213800MP2MAHFMJB4438-2021-12-31

Registered number: 03070482 (England and Wales)

Northern Electric Finance plc

Annual Report and Financial Statements

for the Year Ended 31 December 2021

Northern Electric Finance plc

Contents

Company Information 1

Strategic Report 2 to 3

Directors' Report 4 to 7

Independent Auditor's Report 8 to 13

Statement of Profit or Loss 14

Statement of Financial Position 15

Statement of Changes in Equity 16

Statement of Cash Flows 17

Notes to the Financial Statements 18 to 37

Northern Electric Finance plc

Company Information

Directors

T H France

A P Jones

P A Jones

Company Secretary

J C Riley

Registered office

Lloyds Court

78 Grey Street

Newcastle upon Tyne

NE1 6AF

Registered number

03070482 (England and Wales)

Auditor

Deloitte LLP

Statutory auditor

Newcastle upon Tyne

United Kingdom

Page 1

Northern Electric Finance plc

Strategic Report for the Year Ended 31 December 2021

The directors present the annual reports and the audited financial statements for the year ended 31 December 2021 of

Northern Electric Finance plc (the "Company"), which have been drawn up and 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 financing company. The principal activity of the Company is to meet its

obligations to make the interest payments required by the 2035 5.125% bonds and the 2049 2.75% bonds, both of which

are guaranteed by Northern Powergrid (Northeast) plc. Those payments were made on 4 May 2021 and 24 May 2021

respectively.

The Company made a profit after tax for the year of £39,000 (2020: loss £84,000) mainly due to interest income exceeding

interest expenses.

KEY PERFORMANCE INDICATORS

The directors manage the Company's operations on a Northern Powergrid Group basis. The development, performance and

position of Northern Powergrid Holdings Company, which include those of the Company, are discussed in the annual

report and financial statements of Northern Powergrid Holdings Company.

SECTION 172(1) STATEMENT

The information pursuant to Section 414CZA of the Companies Act 2006 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 is set out below:

(a) the likely consequences of any decision in the long term:

Decisions are made with due regard to the principal activity of the Company and the wider impact upon the Northern

Powergrid Group.

(b) the interests of the Company's employees:

The Company does not have any employees.

The Company does not have customers or interact with suppliers. Relationships with bond holders are managed by the

Northern Powergrid Group’s treasury department and the relevant bond trustee.

(d) the impact of the Company's operations on the community and the environment:

The Company’s operation has negligible impact on the community and environment.

(e) the desirability of the Company maintaining a reputation for high standards of business conduct:

In common with Northern Powergrid Group, the Company has adopted the Berkshire Hathaway Energy Company’s Core

Principles which includes Regulatory Integrity. This requires that the Company’s affairs are managed in accordance with

the highest behavioural standards and adherence to a policy of strict compliance with all relevant standards, legislation and

regulatory conditions.

(f) the need to act fairly as between members of the Company:

The Company has one class of shares which are all held by Northern Powergrid (Northeast) plc, a company owned by the

Northern Powergrid Group.

Page 2

Northern Electric Finance plc

Strategic Report for the Year Ended 31 December 2021 (continued)

PRINCIPAL RISKS AND UNCERTAINTY

The principal risks and uncertainties are integrated with the principal risks of the Northern Powergrid Group and are not

managed separately. Accordingly, the principal risks and uncertainties, which include those of the Company, are discussed

in the annual reports and financial statements of Northern Powergrid Holdings Company.

Approved by the Board on 4 May 2022 and signed on its behalf by:

A P Jones

Director

Page 3

Northern Electric Finance plc

Directors' Report for the Year Ended 31 December 2021

The directors present their report together with the auditor's report and the financial statements for the year ended 31

December 2021.

Dividends

During the year no interim dividend was paid (2020: £nil). The directors recommend that no final dividend be paid in

respect of the year (2020: £nil).

Directors of the Company

The directors, who held office during the year and to the date of signing were as follows:

T H France

S J Lockwood (resigned 14 April 2022)

P A Jones

T E Fielden (resigned 15 February 2021)

A P Jones (appointed 14 April 2022)

During and as at the end of the year, none of the directors had any interest in any contract which was significant in relation

to the business of the Company and an indemnity contained in the Company's Articles of Association was in force for the

benefit of the directors of the Company and as directors of associated companies, which was a qualifying third-party

indemnity provision for the purposes of the Companies Act 2006.

Future developments

The financial position of the Company, as at 31 December 2021, is shown in the statement of financial position on page

15. There have been no significant events since the year end. There are no plans to change the existing business model.

Research and development

The Company does not undertake research and development.

Financial risk management

Details of financial risks are covered in Note 15, within the Notes to the financial statements.

Pandemic

During the year, the coronavirus pandemic has had a limited impact on the Company as the Company is a non-operational

wholly owned subsidiary whose primary function is that of an issuer of debt securities.

Political donations

During the year, no contributions were made to political organisations (2020: £nil).

Corporate governance statement

The directors have elected to apply the exemption set out in Section 1B.1.6R of the Disclosure and Transparency Rules

(“DTR”).

Audit committee

The board of Northