss in the profit or loss.
Any cumulative gain or loss recognised in OCI in respect of equity investment securities designated as FVTOCI is not
recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for
derecognition that is created or retained by the Group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains
either all or substantially all of risks and rewards of the transferred assets or a portion of them. In such cases, the
transferred assets are not derecognised.
When the Group derecognises transferred financial assets in their entirety, but has continuing involvement in them then the
entity should disclose for each type of continuing involvement at the reporting date:
(a) The carrying amount of the assets and liabilities that are recognised in the entity’s statement of financial position and
represent the entity’s continuing involvement in the derecognised financial assets, and the line items in which those assets
and liabilities are recognised;
(b) The fair value of the assets and liabilities that represent the entity’s continuing involvement in the derecognised
financial assets;
(c) The amount that best represents the entity’s maximum exposure to loss from its continuing involvement in the
derecognised financial assets, and how the maximum exposure to loss is determined; and
(d) The undiscounted cash outflows that would or may be required to repurchase the derecognised financial assets or other
amounts payable to the transferee for the transferred assets.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.
Modification of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual rights to the cash flows from the
original financial asset are deemed to expire. In this case the original financial asset is derecognised and a new financial
asset is recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial asset.
In this case, the Group recalculates the gross carrying amount of the financial asset and recognises the amount arising from
adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Page 57
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Financial liabilities
If the terms of a financial liabilities are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual obligations from the cash flows
from the original financial liabilities are deemed to expire. In this case the original financial liabilities are derecognised
and new financial liabilities are recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial
liabilities. In this case, the Group recalculates the gross carrying amount of the financial liabilities and recognises the
amount arising from adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Impairment of financial assets
Measurement of Expected Credit Losses
The Group recognises loss allowances for expected credit losses (ECL) on financial instruments that are not measured at
FVTPL, namely:
- Financial assets that are debt instruments;
- Accounts and other receivables;
- Financial guarantee contracts issued; and
- Loan commitments issued.
The Group classifies its financial instruments into stage 1, stage 2 and stage 3, based on the applied impairment
methodology, as described below:
Stage 1: for financial instruments where there has not been a significant increase in credit risk since initial recognition and
that are not credit-impaired on origination, the Group recognises an allowance based on the 12-month ECL.
Stage 2: for financial instruments where there has been a significant increase in credit risk since initial recognition but they
are not credit-impaired, the Group recognises an allowance for the lifetime ECL.
Stage 3: for credit-impaired financial instruments, the Group recognises the lifetime ECL.
The Group measures loss allowances at an amount equal to the lifetime ECL, except for the following, for which they are
measured as a 12-month ECL:
- debt securities that are determined to have a low credit risk (equivalent to investment grade rating) at the reporting date;
and
- other financial instruments on which the credit risk has not increased significantly since their initial recognition.
The Group considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally
understood definition of ‘investment grade’.
A 12-month ECL is the portion of the ECL that results from default events on a financial instrument that are probable
within 12 months from the reporting date.
Provisions for credit-impairment are recognised in the statement of income and are reflected in accumulated provision
balances against each relevant financial instruments balance.
Evidence that the financial asset is credit-impaired include the following;
- Significant financial difficulties of the borrower or issuer;
- A breach of contract such as default or past due event;
- The restructuring of the loan or advance by the Group on terms that the Group would not consider otherwise;
- It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
- The disappearance of an active market for the security because of financial difficulties;
- There is other observable data relating to a Group of assets such as adverse changes in the payment status of borrowers or
issuers in the Group, or economic conditions that correlate with defaults in the Group.
Page 58
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
For trade receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised
from initial recognition of the receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk
characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the
same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that
the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2021
and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect
current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the
receivables. The Group has identified the GDP and the unemployment rate of the countries in which it sells its goods and
services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these
factors.
Derivative financial instruments
Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial
instruments or indices, and include futures, forwards, swaps and options in the interest rate, foreign exchange, equity and
credit markets.
Derivative financial instruments are recognised in the statement of financial position at fair value. Fair values are derived
from prevailing market prices, discounted cash flow models or option pricing models as appropriate.
In statement of financial position, derivative financial instruments with positive fair values (unrealised gains) are included
as assets and derivative financial instruments with negative fair values (unrealised losses) are included as liabilities.
The changes in the fair values of derivative financial instruments entered into for trading purposes are included in trading
income.
Hedge accounting
Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading
assets and liabilities.
The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments
as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Group formally
documents the relationship between the hedging instruments and hedge items, including the risk management objective
and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging
relationship. The Group makes an assessment, both at inception of the hedge relationship and on an ongoing basis, of
whether the hedging instruments are expected to be highly effective in offsetting that changes in the fair value or cash
flows of the respective hedged items during the period for which the hedge is designated.
These hedging relationships are discussed below.
Page 59
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Cash flow hedges
The Group makes an assessment for a cash flow hedge of a forecast transaction, of whether the forecast transaction is
highly probable to occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognised asset or liability that could affect profit or loss, then the effective portion of
changes in the fair value of the derivative is recognised in OCI and presented in the hedging reserve within equity. Any
ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The amount
recognised in OCI is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash
flows affect profit or loss, and in the same line item in the statement of profit or loss and OCI.
If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for cash flow
hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. However, if
the derivative is novated to a central clearing counterparty by both parties as a consequence of laws or regulations without
changes in its terms except for those that are necessary for the novation, then the derivative is not considered expired or
terminated.
Accounting estimates and assumptions
The preparation of the financial statements requires management to make estimates and assumptions that affect the
reported amounts of certain financial assets, liabilities, income and expenses.
The use of estimates and assumptions is principally limited to the determination of provisions for impairment and the
valuation of financial instruments as explained in more detail below.
Provisions for impairment
In determining impairment of financial assets, judgement is required in the estimation of the amount and timing of future
cash flows as well as an assessment of whether the credit risk on the financial asset has increased significantly since initial
recognition and incorporation of forward-looking information in the measurement of ECL.
Fair value of financial assets and liabilities
Where the fair value of financial assets and liabilities cannot be derived from active markets, they are determined using a
variety of valuation techniques that include the use of mathematical models. The input to these models is derived from
observable markets where available, but where this is not feasible, a degree of judgement is required in determining
assumptions used in the models. Changes in assumptions used in the models could affect the reported fair value of
financial assets and liabilities.
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and
installation.
Page 60
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
2 Accounting policies (continued)
Depreciation
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their
estimated useful lives, as follows:
Asset class Depreciation method and rate
Distribution system:
- Generation assets 15 years
- Conventional metering equipment up to 5 years
- Information technology equipment up to 10 years
- Land not depreciated
- Other system assets 45 years
Land and buildings:
- Freehold buildings up to 60 years
- Leasehold buildings lower of lease period or 60 years
- Non-operational land not depreciated
Furniture, fittings and equipment up to 10 years
Metering equipment up to 15 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with
the effect of any material changes in those estimates accounted for on a prospective basis. Due to the significance of the
Group's investment in property, plant and equipment, variations in estimates could impact operating results both positively
and negatively although, historically, few changes have been required.
Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional
fees, and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Such assets
are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.
Depreciation on these assets, on the same basis as other assets, commences when the assets are commissioned. Assets are
derecognised when they are disposed of profit or loss on disposal is recognised in other gains on the statement of profit or
loss.
Intangible assets
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in
the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of
acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses. Goodwill is held in the currency of the acquired entity and revalued to the closing rate at each reporting
period date.
Goodwill is not subject to amortisation but is tested for impairment.
Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a
jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss
recognised in the income statement on disposal.
Finance income and costs policy
Finance income from a financial asset is recognised when it is probable that the economic benefits will flow to the
Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use.
All other borrowing costs are recognised in profit or loss in the period which they are incurred.
Page 61
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
3 Revenue
The analysis of the Group's revenue for the year from continuing operations is as follows:
2021
£ 000
2020
£ 000
Distribution revenue
356,842 328,775
Amortisation of deferred revenue
27,945 26,284
Contracting revenue
20,198 15,832
Meter asset rental
81,106 76,741
Other revenue 7,653 6,670
493,744 454,302
The tables below represent the internal information provided to the President and Chief Executive Officer of the Group for
the purposes of resource allocation and segmental performance appraisal. The Northern Powergrid Group operates in four
principal areas of activity, those of the distribution of electricity, engineering contracting, gas exploration and smart meter
rental in the United Kingdom.
Reportable segments are those that meet two or more of the following criteria under IFRS 8:
- Its reported revenue is 10% or more of the combined revenue of all segments;
- The absolute measure of its profit or loss is 10% or more of the combined reported profit; and
- Its assets are 10% or more of the combined assets of all segments.
The Group is separated into the following segments:
Distribution: Northern Powergrid (Northeast) plc
Contracting: Integrated Utility Services Limited
Metering: Northern Powergrid Metering Services Limited
Other: Includes support activities
Page 62
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
3 Revenue (continued)
2021
Distribution
£ 000
Contracting
£ 000
Metering
£ 000
Other
£ 000
Total
£ 000
Revenue
384,787 20,198 81,106 7,653 493,744
Inter-segment sales 420 12,147 - (12,567) -
Total revenue
385,207 32,345 81,106 (4,914) 493,744
Operating profit
146,230 227 25,793 11,940 184,190
Other gains
1,675
Finance costs
(41,657)
Finance income 1,337
Profit before tax
145,545
Capital additions
198,149 226 56,998 1,364 256,737
Depreciation and amortisation
107,824 123 51,149 (2,727) 156,368
Amortisation of deferred revenue
27,945 - - - 27,945
Segment assets
2,918,459 12,438 320,642 220,726 3,472,265
Unallocated corporate assets
15,921
Total assets
3,488,186
Segment liabilities
(869,562) (8,064) (223,879) (1,735) (1,103,240)
Unallocated corporate liabilities (918,689)
Total liabilities
(2,021,929)
Segment net assets
2,048,897 4,374 96,763 218,991 2,369,025
Unallocated net corporate liabilities
(902,768)
Total net assets
1,466,257
Page 63
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
3 Revenue (continued)
2020
Distribution
£ 000
Contracting
£ 000
Metering
£ 000
Other
£ 000
Total
£ 000
Revenue
355,059 15,832 76,741 6,670 454,302
Inter-segment sales 353 8,321 - (8,674) -
Total revenue
355,412 24,153 76,741 (2,004) 454,302
Operating profit
125,544 (159) 26,264 33,922 185,571
Other gains
72
Finance costs
(47,407)
Finance income 1,150
Profit before tax
139,386
Capital additions
199,480 111 26,497 (74) 226,014
Depreciation and amortisation
102,238 117 47,168 (3,723) 145,800
Amortisation of deferred revenue
26,284 - - - 26,284
Segment assets
2,803,799 11,030 332,215 45,477 3,192,521
Unallocated corporate assets
4,790
Total assets
3,197,311
Segment liabilities
(846,861) (6,920) (177,134) (37,076) (1,067,991)
Unallocated corporate liabilities (849,117)
Total liabilities
(1,917,108)
Segment net assets
1,956,938 4,110 155,081 8,401 2,124,530
Unallocated net corporate liabilities
(844,327)
Total net assets
1,280,203
Sales to the E.ON group in 2021 of £69.6 million (2020: £68.6 million) and to British Gas plc in 2021 of £37.0 million
(2020: £34.4 million) are included within the Distribution segment.
Contract assets arise where goods or services are transferred to the customer before the customer pays consideration, or
before payment is due. All contract assets relate to engineering contracting work within Integrated Utility Services.
Contracts in progress at statement of financial position date:
Page 64
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
3 Revenue (continued)
Assets recognised from costs to fulfil a contract with customers
31 December
2021
£ 000
31 December
2020
£ 000
Contract costs incurred plus recognised profit less recognised losses to date
37,952 35,938
Less: progress billings (30,359) (29,724)
7,593 6,214
At 31 December 2021, no retentions are held by customers for contract work (2020: £0.4 million).
Advances received from customers for contract work amounted to £nil (2020: £nil).
The Company had no contract assets at 31 December 2021 (2020: £nil).
4 Other gains and losses
The analysis of the Group's other gains and losses for the year is as follows:
2021
£ 000
2020
£ 000
Gain on disposal of property, plant and equipment
1,675 72
5 Operating profit
Arrived at after charging/(crediting)
2021
£ 000
2020
£ 000
Depreciation expense
140,940 132,628
Depreciation of right-of-use assets
3,553 2,957
Amortisation expense
11,875 10,215
Research and development
826 1,407
Trade and other receivables loss allowance
6,394 1,114
Amortisation of deferred revenue
(27,945) (26,284)
Amortisation expense is included in administration costs within the statement of profit or loss on page 38.
Page 65
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
6 Finance income and costs
2021
£ 000
2020
£ 000
Finance income
Other finance income
1,337 1,150
Finance costs
Interest on borrowings at amortised cost
(41,906) (47,938)
Interest expense on leases
(417) (374)
Borrowing costs included in cost of qualifying asset 666 905
Total finance costs (41,657) (47,407)
Net finance costs
(40,320) (46,257)
Borrowing costs included in the costs of qualifying assets during the year arose on the general borrowing pool and are
calculated by applying a capitalisation rate of 3.28% (2020: 4.16%) to expenditure on such assets.
7 Staff costs
2021
£ 000
2020
£ 000
Salaries
68,713 65,112
Social security costs
8,147 7,735
Defined benefit pension cost/credit
5,106 (2,484)
Defined contribution pension cost 4,503 3,859
86,469 74,222
Less charged to property plant and equipment (43,804) (41,954)
42,665 32,268
A large proportion of the Group's employees are members of the DB Scheme, details of which are given in the Employee
Benefit Obligations Note 26.
The average monthly number of persons employed by the Group (including directors) during the year, analysed by
category was as follows:
2021
No.
2020
No.
Distribution
1,247 1,175
Engineering contracting
155 143
Other 14 14
1,416 1,332
The Company had an average monthly number of 12 employees during the year ended 31 December 2021 (2020:14).
Page 66
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
8 Directors' remuneration
The directors' remuneration for the year was as follows:
2021
£
2020
£
Highest paid
Short-term employee benefits
396,843 419,232
Other long-term benefits 435,990 410,600
832,833 829,832
Total
Short-term employee benefits
492,069 634,907
Post retirement benefits - defined contribution
9,180 9,041
Other long-term benefits 493,661 496,386
994,910 1,140,334
Post retirement benefits
Directors who are members of a defined contribution scheme
2 3
Directors who are members of a defined benefit scheme
- -
2021
£
2020
£
Key personnel remuneration
Short-term employee benefits
648,896 582,572
Post retirement benefits - defined benefit
24,529 5,462
Post retirement benefits - defined contribution
87,751 58,146
Other long-term benefits 257,160 169,467
1,018,336 815,647
Other key personnel includes a number of senior functional managers who, whilst not board directors, have authority and
responsibility for planning, directing and controlling activities of the Group.
Page 67
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
9 Auditor's remuneration
The auditor's remuneration for the year was as follows:
2021
£ 000
2020
£ 000
Fees payable to the auditor for audit of the Company's annual accounts
38 120
Fees payable to the auditor for audit of the Company's subsidiaries pursuant to
legislation 337 336
Total audit fees
375 456
Audit of regulatory reporting
51 51
Other services 51 7
Total auditor's remuneration
477 514
Other services relate to non-statutory audit services including bond issuance and pensions.
10 Income tax
Tax charged in the income statement
2021
£ 000
2020
£ 000
Current taxation
UK corporation tax
28,387 29,008
UK corporation tax adjustment to prior periods (832) (494)
27,555 28,514
Deferred taxation
Arising from origination and reversal of temporary differences
336 (1,497)
Deferred tax expense/(credit) from unrecognised temporary difference from prior
period
610 (403)
Deferred tax credit relating to changes in tax rates or laws 39,315 13,689
Total deferred taxation 40,261 11,789
Tax expense in the income statement
67,816 40,303
Page 68
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
10 Income tax (continued)
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2020 - higher than
the standard rate of corporation tax in the UK) of 19.0% (2020 - 19.0%).
The differences are reconciled below:
2021
£ 000
2020
£ 000
Profit before tax
145,545 139,386
Corporation tax at standard rate
27,654 26,483
Increase in deferred tax due to changes in tax rates or laws
39,315 13,689
Tax effect of result of joint venture entities
(207) (165)
Decrease in current tax from adjustment for prior periods
(832) (494)
Permanent differences (including non-taxable dividends)
(198) (343)
Pension contributions recognised in other comprehensive income
(255) (262)
Increase/(decrease) in deferred tax from adjustment for prior periods
610 (403)
Non-deductible interest
1,710 1,710
Release of deferred tax in respect of prior year holdover relief claim
(45) -
Other tax effects for reconciliation between accounting profit and tax
expense/(income) 64 88
Total tax charge
67,816 40,303
Finance Act 2021 was enacted on the 10 June 2021 and the impact of the Finance Act has increased the rate of corporation
tax from 19% to 25% from 1 April 2023. As a result, deferred tax balances have been re-measured at the 25% rate and this
remeasurement (after taking into account the estimated temporary differences which will reverse at the 19% rate prior to 1
April 2023) has given rise to an increased deferred tax liability of £39.3m which is reflected within the above tax charge.
Finance Bill 2020 was enacted in July 2020 and as a result, the rate of corporation tax has been held at 19% as the Finance
Bill 2020 effectively removed the proposed reduction to 17% which was included within Finance Bill 2016. As a result,
deferred tax balances have been re-measured at the 19% rate and this remeasurement gave rise to an increased deferred tax
liability of £13.7m as at 31 December 2020 which is reflected within the prior year tax charge.
There is no uncertainty over the acceptable income tax treatment. Should any uncertainties arise the Group will apply
adopted amendments to IFRIC 23.
Amounts recognised in other comprehensive income
2021
Before tax
£ 000
Tax (expense)
benefit
£ 000
Net of tax
£ 000
Loss on cash flow hedges
4,962 (1,012) 3,950
Remeasurement of post employment benefit obligations 165,100 (34,726) 130,374
170,062 (35,738) 134,324
2020
Before tax
£ 000
Tax (expense)
benefit
£ 000
Net of tax
£ 000
Gain on cash flow hedges
(2,500) 502 (1,998)
Remeasurement of post employment benefit obligations (37,300) 8,981 (28,319)
(39,800) 9,483 (30,317)
Page 69
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
10 Income tax (continued)
Deferred tax
Group
Deferred tax movement during the year:
At 1 January
2021
£ 000
Recognised in
income
£ 000
Recognised in
other
comprehensive
income
£ 000
At
31 December
2021
£ 000
Accelerated tax depreciation 99,729 29,097 - 128,826
Rollover/holdover relief 116 (58) - 58
Other items (1,950) (525) 1,012 (1,463)
Pension benefit obligations 8,957 9,498 36,976 55,431
Net tax liabilities/(assets)
106,852 38,012 37,988 182,852
Deferred tax movement during the prior year:
At 1 January
2020
£ 000
Recognised in
income
£ 000
Recognised in
other
comprehensive
income
£ 000
At
31 December
2020
£ 000
Accelerated tax depreciation 89,422 10,307 - 99,729
Rollover/holdover relief 901 (785) - 116
Other items (1,015) (433) (502) (1,950)
Pension benefit obligations 9,158 2,700 (2,901) 8,957
Net tax liabilities/(assets)
98,466 11,789 (3,403) 106,852
The other deferred tax asset of £1.5m (2020: £2.0m) includes the deferred tax impact of cash flow hedges, provisions and
employee benefits which are deductible on a paid basis. Within pension benefit obligations the movement in the year
represents deferred tax on the change in retirement benefit obligation/asset. A proportion of the change has been
capitalised in property, plant and equipment.
Page 70
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
10 Income tax (continued)
Company
Deferred tax movement during the year:
At 1 January
2021
£ 000
Recognised in
income
£ 000
At
31 December
2021
£ 000
Accelerated tax depreciation (8) (2) (10)
Rollover/holdover relief 32 (32) -
Pension benefit obligations (493) (50) (543)
Net tax assets
(469) (84) (553)
Deferred tax movement during the prior year:
At 1 January
2020
£ 000
Recognised in
income
£ 000
At
31 December
2020
£ 000
Accelerated tax depreciation (9) 1 (8)
Rollover/holdover relief 151 (119) 32
Pension benefit obligations (250) (243) (493)
Net tax liabilities/(assets)
(108) (361) (469)
Page 71
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
11 Property, plant and equipment
Group
Land and
buildings
£ 000
Distribution
system
£ 000
Metering
equipment
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2020
6,534 3,583,696 448,079 80,408 4,118,717
Additions
- 188,951 26,497 1,421 216,869
Disposals - (9,985) (12,674) - (22,659)
As at 31 December 2020
6,534 3,762,662 461,902 81,829 4,312,927
sample
At 1 January 2021
6,534 3,762,662 461,902 81,829 4,312,927
Additions
- 187,580 56,998 2,615 247,193
Disposals - (9,005) (29,238) (1) (38,244)
At 31 December 2021
6,534 3,941,237 489,662 84,443 4,521,876
Depreciation
At 1 January 2020
6,387 1,064,472 170,271 71,481 1,312,611
Charge for year
103 81,661 47,130 3,734 132,628
Eliminated on disposal - (9,985) (12,005) - (21,990)
As at 31 December 2020
6,490 1,136,148 205,396 75,215 1,423,249
sample
At 1 January 2021
6,490 1,136,148 205,396 75,215 1,423,249
Charge for the year
44 87,068 51,169 2,659 140,940
Eliminated on disposal - (9,005) (26,547) (1) (35,553)
At 31 December 2021 6,534 1,214,211 230,018 77,873 1,528,636
Carrying amount
At 1 January 2020
147 2,519,224 277,808 8,927 2,806,106
At 31 December 2020
44 2,626,514 256,506 6,614 2,889,678
At 31 December 2021
- 2,727,026 259,644 6,570 2,993,240
Expenditure recognised in the carrying amount of property, plant and equipment in the course of construction was as
follows:
31
December
2021
£ 000
31
December
2020
£ 000
Distribution system 187,697 202,298
Page 72
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
11 Property, plant and equipment (continued)
Contractual commitments for the acquisition of property, plant and equipment were as follows:
31
December
2021
£ 000
31
December
2020
£ 000
Distribution system 21,104 30,600
Company
Land and
buildings
£ 000
Distribution
system
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2020 280 1,259 3,634 5,173
At 31 December 2020
280 1,259 3,634 5,173
s
At 1 January 2021
280 1,259 3,634 5,173
At 31 December 2021 280 1,259 3,634 5,173
Depreciation
At 1 January 2020
56 - 3,548 3,604
Charge for year 7 - - 7
At 31 December 2020 63 - 3,548 3,611
s
At 1 January 2021
63 - 3,548 3,611
Charge for the year 7 - - 7
At 31 December 2021 70 - 3,548 3,618
Carrying amount
At 31 December 2021
210 1,259 86 1,555
At 31 December 2020
217 1,259 86 1,562
At 1 January 2020
224 1,259 86 1,569
Page 73
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
12 Right of use assets
Group
Fleet
£ 000
Property
£ 000
Land
£ 000
Total
£ 000
Cost or valuation
At 1 January 2020
9,046 2,439 - 11,485
Additions
4,489 1,410 1,923 7,822
Disposals (335) (198) - (533)
At 31 December 2020 13,200 3,651 1,923 18,774
s
At 1 January 2021
13,200 3,651 1,923 18,774
Additions
3,518 415 - 3,933
Disposals (600) (46) - (646)
At 31 December 2021 16,118 4,020 1,923 22,061
Depreciation
At 1 January 2020
1,880 439 - 2,319
Charge for year
2,469 461 27 2,957
Eliminated on disposal (335) (198) - (533)
At 31 December 2020 4,014 702 27 4,743
s
At 1 January 2021
4,014 702 27 4,743
Charge for the year
2,984 505 64 3,553
Eliminated on disposal (600) (46) - (646)
At 31 December 2021 6,398 1,161 91 7,650
Carrying amount
At 31 December 2021
9,720 2,859 1,832 14,411
At 31 December 2020
9,186 2,949 1,896 14,031
Company
Property
£ 000
Total
£ 000
Cost or valuation
Additions 1,366 1,366
At 31 December 2020 1,366 1,366
At 1 January 2021 1,366 1,366
At 31 December 2021 1,366 1,366
Depreciation
Page 74
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
12 Right of use assets (continued)
Property
£ 000
Total
£ 000
Charge for year 76 76
At 31 December 2020 76 76
At 1 January 2021
76 76
Charge for the year 137 137
At 31 December 2021 213 213
Carrying amount
At 31 December 2021
1,153 1,153
At 31 December 2020
1,290 1,290
Page 75
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
13 Intangible assets
Group
Software
development
£ 000
Total
£ 000
Cost or valuation
At 1 January 2020
121,666 121,666
Additions 9,145 9,145
At 31 December 2020 130,811 130,811
s
At 1 January 2021
130,811 130,811
Additions
9,544 9,544
Disposals (714) (714)
At 31 December 2021 139,641 139,641
Amortisation
At 1 January 2020
69,377 69,377
Amortisation charge 10,215 10,215
At 31 December 2020 79,592 79,592
s
At 1 January 2021
79,592 79,592
Amortisation charge
11,875 11,875
Amortisation eliminated on disposals (714) (714)
At 31 December 2021 90,753 90,753
Carrying amount
At 31 December 2021
48,888 48,888
At 31 December 2020
51,219 51,219
During the year the amount of contractual commitments for the acquisition of intangible assets amounted to £2.9 million
(2020: £4.5m).
Page 76
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
14 Investments
Investment in
joint ventures
£ 000
Investment in
associate
£ 000
Share in other
undertakings
£ 000
Total
£ 000
At 1 January 2020
3,518 - 21 3,539
Profit from investments
870 - - 870
Dividends paid by investments (761) - - (761)
At 31 December 2020
3,627 - 21 3,648
Profit from investments
1,090 - - 1,090
Dividends paid by investments (840) - - (840)
At 31 December 2021
3,877 - 21 3,898
Page 77
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
14 Investments (continued)
Summary of the Company investments
31 December
2021
£ 000
31 December
2020
£ 000
Investments in subsidiaries
242,902 242,902
Group subsidiaries
Details of the Group subsidiaries as at 31 December 2021 are as follows:
Name of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2021 2020
CE Electric Services Limited Dormant
100% 100%
Central PowerGrid Limited Dormant
England and Wales
100% 100%
East PowerGrid Limited Dormant
England and Wales
100% 100%
Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
Infrastructure North Limited Dormant
England and Wales
100% 100%
Integrated Utility Services
Limited
Engineering contracting
England and Wales
100% 100%
IUS Limited Dormant
England and Wales
100% 100%
Midlands PowerGrid Limited Dormant
England and Wales
100% 100%
NEDL Limited Dormant
England and Wales
100% 100%
North East PowerGrid Limited Dormant
England and Wales
100% 100%
North Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
North PowerGrid Limited Dormant
England and Wales
100% 100%
North West PowerGrid Limited Dormant
England and Wales
100% 100%
North Western PowerGrid
Limited
Dormant
England and Wales
100% 100%
Northern Electric Distribution
Limited
Dormant
England and Wales
100% 100%
Northern Electric Properties
Limited*
Property holdings &
management company
England and Wales
100% 100%
Northern Electric Share Scheme
Trustee Limited
Dormant
England and Wales
100% 100%
Northern Electricity (North East)
Limited
Dormant
England and Wales
100% 100%
Northern Electricity (Yorkshire)
Limited
Dormant
England and Wales
100% 100%
Northern Electricity Limited Dormant
England and Wales
100% 100%
Page 78
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
14 Investments (continued)
Name of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2021 2020
Northern Electricity Networks
Company (North East) Limited
Dormant
England and Wales
100% 100%
Northern Electricity Networks
Company (Yorkshire) Limited
Dormant
England and Wales
100% 100%
Northern Electricity Networks
Company Limited
Dormant
England and Wales
100% 100%
Northern Electrics Limited Dormant
England and Wales
100% 100%
Northern Energy Funding
Company Limited
Dormant
England and Wales
100% 100%
Northern Powergrid Metering
Limited
Meter asset provider
England and Wales
100% 100%
Northern Powergrid (Northeast)
plc
Distribution of
electricity
England and Wales
100% 100%
Northern Powergrid (North West)
Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company (North East) Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company (Yorkshire) Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company Limited
Dormant
England and Wales
100% 100%
Northern Transport Finance
Limited
Car finance company
England and Wales
100% 100%
Northern Utility Services Limited Dormant
England and Wales
100% 100%
PowerGrid (Central) Limited Dormant
England and Wales
100% 100%
PowerGrid (East) Limited Dormant
England and Wales
100% 100%
PowerGrid (Eastern) Limited Dormant
England and Wales
100% 100%
PowerGrid (Midlands) Limited Dormant
England and Wales
100% 100%
PowerGrid (North East) Limited Dormant
England and Wales
100% 100%
PowerGrid (North Eastern)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (North West) Limited Dormant
England and Wales
100% 100%
PowerGrid (North Western)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (North) Limited Dormant
England and Wales
100% 100%
PowerGrid (Northern) Limited Dormant
England and Wales
100% 100%
Page 79
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
14 Investments (continued)
Name of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2021 2020
PowerGrid (South East) Limited Dormant
England and Wales
100% 100%
PowerGrid (South Eastern)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (South West) Limited Dormant
England and Wales
100% 100%
PowerGrid (South Western)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (South) Limited Dormant
England and Wales
100% 100%
PowerGrid (Southern) Limited Dormant
England and Wales
100% 100%
PowerGrid (West) Limited Dormant
England and Wales
100% 100%
PowerGrid (Western) Limited Dormant
England and Wales
100% 100%
PowerGrid (Yorkshire) Limited Dormant
England and Wales
100% 100%
South East PowerGrid Limited Dormant
England and Wales
100% 100%
South Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
South PowerGrid Limited Dormant
England and Wales
100% 100%
South West PowerGrid Limited Dormant
England and Wales
100% 100%
South Western Powergrid Dormant
England and Wales
100% 100%
Southern PowerGrid Limited Dormant
England and Wales
100% 100%
West PowerGrid Limited Dormant
England and Wales
100% 100%
Western PowerGrid Limited Dormant
England and Wales
100% 100%
YEDL Limited Dormant
England and Wales
100% 100%
Yorkshire Electricity Distribution
Limited
Dormant
England and Wales
100% 100%
Yorkshire PowerGrid Limited Dormant
England and Wales
100% 100%
Northern Electric Finance plc** Finance company
England and Wales
100% 100%
*These companies have taken advantage of s479A Companies Act exemption from audit.
**These companies are indirectly owned subsidiaries, with the rest of the above being directly owned.
The class of shares related to the above companies are ordinary shares.
Unless otherwise stated the registered office of the above companies is: Lloyds Court, 78 Grey Street, Newcastle upon
Tyne, Tyne and Wear, NE1 6AF.
Page 80
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
14 Investments (continued)
Group associates
Details of the Group associates as at 31 December 2021 are as follows:
Name of associate Principal activity Registered office
Proportion of
ownership interest and
voting rights held by
the Group
2021 2020
DCUSA Limited* Goverance of
Distribution Connection
and Use of System
Agreement
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
1.69% 1.0%
Electralink Limited* Data transfer network
operator
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
6.2% 1.0%
MRA Service Company Limited* Goverance of the
electricty industry's
Master Registrauion
Agreement
8 Fenchurch Place, London,
EC3M 4AJ, England and
Wales
0.36% 1.0%
Selectusonline Limited Procurement vehicle Hawaswater House, Lingley
Mere Business Park, Lingley
Green Avenue, Great Sankey,
Warrington, WA5 3LP,
England and Wales
16.67% 1.0%
*These companies are indirectly owned subsidiaries, with the rest of the above being directly owned.
The class of shares related to the above companies are ordinary shares.
Page 81
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
14 Investments (continued)
Group joint ventures
Details of the Group joint ventures as at 31 December 2021 are as follows:
Name of Joint-ventures Principal activity Registered office
Proportion of
ownership interest and
voting rights held by
the Group
2021 2020
Vehicle Lease and Service
Limited
Transport services Centre for Advanced Industry,
3rd Floor, Coble Dene, North
Shields, NE29 6DE
England and Wales
50% 50%
VLS Limited Dormant Centre for Advanced Industry,
3rd Floor, Coble Dene, North
Shields, NE29 6DE
England and Wales
50% 50%
The class of shares related to the joint ventures above are ordinary shares.
Summarised financial information in respect of the Group's joint venture is set out below:
Joint ventures and associates are not strategic to the Group’s activities.
31 December
2021
£ 000
31 December
2020
£ 000
Current assets
16,158 17,320
Non-current assets
22,222 22,297
Current liabilities
(14,559) (14,299)
Non-current liabilities
(16,069) (18,066)
Net assets
7,753 7,252
Groups share of net assets
3,876 3,627
Revenue
19,085 17,898
Profit for the year
2,180 1,740
Groups share of profit for the year
1,090 870
15 Inventories
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Raw materials and consumables
19,638 17,870 - -
Work in progress
266 289 - -
Vehicle inventory 478 540 - -
20,382 18,699 - -
Page 82
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Distribution use of system receivables
56,769 53,617 - -
Trade receivables
24,630 21,261 18 81
Finance lease receivable
5,059 4,252 - -
Loss allowance (8,757) (6,154) - -
Net trade receivables
77,701 72,976 18 81
Social security and other taxes
- - 3,472 1,001
Prepayments
7,285 5,182 376 209
Other receivables 4,304 4,334 - -
89,290 82,492 3,866 1,291
Non-current Finance lease receivables
2,702 4,598 - -
91,992 87,090 3,866 1,291
The average credit period on receivables is 30 days. No interest is charged on outstanding trade receivables.
The Group always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit loss.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default
experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current
as well as the forecast direction of conditions at the reporting date.
There has been no change in the estimation techniques or significant assumptions made during the current reporting
period.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty
and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into
bankruptcy proceedings. None of the trade receivables that have been written off is subject to enforcement activities.
As the Company’s historical credit loss experience does shows significantly different loss patterns for different customer
segments, the provision for loss allowance based on past due status is distinguished as follows:
• Distribution businesses: DUoS receivables, damages receivables, and other receivables;
• Metering: contracted meters, contracted churn, and non-contracted churn; and
• Engineering contracting.
31 December
2021
£ 000
31 December
2020
£ 000
At 1 January
6,154 5,153
Amounts utilised/written off in the year
(3,791) (113)
Amounts recognised in the income statement 6,394 1,114
At 31 December
8,757 6,154
The increase in the amount recognised in the year follows the failure of a number of a electricity supply companies in
2021. Subject to certain conditions mentioned on page 82, losses arising in relation to distribution use of system debts will
be recovered through an increase in future allowed income.
Page 83
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables (continued)
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the
Company compares the risk of a default occurring on a financial instrument at the reporting date with the risk of a default
occurring on the financial instrument at the date of initial recognition. In making this assessment the Company considers
historical experience as well as forward-looking information that is available without undue cost or effort.
Forward-looking information includes the future prospects of the industries in which the Company's debtors operate
obtained from economic expert reports, financial analysts, government bodies, relevant think-tanks and other similar
organisations. In particular the following information is taken into account when assessing whether credit risk has
increased significantly since initial recognition:
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a
significant decrease in the debtor's ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• significant increases in credit risk on other financial instruments of the same debtor; and
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the
debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.
Distribution use of system receivables
The customers served by the Group’s distribution network are supplied predominantly by a number of electricity supply
businesses (circa 110) with the E.ON group accounting for approximately 21.5% of distribution revenues in 2021
(2020:23.0%) and British Gas plc accounting for approximately 11.4% of distribution revenues in 2021 (2020: 11.5%).
Ofgem under Code Governance arrangements, set out a framework known as Credit Cover within the Distribution
Connection and Use of System Agreement (DCUSA), which sets credit limits for each supply business based on its credit
rating (taken from a credit agency). If no score is available, then they can build up their credit limit through good payment
history. In addition, suppliers can provide other forms of collateral to cover their value at risk (measured as being
equivalent to 45 days usage) or if their credit rating alone is not sufficient to cover their value at risk. Acceptable collateral
typically is provided in the form of a parent company guarantee, letter of credit, cash or an escrow account.
Provided the Group has implemented credit control, billing and collection processes in line with best practice guidelines
and can demonstrate compliance with the guidelines or is able to satisfactorily explain departure from the guidelines, any
losses arising from supplier default will be recovered through an increase in future allowed income. Losses incurred to
date have not been material therefore no ECL has been made on DUoS balances.
The following is the expected credit loss for receivables past due:
2021
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
31,375 22,590 1,703 1,100
Less specific provisions - (255) (1,696) (844)
Balance eligible for ECL 31,375 22,335 7 256
Lifetime ECL
0% 0% 0% 0%
Expected credit loss
- - - -
2020
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
29,114 21,975 110 2,357
Less specific provisions - (152) (109) (1,326)
Balance eligible for ECL 29,114 21,823 1 1,031
Lifetime ECL
0% 0% 0% 0%
Expected credit loss
- - - -
Page 84
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables (continued)
Other distribution trade receivables
Sales of goods and services comprise all income streams which are not classified as DUoS income. Examples of
non-DUoS income streams would be service alterations/disconnections, assessment and design fees, and recovery of
amounts for damage caused by third parties to the distribution system. The average credit period on sales of goods and
services is 30 days. Interest is not generally charged on the trade receivables paid after the due date.
The following is the expected credit loss for receivables past due:
Damages receivables
2021
0-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 year
£ 000
Total balance
1,785 373 237 424 53
Less specific provisions (165) (114) (24) (363) (22)
Balance eligible for
ECL 1,620 259 213 61 31
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
324 65 64 24 25
2020
0-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 year
£ 000
Total balance
788 205 617 69 37
Less specific provisions
(183) (54) (430) (22) -
Balance eligible for
ECL 605 151 187 47 37
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
121 38 56 19 30
Non-damages receivables
2021
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
259 393 480 121 234
Less specific provisions - - - - -
Balance eligible for
ECL 259 393 480 121 234
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 61 204
2020
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
260 323 144 87 156
Less specific provisions - - - - -
Balance eligible for
ECL 260 323 144 87 156
Lifetime ECL
0% 0% 0% 50% 50%
Expected credit loss
- - - 44 78
Page 85
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables (continued)
Meter asset provision
Included in trade receivables are balances relating to the provision of meters through Northern Powergrid Metering
Limited. The average credit period on these receivables is 30 days. Interest is not generally charged on receivables paid
after the due date.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty
and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into
bankruptcy proceedings, or when the debtor is over 1 year past due. None of the trade receivables that have been written
off are subject to enforcement activities.
For receivables where there is no specific provisions, a provision is made for debts past their due date based on lifetime
expected credit loss determined by reference to past default experience. The following is the expected credit loss for
receivables past due:
Contracted
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
5,926 2,365 - 7 -
Less specific provisions - - - (7) -
Balance eligible for
ECL 5,926 2,365 - - -
Lifetime ECL
0% 0% 100% 100% 100%
Expected credit loss
- - - - -
2020
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
5,306 2,977 2 159 565
Less specific provisions - - - - (565)
Balance eligible for
ECL 5,306 2,977 2 159 -
Lifetime ECL
0% 0% 10% 50% 100%
Expected credit loss
- - 80 -
Contracted churn
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
5,184 3,384 336 449 21
Less specific provisions (27) (377) (336) (449) (21)
Balance eligible for
ECL 5,157 3,007 - - -
Lifetime ECL
0% 30% 100% 100% 100%
Expected credit loss
- 915 - - -
2020
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
1,653 1,439 294 95 703
Less specific provisions
(11) (34) (19) (95) (703)
Balance eligible for
ECL 1,642 1,405 275 - -
Lifetime ECL
0% 0% 10% 50% 100%
Expected credit loss
- - 28 - -
Page 86
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables (continued)
Non-contracted churn
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
2,457 1,021 613 170 83
Less specific provisions (28) (258) (613) (170) (83)
Balance eligible for
ECL 2,429 763 - - -
Lifetime ECL
0% 17% 100% 100% 100%
Expected credit loss
- 126 - - -
2020
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
931 1,029 3 9 1,244
Less specific provisions (6) (166) (3) (9) (1,244)
Balance eligible for
ECL 925 863 - - -
Lifetime ECL
0% 0% 10% 50% 100%
Expected credit loss
- - - - -
Engineering contracting receivables
The average credit period on Engineering contracting receivables is 30 days. Interest is not generally charged on
receivables paid after due date. Included in the Group’s construction contracts balance are debtors with a carrying amount
of £2.1 million (2020: £2.1 million), which are past due at the reporting date for which the Group has provided for an
irrecoverable amount of £0.1 million (2020: £0.1 million) based on past experience. The Group does not hold and
collateral over these balances. The average age of these receivables is 54 days (2020: 52 days).
Included in the Group's construction contracts balance are debtors with a carrying amount of £nil (2020: £nil) which are
past due at the reporting date for which the Group has not provided as there has not been a significant change in credit
quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances.
The average credit period on sales of goods and services is 30 days. Interest is not generally charged on the trade
receivables paid after the due date.
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
2,136 1,909 25 123 78
Less specific provisions - - - - (78)
Balance eligible for
ECL 2,136 1,909 25 123 -
Lifetime ECL
0% 1% 10% 50% 100%
Expected credit loss
- 19 3 62 -
2020
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
1,621 1,719 240 49 70
Less specific provisions - - - - (70)
Balance eligible for
ECL 1,621 1,719 240 49 -
Lifetime ECL
0% 1% 10% 50% 100%
Expected credit loss
- 17 24 25 -
Page 87
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables (continued)
Finance lease receivables
Northern Transport Finance Limited ("NTFL"), a wholly owned subsidiary, enters into credit finance arrangements for
motor vehicles with employees in the Group. All agreements are denominated in sterling. The term of the finance
agreements is predominantly three years.
The interest rate inherent in the agreements is fixed at the contract date for all of the term of the agreement. The average
effective interest rate contracted is approximately 6.5% (2020: 6.5%) per annum. None of these debts are past due and
there are no indicators of impairment.
Northern Powergrid Metering Limited, a wholly-owned subsidiary, enters into credit finance arrangements for smart
meters with electricity supply companies. All agreements are denominated in sterling. The term of the finance agreements
is predominantly ten years. During 2020, these assets were sold and therefore the values contained in the 2020 and 2021
tables below relate solely to NTFL.
The interest rate inherent in the agreements is fixed at the contract date for all of the term of the agreement. None of these
debts are past due and there are no indicators of impairment.
The directors consider the carrying value of finance lease receivables approximates their fair value. The maximum risk
exposure is the book value of these receivables, less the residual value of the leased assets.
2021
Minimum
lease
payments
£ 000
Interest
£ 000
Present value
£ 000
Within one year
5,075 (92) 4,983
In two to five years 3,036 (334) 2,702
8,111 (426) 7,685
2020
Minimum
lease
payments
£ 000
Interest
£ 000
Present value
£ 000
Within one year
6,021 (1,769) 4,252
In two to five years 6,281 (1,683) 4,598
12,302 (3,452) 8,850
Page 88
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
16 Trade and other receivables (continued)
Operating lease receivables
Operating leases relate to the metering assets owned by the Group with lease terms of 10 years, these are disclosed in Note
11. The lessee does not have an option to purchase the meters at the expiry of the lease period.
The total future value of minimum lease payments is as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Within one year
73,145 71,375
In two to five years
272,860 245,350
Over five years 131,950 133,381
477,955 450,106
The prior year split of operating leases had incorrectly shown the values for "in two to five years" and "in over five years"
in the wrong order. This has been corrected in the table above.
17 Cash and cash equivalents
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Cash at bank
26,098 21,874 - -
Other cash and cash equivalents 16,042 - 29,036 38,148
42,140 21,874 29,036 38,148
Cash and cash equivalents have a maturity of less than three months, are readily convertible to cash and are subject to an
insignificant risk of changes in value. The carrying amount of these assets approximates their fair value. Other cash and
cash equivalents include intercompany loans that are highly liquid and repayable on demand.
18 Restricted cash
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Restricted cash
- 16,758 - -
Restricted cash was held for use under the terms of certain contractual agreements.
Page 89
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
19 Share capital
Allotted, issued, and fully paid:
The Company has one class of ordinary shares which carries no right to fixed income. Details of cumulative non-equity
preference shares are contained in the borrowings Note 21.
Share value No. of shares
2021
£ 000
2020
£ 000
Ordinary shares 56 12/13p 127,689,809
72,173 72,173
20 Reserves
Group
The changes to each component of equity resulting from items of other comprehensive income for the current year were as
follows:
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
Loss on cash flow hedge (net)
3,950 - 3,950
Remeasurements of post employment benefit obligations (net) - 130,374 130,374
3,950 130,374 134,324
Prior period
The changes to each component of equity resulting from items of other comprehensive income for the prior year were as
follows:
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
Gain on cash flow hedge (net)
(1,998) - (1,998)
Remeasurements of post employment benefit obligations (net) - (28,319) (28,319)
(1,998) (28,319) (30,317)
Page 90
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
21 Loans and borrowings
Group Company
2021
£ 000
2020
£ 000
2021
£ 000
2020
£ 000
Non-current loans and borrowings
985,988 946,185 1,117 1,117
Current loans and borrowings 51,379 77,060 13,861 9,741
1,037,367 1,023,245 14,978 10,858
Page 91
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
21 Loans and borrowings (continued)
Group
Carrying value Fair value
2021
£ 000
2020
£ 000
2021
£ 000
2020
£ 000
Short-term loans
499 28 499 28
Inter-company short-term loans
- 35,372 - 35,372
Amortising loan 2026 - 2.3012%***
212,395 - 212,395 -
Amortising loan 2026 - 2.9573%*
- 133,871 - 135,348
Amortising loan 2026 - 2.0245%**
- 29,736 - 30,005
Bond 2035 - 5.125%
153,366 153,279 204,175 225,276
Bond 2049- 2.75%
150,037 149,978 172,211 194,134
Bond 2062 - 1.875%
297,558 297,469 289,945 338,377
European Investment Bank 2027 - 2.564%
120,128 120,128 126,098 134,428
Cumulative preference shares
3,368 3,368 166,952 192,076
Yorkshire Electricity Group - 5.9% 100,016 100,016 148,285 164,723
1,037,367 1,023,245 1,320,560 1,449,767
*2026 £136m Amortising Loan, 89% swapped at a fixed rate of 3.0682%, with the remaining 11% floating at 3 month
LIBOR plus 2.00%, repaid December 2021.
**2026 £ 30m Amortising Loan at a Floating rate loan at 3 month LIBOR plus 2.00%, repaid December 2021.
***2026 £218m Amortising Loan is 80% swapped at a fixed rate of 2.4455%, with the remaining 20% floating at SONIA
plus 1.55%.
In April 2022, the Group issued a £350 million bond at 3.25% maturing 2052, the funds will be used for general corporate
purposes including the repayment of debt maturities in 2022.
Company
Carrying value Fair value
2021
£ 000
2020
£ 000
2021
£ 000
2020
£ 000
Short-term loans
11,610 7,490 11,610 8,180
Cumulative preference shares 3,368 3,368 166,952 192,076
14,978 10,858 178,562 200,256
Of the total financial liabilities of £1,037.4 milion, £936.9 million (2020: £887.8 million) relates to external borrowings
and preference shares whose fair value is determined with reference to quoted market prices. The directors' estimates of
the fair value of internal borrowings are determined in accordance with generally accepted pricing models based on
discounted cash flow analysis using prices from observable current market transactions or dealer quotes for similar
instruments. The valuation of liabilities set out above is based on Level 1 inputs.
The borrowings from the European Investment Bank were drawn down in four tranches. The interest rates shown are
average rates for those repayment dates.
The terms of the cumulative preference shares:
• entitle holders, in priority to holders of all other classes of shares, to a fixed cumulative preferential dividend of 8.061p
(net) per share per annum payable half-yearly in equal amounts on 31 March and 30 September;
• on a return of capital on a winding up, or otherwise, will carry the right to repayment of capital together with a
premium of 99p per share and a sum equal to any arrears or accruals of dividend. This right is in priority to the rights of
ordinary shareholders;
Page 92
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
21 Loans and borrowings (continued)
• carry the right to attend a general meeting of Northern Electric plc and vote if, at the date of the notice convening the
meeting, payment of the dividend to which they are entitled is six months or more in arrears, or if a resolution is to be
considered at the meeting for the winding-up of Northern Electric plc or abrogating, varying or modifying any of the
special rights attaching to them; and
• are redeemable in the event of the revocation by the Secretary of State of Northern Electric plc's Public Electricity
Supply Licence at the value given above.
During the year ended 31 December 2001, under the terms of the Northern Electric plc's transfer scheme, as approved by
the Secretary of State in accordance with the provisions of the Utilities Act 2000, the Northern Electric plc's Public
Electricity Supply Licence was converted into an Electricity Distribution Licence and an Electricity Supply Licence.
More details on the classification of loans and borrowings is available in Note 29.
The Group's capital management and exposure to market and liquidity risk; including maturity analysis, in respect of loans
and borrowings is disclosed in financial risk review Note 30.
22 Obligations under leases and hire purchase contracts
Group
Lease liability
Operating lease commitments relate to fleet vehicles from Vehicle Lease and Service Limited, a joint venture, with terms
of up to 7 years and operational and non-operational land and buildings with terms of up to 50 years.
The total future value of minimum lease payments is as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Within one year
3,630 3,404
In two to five years
8,545 8,834
In over five years 3,406 3,766
Total lease payment
15,581 16,004
Unearned interest
(791) (1,673)
Total lease liability
14,790 14,331
Page 93
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
22 Obligations under leases and hire purchase contracts (continued)
Company
Operating leases
The Company holds one single lease relating to the main office building within Newcastle upon Tyne.
The total future value of minimum lease payments is as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Within one year
172 172
In two to five years
601 601
In over five years 563 735
Total lease payment
1,336 1,508
Unearned interest
(130) (162)
Total lease liability
1,206 1,346
23 Provisions
Group
Claims
£ 000
Other
£ 000
Total
£ 000
At 1 January 2021
647 3,588 4,235
Additional provisions
897 1,746 2,643
Provisions used (751) (278) (1,029)
At 31 December 2021
793 5,056 5,849
Non-current liabilities
- 2,341 2,341
Current liabilities
793 2,716 3,509
Claims: Provision has been made to cover costs arising from utility damage, public liability, and motoring third party
claims, which are not externally insured. Settlement is expected substantially within 12 months.
Other: Relates primarily to Storm Arwen related customer costs, environmental liabilities, wayleave disputes, provision for
future safe disposal of transformers which contain oil contaminated with Polychlorinated Biphenyls (PCBs) and unfunded
pension arrangements. Settlement is expected substantially after the next 12 months.
Also included within 'other' are pension provisions which releate to the Group's share of expected settlements of liabilities
relating to pension deficit repair of Electricity Association Technology Limited ("EATL") and are expected to be settled
over a period of approximately eight years. As at 31 December 2021 the provision relating to the EATL is £0.7m (2020:
£0.8m).
Company
Other
provisions
£ 000
Total
£ 000
At 1 January 2021
2,319 2,319
Provisions used (220) (220)
At 31 December 2021
2,099 2,099
Page 94
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
23 Provisions (continued)
The Company's provisions relate to the actuarial assessment of the costs of unfunded pension arrangements in respect of
former employees. This is expected to be realised over the next 20 years.
Also included above are pension provisions which releate to the Group's share of expected settlements of liabilities relating
to pension deficit repair of Electricity Association Technology Limited ("EATL") and are expected to be settled over a
period of approximately eight years. As at 31 December 2021 the provision relating to the EATL is £0.6m (2020: £0.8m).
24 Trade and other payables
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Payments on account
37,143 35,938 - -
Trade payables
4,956 2,823 2,756 1,658
Capital creditors
24,330 25,629 - -
Accrued expenses
15,277 11,000 1,520 1,424
Social security and other taxes
7,943 5,310 94 116
Other payables 13,763 13,315 145 831
103,412 94,015 4,515 4,029
The directors consider that the carrying amount of other financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the statement of financial position date. The valuation is based on Level 1
inputs. Trade creditors and accruals principally comprise amounts outstanding for trade purchases and on-going costs.
Invoices are paid at the end of the month following the date of the invoice. The Group has financial risk management
policies in place to ensure that all payables are paid within the credit timeframe. The standard payment term for trade
payables is net monthly.
The Group's exposure to market and liquidity risks, including maturity analysis, related to trade and other payables is
disclosed in the financial risk review Note 30.
Page 95
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
25 Deferred revenue
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Opening balance
669,356 663,980 - -
Additions
36,247 31,660 - -
Amortisation
(27,945) (26,284) - -
677,658 669,356 - -
Group Company
31 December
2021
£ 000
31 December
2020
£ 000
31 December
2021
£ 000
31 December
2020
£ 000
Current
28,645 27,629 - -
Non-current 649,013 641,727 - -
677,658 669,356 - -
Deferred revenue relates to customer contributions towards distribution system assets. The Group's policy is to credit the
customer contribution to revenue on a straight-line basis, in line with the useful life of the distribution system assets.
Page 96
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes
Defined benefit pension schemes
Electricity Supply Pension Scheme
The Group contributes to two pension schemes, which it operates on behalf of the participating companies within the
Group. Those pension schemes are:
- The Northern Powergrid Group of the ESPS (the "DB Scheme"); and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new employees of the Group from July 1997 and is a money
purchase arrangement accounted for as a defined contribution scheme.
The DB Scheme is a defined benefit scheme for directors and employees, which provides pension and other related
retirement benefits based on final pensionable pay. The DB Scheme closed to staff commencing employment with the
Group on or after 23 July 1997. Members who joined before this date, including some Protected Persons under The
Electricity (Protected Persons) (England and Wales) Pension Regulations 1990, continue to build up future pension
benefits.
Under the DB Scheme, employees are typically entitled to annual pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such as withdrawing from active service.
No other post-retirement benefits are provided to members of the DB Scheme.
Pension regulation
The UK pensions market is regulated by the Pensions Regulator whose key statutory objectives in relation to UK defined
benefit plans are to:
- protect the benefits of members;
- promote and to improve understanding of good administration;
- reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund
("PPF"); and
- minimise any adverse impact on the sustainable growth of an employer.
The Pensions Regulator has various powers including the power to:
- wind up a scheme where winding up is necessary to protect members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions where trustees and company fail to agree on appropriate contributions; and
- impose contributions where there has been a detrimental action against the scheme.
Page 97
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
Role of Trustees
The DB Scheme is administered by a board of Trustees which is legally separate from the Company. The assets of the DB
Scheme are held in a separate trustee-administered fund. The board of Trustees is made up of Trustees appointed by the
Company, as the Principal Employer of the DB Scheme, Trustees elected by the membership and an independent trustee.
The Trustees are required by law to act in the interests of all relevant beneficiaries and are responsible in particular for the
asset investment strategy plus the day-to-day administration of the benefits payable. They also are responsible for jointly
agreeing with the Principal Employer the level of contributions due to the DB Scheme.
Funding requirements
UK legislation requires that pension schemes are funded prudently (i.e. to a level in excess of the current expected cost of
providing benefits). The last actuarial valuation of the DB Scheme was carried out by the Trustee's actuarial advisors, Aon,
as at 31 March 2019. Such valuations are required by law to take place at intervals of no more than three years. Following
each valuation, the Trustees and the Group must agree the contributions required (if any) such that the DB Scheme is fully
funded over time on the basis of suitably prudent assumptions.
At the latest funding valuation as at 31 March 2019, the funding deficit was assessed to be £116.3 million. In light of this
and subsequent changes in the funding position, the Group agreed with the Trustees in September 2020 to pay £2.44
million per month from 1 April 2019 to 31 March 2021. A further £29.3 million will be paid on 30 November 2021 and 30
November 2022 and £14.1 million on 30 November 2023 and 30 November 2024. These amounts are in 2019/20 prices
and will be updated on 1 April 2020 and on each 1 April thereafter in line with annual changes in RPI inflation. If the
actuarial assumptions are borne out in practice then the funding deficit is expected to be removed by 31 March 2025. The
amounts due each November may be reduced by up to 100% depending on the updated funding position. Due to a
significantly improved funding position of over 99%, the November 2021 deficit contribution was suspended. The next
actuarial valuation will take place as at 31 March 2022 and is expected to be completed by 30 June 2023, when the funding
plan will be reviewed in its entirety.
The contributions payable by the Group to the DB Scheme in respect of future benefits which are accruing is 49.1% of
pensionable pay. These contributions were determined as part of the 31 March 2019 actuarial valuation and are payable in
addition to the deficit repair contributions mentioned above. These rates will remain in place until such a time as a new
schedule of contributions is agreed between the Trustees and the Group as part of the 31 March 2022 valuation. In
addition, the Group pays contributions to cover the expenses of running the DB Scheme are 6.3% of pensionable pay from
1 October 2020.
The Group's total contributions to the DB scheme for the next financial year are expected to be £12.3m, assuming that no
further deficit repair contributions are paid.
The Trust Deed provides the Group with an unconditional right to a refund of surplus assets assuming the gradual
settlement of plan liabilities over time. Furthermore, in the ordinary course of business the Trustees have no right to
unilaterally wind up, or otherwise augment the benefits due to members of the DB scheme. Based on these rights, any net
surplus in the plan is recognised in full.
Profile of the scheme
The defined benefit obligation ("DBO") includes benefits for current employees, former employees and current pensioners.
The overall duration of the DB Scheme's obligation was assessed to be about 17 years based on the results of the 31 March
2019 funding valuation. This is the weighted-average time over which benefit payments are expected to be made.
As at 31 March 2019, broadly about 30% of the liabilities are attributable to current employees (duration about 24 years),
10% to former employees (duration about 23 years) and 60% to current pensioners (duration about 13 years).
Investment objectives for the DB Scheme
Page 98
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
The Trustees aim to achieve the Scheme's investment objectives through investing partly in a diversified mix of growth
assets which, over the long term, are expected to grow in value by more than low risk assets like cash and gilts. This is
done with a broad liability driven investing framework that uses cash, gilts and other hedging instruments like swaps in a
capital efficient way. In combination this efficiently captures the Trustees' risk tolerances and return objectives relative to
the Scheme's liabilities.
The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This
includes the use of Liability Driven Investment (LDI) from October 2016 to more closely match the nature and duration of
the DB Scheme's liabilities through the use of derivatives such as swaps and repurchase agreements. The portfolio is
designed to hedge a proportion of the interest rate and inflation risk inherent in the Scheme's liabilities. The target hedging
level is currently 99% (2020: 75%) of the DB Scheme's liabilities as measured on the basis used for the funding valuation.
The trustees insure certain benefits which are payable on death before retirement.
Risks
Volatile asset returns
The DBO is calculated using a discount rate set with reference to corporate bond yields. If assets underperform this
discount rate, this will create an element of deficit. The DB Scheme aims to hold a proportion (7%) of its assets in
return-seeking assets (such as equities) which, although expected to outperform corporate bonds in the long-term, create
volatility and risk in the short-term.
Mitigation
The allocation to return-seeking assets is monitored to ensure it remains appropriate given the DB Scheme's long-term
objectives. The Trustees regularly review the strategy from return-seeking assets and have diversified some return-seeking
assets from equities into Reinsurance and Listed Infrastructure to reduce overall risk. To avoid concentration risk, the
allocation to UK equity is restricted to 36% of the total equity allocation.
Changes in bond yields
A decrease in corporate bond yields will increase the value placed on the DBO for accounting purposes, although this will
be partially offset by an increase in the value of the DB Scheme's bond holdings.
Mitigation
The DB Scheme aims to hold a substantial proportion of its assets (73%) as bonds and Liability Driven Investments (LDI),
which provide a significant hedge against falling bond yields (falling yields which increase the DBO will also increase the
value of the bond assets). There are some differences in the credit quality of bonds held by the DB Scheme and the bonds
analysed to decide the DBO discount rate, such that there remains some risk should yields on different quality bond/swap
assets diverge.
Inflation risk
A significant proportion of the DBO is indexed in line with price inflation (specifically in line with RPI) and higher
inflation will lead to higher liabilities
Mitigation
The DB Scheme invests around 42% in LDI (included in the 73% above) which provides a hedge against
higher-than-expected inflation increases on the DBO (rising inflation will increase both the DBO and the value of the LDI
portfolio).
Life expectancy risk
The majority of the DB Scheme's obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the liabilities.
Mitigation
The DB Scheme regularly reviews actual experience of its membership against the actuarial assumptions underlying the
future benefit projections and carries out detailed analysis when setting an appropriate scheme specific mortality
assumption.
Currency risk
To increase diversification, the DB Scheme invests in overseas assets. This leads to a risk that foreign currency movements
negatively impact the value of assets in Sterling terms.
Page 99
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
Mitigation
The DB Scheme hedges a proportion of the overseas investments currency risk for those overseas currencies that can be
hedged efficiently. The DB Scheme's currency hedging ratio is currently 50% in respect of overseas developed market
currencies.
Page 100
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
Other risks
There are a number of other risks associated with the DB Scheme including operational risks (such as paying out the
wrong benefits), legislative risks (such as the government increasing the burden on pension schemes through new
legislation) and other demographic risks (such as a higher proportion of members dying than assumed with a dependant
eligible to receive a survivor's pension from the DB Scheme).
Reporting at 31 December 2021
For the purposes of this disclosure, the current and future pension costs of the Northern Powergrid Group have been
assessed by Aon, a qualified independent actuary, using the assumptions set out below, which the actuary has confirmed
represent a reasonable best estimate of those costs. The review has been based on the same membership and other data as
at 31 March 2019. The board of Northern Powergrid Holdings Company has accepted the advice of the actuary and
formally approved the use of these assumptions for the purpose of calculating the pension cost of the Northern Powergrid
Group.
The results of the latest funding valuation at 31 March 2019 have been adjusted to 31 December 2021. Those adjustments
take account of experience over the period since 31 March 2019, changes in market conditions, and differences in the
financial and demographic assumptions. The present value of the DBO and the related current service cost were measured
using the Projected Unit Credit Method.
For schemes closed to new members, such as the DB Scheme, the current service cost calculated under the Projected Unit
Credit Method is expected to increase as the members of the DB Scheme approach retirement.
Principal actuarial assumptions
The significant actuarial assumptions used to determine the present value of the defined benefit obligation at the statement
of financial position date are as follows:
31 December
2021
%
31 December
2020
%
Discount rate
1.95 1.40
Future salary increases
3.45 3.05
Future pension increases
2.85 2.50
Inflation - RPI
2.95 2.55
Inflation- CPI
2.55 2.05
Proportion of pension exchanged for additional cash at retirement
10.00 10.00
Post retirement mortality assumptions
31 December
2021
Years
31 December
2020
Years
Life expectancy for male currently aged 60
26.70 26.60
Life expectancy for female currently aged 60
28.60 28.70
Life expectancy at 60 for male currently aged 45
27.40 27.90
Life expectancy at 60 for female currently aged 45
29.60 29.90
Page 101
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
Reconciliation of scheme assets and liabilities to assets and liabilities recognised
The amounts recognised in the statement of financial position are as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Fair value of scheme assets
1,742,600 1,700,700
Present value of scheme liabilities (1,480,400) (1,612,600)
Defined benefit pension scheme surplus
262,200 88,100
Scheme assets
Changes in the fair value of scheme assets are as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Fair value at start of year
1,700,700 1,616,100
Interest income
23,800 33,800
Re-measurement (loss)/gains on scheme assets
87,900 109,400
Employer contributions
20,800 44,000
Contributions by scheme participants
400 500
Benefits paid
(89,700) (102,000)
Administrative expenses paid (1,300) (1,100)
Fair value at end of year
1,742,600 1,700,700
Page 102
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
Analysis of assets
The major categories of scheme assets are as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Developed market equity
124,000 264,100
Emerging market equity
3,200 8,000
Property
194,300 166,600
Reinsurance
80,200 79,600
Listed infrastructure
95,300 84,000
Investment grade corporate bonds
201,300 200,100
Other debt (non-investment grade)
133,100 119,700
Fixed interest gilts
46,400 55,800
Index-linked gilts
3,800 4,600
Liability driven investments
703,200 539,800
Cash and cash equivalents including derivatives
157,800 178,400
1,742,600 1,700,700
The pension scheme has not invested in any of the Company's own financial instruments or in properties or other assets
used by the Company.
Scheme liabilities
Changes in the present value of scheme liabilities are as follows:
31 December
2021
£ 000
31 December
2020
£ 000
Present value at start of year
(1,612,600) (1,522,700)
Current service cost
(12,000) (12,500)
Actuarial gains/(losses) arising from changes in demographic assumptions
2,900 (20,300)
Actuarial gains/(losses) arising from changes in financial assumptions
55,100 (128,000)
Actuarial gains arising from experience adjustments
19,200 900
Interest cost
(22,300) (31,500)
Benefits paid
89,700 102,000
Contributions by scheme participants (400) (500)
Present value at end of year
(1,480,400) (1,612,600)
Page 103
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
Amounts recognised in the income statement
31 December
2021
£ 000
31 December
2020
£ 000
Current service cost
12,000 12,500
Administrative expenses paid
1,300 1,100
Net interest
(1,500) (2,300)
Prior service cost - 700
Amounts recognised 11,800 12,000
Costs included in cost of qualifying assets (8,000) (8,000)
Total recognised in the income statement
3,800 4,000
Amounts taken to the Statement of Comprehensive Income
31 December
2021
£ 000
31 December
2020
£ 000
Actuarial (gains) and losses arising from changes in demographic assumptions
(2,900) 20,300
Actuarial (gains) and losses arising from changes in financial assumptions
(55,100) 127,300
Actuarial (gains) and losses arising from experience adjustments
(19,200) (900)
Return on plan assets in excess of that recognised in net interest (87,900) (109,400)
Amounts recognised in the Statement of Comprehensive Income
(165,100) 37,300
Sensitivity analysis
Significant actuarial assumptions for determination of the defined benefit obligation are discount rate, inflation, and
mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective
assumptions occurring at the end of the reporting period, while holding all other assumptions constant:
31 December
2021
31 December
2020
Adjustment to discount rate
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
1,445,600 1,480,400 1,505,600 1,582,500 1,612,600 1,643,900
31 December
2021
31 December
2020
Adjustment to rate of inflation
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
1,503,900 1,480,400 1,466,300 1,641,900 1,612,600 1,594,700
31 December
2021
31 December
2020
Adjustment to mortality age rating
assumption
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
Present value of total obligation
1,545,600 1,480,400 1,415,600 1,685,900 1,612,600 1,539,900
Page 104
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
26 Pension and other schemes (continued)
The sensitivity analysis presented above may not be representative of the actual change in defined benefit obligation as it
is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be
correlated.
27 Dividends
31 December
2021
31 December
2020
£ 000 £ 000
Dividend of £0.20 (2020 - £0.20) per ordinary share
26,000 25,400
28 Net debt reconciliation
Group
At 1
January
2021
£ 000
Cash flows
£ 000
New leases
£ 000
Other
changes
£ 000
At 31
December
2021
£ 000
Cash and cash equivalents
21,874 20,266 - - 42,140
Lease liabilities
(14,331) 3,891 (4,350) - (14,790)
Borrowings
(1,023,245) (14,256) - 134 (1,037,367)
(1,015,702) 9,901 (4,350) 134 (1,010,017)
At 1
January
2020
£ 000
Cash flows
£ 000
New leases
£ 000
Other
changes
£ 000
At 31
December
2020
£ 000
Cash and cash equivalents
22,667 (793) - - 21,874
Lease liabilities
(9,291) 3,158 (8,198) - (14,331)
Borrowings (998,796) (23,542) - (907) (1,023,245)
(985,420) (21,177) (8,198) (907) (1,015,702)
Page 105
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
28 Net debt reconciliation (continued)
Company
At 1 January
2021
£ 000
Cash flows
£ 000
New finance
leases
£ 000
At 31
December
2021
£ 000
Cash and cash equivalents
38,148 (9,112) - 29,036
Lease liabilities
(1,346) 171 (31) (1,206)
Borrowings (10,858) (4,120) - (14,978)
25,944 (13,061) (31) 12,852
At 1
January
2020
£ 000
Cash flows
£ 000
New
finance
leases
£ 000
Other
changes
£ 000
At 31
December
2020
£ 000
Cash and cash equivalents
36,187 1,961 - - 38,148
Lease liabilities
- - (1,346) - (1,346)
Borrowings (9,717) (1,143) - 2 (10,858)
26,470 818 (1,346) 2 25,944
Page 106
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
29 Classification of financial and non-financial assets and financial and non-financial liabilities
Group
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2021 was as follows:
Non-current assets
Financial
assets at
amortised
cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets &
liabilities at
FVTOCI
£ 000
Financial
liabilities at
amortised
cost
£ 000
Non-financial
assets &
liabilities
£ 000
Property, plant and equipment
- - - - 2,993,240
Right of use assets
- - - - 14,411
Intangible assets
- - - - 48,888
Investments in subsidiaries, joint
ventures and associates
- 3,898 - - -
Retirement benefit obligations
- - 262,200 - -
Trade and other receivables
2,702 - - - -
Other non-current financial assets - - 944 - -
2,702 3,898 263,144 - 3,056,539
Current assets
Inventories
- - - - 20,382
Trade and other receivables
89,290 - - - -
Income tax asset
2,294 - - - -
Cash and cash equivalents
42,140 - - - -
Contract assets
7,593 - - - -
Other current financial assets - - 204 - -
141,317 - 204 - 20,382
Total assets
144,019 3,898 263,348 - 3,076,921
Non-current liabilities
Long term lease liabilities
- - - (11,359) -
Loans and borrowings
- - - (985,988) -
Provisions
- - - (2,341) -
Deferred revenue
- - - (649,013) -
Deferred tax liabilities - - - (182,852) -
- - - (1,831,553) -
Current liabilities
Current portion of long term lease
liabilities
- - - (3,431) -
Trade and other payables
- - - (103,412) -
Loans and borrowings
- - - (51,379) -
Deferred revenue
- - - (28,645) -
Provisions - - - (3,509) -
- - - (190,376) -
Total liabilities
- - - (2,021,929) -
Page 107
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
29 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2020 was as follows:
Financial
assets at
amortised
cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets &
liabilities at
FVTOCI
£ 000
Financial
liabilities at
amortised
cost
£ 000
Non-financial
assets &
liabilities
£ 000
Non-current assets
Property, plant and equipment
- - - - 2,889,678
Right of use assets
- - - - 14,031
Intangible assets
- - - - 51,219
Investments in subsidiaries, joint
ventures and associates
- 3,648 - - -
Retirement benefit obligations
- - 88,100 - -
Trade and other receivables 4,598 - - - -
4,598 3,648 88,100 - 2,954,928
Current assets
Inventories
- - - - 18,699
Trade and other receivables
82,492 - - - -
Cash and cash equivalents
21,874 - - - -
Restricted cash
16,758 - - - -
Contract assets 6,214 - - - -
127,338 - - - 18,699
Total assets
131,936 3,648 88,100 - 2,976,479
Non-current liabilities
Long term lease liabilities
- - - (11,295) -
Loans and borrowings
- - - (946,185) -
Provisions
- - - (2,737) -
Deferred revenue
- - - (641,727) -
Deferred tax liabilities
- - - (106,852) -
Other non-current financial liabilities - - (3,174) - -
- - (3,174) (1,708,796) -
Current liabilities
Current portion of long term lease
liabilities
- - - (3,036) -
Trade and other payables
- - - (94,015) -
Loans and borrowings
- - - (77,060) -
Income tax liability
(1,260) - - (1,260) -
Deferred revenue
- - - (27,629) -
Provisions
- - - (1,498) -
Other current financial liabilities
- - (640) - -
(1,260) - (640) (204,498) -
Total liabilities
(1,260) - (3,814) (1,913,294) -
Page 108
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
29 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
Fair values are derived from level 1 inputs.
Page 109
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
29 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
Company
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2021 was as follows:
Financial
assets at
amortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 1,555
Right of use assets
- - - 1,153
Investments in subsidiaries, joint ventures
and associates
- 242,902 - -
Deferred tax asset 553 - - -
553 242,902 - 2,708
Current assets
Trade and other receivables
3,866 - - -
Income tax asset
158 - - -
Cash and cash equivalents 29,036 - - -
33,060 - - -
Total assets
33,613 242,902 - 2,708
Liabilities
Non-current liabilities
Long term lease liabilities
- - (1,062) -
Loans and borrowings
- - (1,117) -
Provisions - - (1,850) -
- - (4,029) -
Current liabilities
Current portion of long term lease
liabilities
- - (144) -
Trade and other payables
- - (4,515) -
Loans and borrowings
- - (13,861) -
Provisions - - (249) -
- - (18,769) -
Total liabilities
- - (22,798) -
Page 110
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
29 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2020 was as follows:
Financial
assets at
amortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 1,562
Right of use assets
- - - 1,290
Investments in subsidiaries, joint ventures
and associates
- 242,902 - -
Deferred tax asset 469 - - -
469 242,902 - 2,852
Current assets
Trade and other receivables
1,291 - - -
Cash and cash equivalents 38,148 - - -
39,439 - - -
Total assets
39,908 242,902 - 2,852
Liabilities
Non-current liabilities
Long term lease liabilities
- - (1,205) -
Loans and borrowings
- - (1,117) -
Provisions - - (2,217) -
- - (4,539) -
Current liabilities
Current portion of long term lease
liabilities
- - (141) -
Trade and other payables
- - (4,029) -
Loans and borrowings
- - (9,741) -
Income tax liability
(4,168) - - -
Provisions - - (102) -
(4,168) - (14,013) -
Total liabilities
(4,168) - (18,552) -
Page 111
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
30 Financial risk review
Capital management
The Group manages its capital centrally to ensure that entities in the Group will be able to continue as going concerns
while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall
strategy remains unchanged from 2020.
The capital structure of the Group consists of net debt (borrowings as detailed in Note 21 offset by equity of the Company
(comprising issued capital, reserves and retained earnings as detailed in Notes 19 and 20).
At 31 December 2021, 96% of the Group's long-term borrowings were at fixed rates (2020: 95%) and the average maturity
for these borrowings was 20 years (2020: 22 years).
During the year all obligations under the various debt covenants have been complied with.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group's exposure and the
credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread
amongst approved counterparties. The carrying amount of financial assets recorded in the financial statements, which is
net of impairment losses, represents the Group's maximum exposure to credit risk as no collateral or other credit
enhancements are held.
The Group's income is primarily generated from use of system revenue from electricity suppliers; suppliers are credit
checked by independent ratings agencies. Impaired income from DUoS will be recovered in future periods through system
charges and is therefore of no material risk to the Group. The Company's receivables are subject to expected credit loss
calculations disclosed further within the trade receivables (Note 16). The Group's credit risk exposure is shown below:
Group
2021 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 100,749 (8,757) 91,992
Income tax asset
2,294 - 2,294
Cash and short-term deposits
17 42,140 - 42,140
Contracts
3
7,593 - 7,593
16
152,776 (8,757) 144,019
2020 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 93,244 (6,154) 87,090
Cash and short-term deposits
17 21,874 - 21,874
Contracts
3
6,214 - 6,214
16
121,332 (6,154) 115,178
For trade receivables the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime
ECL. The Group determines the expected credit losses on these items by using a provision matrix, estimated based on
historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current
conditions and estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented
based on their past due status in terms of the provision matrix. Note 16 includes further details on the loss allowance for
these assets.
Page 112
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
30 Financial risk review (continued)
The carrying amount of the Group’s financial assets at FVTPL as disclosed in Note 29 best represents their respective
maximum exposure to credit risk. The Group holds no collateral over any of these balances.
Page 113
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
30 Financial risk review (continued)
Company
2021 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 3,866 - 3,866
Cash and cash equivalents
17
29,036 - 29,036
2020 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 1,291 - 1,291
Cash and cash equivalents
17
38,148 - 38,148
Amounts due from Group undertakings are regarded as low credit risk as the Group has a strong capacity to meet its
contractual cash flow obligations and maintains an investment grade credit rating.
Liquidity risk
Ultimate responsibility of liquidity risk management rests with the board of directors, which has established an appropriate
liquidity risk management framework for the management of the Group's short, medium, and long-term funding and
liquidity management requirements. The Group manages liquidity by maintaining adequate reserves, banking facilities and
reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity
profiles of financial assets and liabilities.
The Group has access to a £100 million revolving credit facility provided by Barclays Bank plc, Lloyds Bank plc, HSBC
UK Bank plc and Royal Bank of Canada. The facility was executed in December 2021 for a period of three years, with two
1 year extensions. In addition, the Group has access to further short-term borrowing facilities provided by YEG and to a
£22 million overdraft facility provided by Lloyds Bank plc, which is reviewed annually, these borrowings are repayable on
demand.
At 31 December 2021, the Group had available £121.6m (2020: £97.0m) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
Maturity analysis for financial liabilities
The following table sets out the remaining contractual maturities of financial liabilities by type.
Page 114
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
30 Financial risk review (continued)
Group
2021
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
55,923 - - - 55,923
Short-term interest bearing
439 - - - 439
Long-term interest bearing - 27,651 148,197 1,444,098 1,619,946
56,362 27,651 148,197 1,444,098 1,676,308
2020
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
58,077 - - - 58,077
Short-term interest bearing
33,677 - - - 33,677
Long-term interest bearing - 60,015 242,107 1,291,258 1,593,380
91,754 60,015 242,107 1,291,258 1,685,134
Company
2021
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
3,363 - - - 3,363
Short-term interest bearing
11,588 - - - 11,588
Long-term interest bearing - 9,001 36,004 226,144 271,149
14,951 9,001 36,004 226,144 286,100
2020
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
4,029 - - - 4,029
Short-term interest bearing
7,464 - - - 7,464
Long-term interest bearing - 9,001 36,004 226,144 271,149
11,493 9,001 36,004 226,144 282,642
Market risk
Market risk is the risk of loss arising from movements in market variables such as interest rates, exchange rates and
commodity prices. Risks are mitigated by utilising appropriate risk management products.
The Group's policy on interest rate risk is designed to limit the Group's exposure to floating interest rates. Consistent with
this policy, at 31 December 2021 the Group had 96% (2020: 95%) of long term debt at fixed rates. Short-term loans are
charged at a floating rate of interest at SONIA plus 0.20% plus a credit adjustment spread and 4% of the Group’s long
term borrowings are at a floating rate of interest at SONIA plus 1.55%, thus exposing the Group to cash flow interest rate
risk. A 1% movement in interest rates would subject the Group to an approximate change in interest costs of £0.4m per
year. This is considered an acceptable level of risk. All other loans are at fixed interest rates and expose the Group to fair
value interest rate risk.
During the year, the Group repaid its loans that were subject to LIBOR and executed a now loan that is linked to SONIA,
therefore the Group no longer has exposure to LIBOR linked instruments.
More information on the use of cash flow hedges to manage interest rate risk on is available in Note 31.
Page 115
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
30 Financial risk review (continued)
Financial risk
The Group is not subject to significant risk relating to foreign exchange.
31 Derivatives held for risk management and hedge accounting
Derivatives held for risk management
Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates,
foreign exchange rates, credit spreads, commodities, equity or other indices. In accordance with Board approved policies,
derivatives are transacted to manage our exposure to fluctuations in interest rate. The Group uses derivatives to manage
these risks from our financing portfolio to optimise the overall cost of accessing the debt capital markets.
The following table provides a reconciliation by risk category of components of equity and analysis of other
comprehensive income items (net of tax) resulting from hedge accounting. All derivative financial instruments relate to
cash flow hedges.
2021 2020
Assets
£ 000
Liabilities
£ 000
Assets
£ 000
Liabilities
£ 000
Non-current
944 - - 3,174
Current 204 - - 640
1,148 - - 3,814
The maturity of financial instruments was as follows:
3 months to 1
year
£ 000
1 to 5 years
£ 000
More than 5
years
£ 000
Total
£ 000
2021
Notional principal
31,006 143,394 - 174,400
Cash flow hedge
204 944 - 1,148
31,210 144,338 - 175,548
2020
Notional principal
20,414 89,087 12,072 121,573
Cash flow hedge
(640) (2,795) (379) (3,814)
19,774 86,292 11,693 117,759
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as
cash flow hedges to reduce the Group’s cash flow exposure resulting from variable interest rate borrowings. The interest
rate swaps and interest payments on the underlying loan occur simultaneously and the amount accumulated in equity is
reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss.
The interest rate swaps are settled on a quarterly basis and are based on receiving a floating rate of interest based on
SONIA and paying a fixed rate of 0.8955%. The Group will settle the difference between the fixed and floating interest
rate on a net basis.
Effectiveness testing
Page 116
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
31 Derivatives held for risk management and hedge accounting (continued)
The Group is using regression analysis to assess the effectiveness of the interest rate swap on a retrospective and
prospective basis throughout the term of the hedging relationship. The dollar offset method was also performed at
inception, showing zero ineffectiveness.
Nature of the risk being hedged
The Group is hedging the risk of variability in cash flows indexed to SONIA. Further details of the Group's risk
management is available in the strategic report, pages 16 to 20, and in financial risk review, Note 30.
32 Related party transactions
Directors' advances, credits and guarantees
During the year, 2 directors (2020: 2) and 3 key personnel (2020: 3) utilised the services provided by Northern Transport
Finance Limited. The amounts included in finance lease receivables owed by these directors and key personnel were
£89,000 (2020: £19,000).
Group
2021
Sales to
£ 000
Purchases
from
£ 000
Amounts
owed
from/(to)
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
Integrated Utility Services (Eire)
2,156 (5,786) - - -
CE Gas Ltd
134 - - - -
Northern Powergrid Limited
- - - (6,222) -
Northern Powergrid (Yorkshire) plc
28,293 (11,292) - - -
Vehicle Lease and Service Limited
37 (4,951) - 1,090 -
Yorkshire Electricity Group - - - (182) 16,042
30,620 (22,029) - (5,314) 16,042
2020
Sales to
£ 000
Purchases
from
£ 000
Amounts
owed
from/(to)
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
Integrated Utility Services (Eire)
2,169 (4,769) - - -
CE Gas Ltd
4 - - - -
Northern Powergrid Limited
- - - (6,228) -
Northern Powergrid (Yorkshire) plc
27,189 (10,630) - - -
Vehicle Lease and Service Limited
21 (4,940) - 870 -
Yorkshire Electricity Group - - - (802) (35,372)
29,383 (20,339) - (6,160) (35,372)
Page 117
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
32 Related party transactions (continued)
Company
2021
Sales to
£ 000
Purchases
from
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
CE Gas Ltd
134 - - -
Northern Powergrid Limited
- - (6,222) -
Northern Powergrid (Northeast) plc
4,552 7 26,000 -
Northern Powergrid (Yorkshire) plc
1,992 - - -
Northern Transport Finance Limited
18 - - -
Vehicle Lease and Service Limited
- - 1,090 -
Yorkshire Electricity Group - - 13 29,036
6,696 7 20,881 29,036
2020
Sales to
£ 000
Purchases
from
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
CE Gas Ltd
223 - - -
Northern Powergrid Limited
- - (6,228) -
Northern Powergrid (Northeast) plc
4,952 - 25,400 -
Northern Powergrid (Yorkshire) plc
2,494 - - -
Northern Transport Finance Limited
11 - - -
Vehicle Lease and Service Limited
- - 870 -
Yorkshire Electricity Group
- - 85 38,148
7,680 - 20,127 38,148
Page 118
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
33 Parent and ultimate parent undertaking
The Company's immediate parent is Northern Powergrid Limited .
The ultimate parent and controlling party is Berkshire Hathaway Inc. . These financial statements are available upon
request from 3555 Farnam Street, Omaha, Nebraska 68131.
Relationship between entity and parents
The parent of the largest group in which these financial statements are consolidated is Berkshire Hathaway Inc.,
incorporated in United States of America.
The registered address of Berkshire Hathaway Inc. is:
3555 Farnam Street, Omaha, Nebraska 68131
The parent of the smallest group in which these financial statements are consolidated is Northern Powergrid Holdings
Company, incorporated in England and Wales.
The registered address of Northern Powergrid Holdings Company is::
Lloyds Court, 78 Grey Street, Newcastle upon Tyne, Tyne and Wear, NE1 6AF
34 Other reserves
At the Company's Annual General Meeting in August 1994, the shareholders gave approval to on-market purchases of up
to 10% of its shares and this was given effect on 21 September 1994 when 12,370,400 shares were purchased. This
transaction resulted in the creation of a capital redemption reserve of £6.2m. Under section 831(4) of the Companies Act
2006 this reserve is treated as an un-distributable reserve.
35 Notice of annual general meeting
Notice is hereby given that the Annual General Meeting of Northern Electric plc will be held by WebEx on Wednesday 22
June 2022 at 11.00 am.
WebEx joining instructions
For shareholders wishing to join the Annual General Meeting of Northern Electric plc please visit
https://www.webex.com/login/attend-a-meeting and when prompted, enter ‘the meeting information’: 2613 017 0939.
The following resolutions will be proposed as ordinary resolutions:
Annual Report and Accounts
1 To receive and consider the strategic, directors' and auditor's reports and the Group accounts for the year ended 31
December 2021.
Dividend
2 To declare that no final dividend be paid for the year ended 31 December 2021.
Re-election of Directors
3 To appoint Mr A P Jones as a director.
4 To appoint Mr S J Lockwood as a director.
The Auditors
5 To re-appoint Deloitte LLP as the Company’s auditor until the conclusion of the next general meeting at which
accounts are laid and to authorise the directors to determine their remuneration.
By order of the board
Page 119
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)
35 Notice of annual general meeting (continued)
J C Riley
Company Secretary
4 May 2022
Registered office:
Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF
Registered in England No 2366942
Notes:
1 All the issued ordinary shares in the Company are held by or on behalf of Northern Powergrid Limited.
2 Holders of preference shares have the right to receive notice of, attend and speak at the Annual General Meeting but
are only entitled to vote if, at the date of the notice of the meeting, payment of the dividend to which they are
entitled is six months or more in arrears, or if a resolution is to be considered at the meeting for the winding up of
the Company or abrogating, varying or modifying any of the special rights attaching to the preference shares. As
none of these circumstances apply to this Annual General Meeting, preference shareholders should note that they
do not have the right to vote on any of the business to be considered.
3 Members are entitled to appoint a proxy to exercise all or any of their rights on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy
is appointed to exercise the rights attached to a different share or shares held by the shareholder. A proxy need not
be a shareholder of the Company.
4 Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to
enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by
whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the
Annual General Meeting. If a Nominated person does not have such a right or does not wish to exercise it, he/she
may have a right under such an agreement to give instructions to the member as to the exercise of voting rights.
5 Any corporation which is a member can appoint one or more corporate representatives who may exercise on its
behalf all of its powers as a member provided that they do not do so in relation to the same shares.
6 The current price of the Company’s preference shares can be obtained from the website of the London Stock
Exchange at www.londonstockexchange.com.
Page 120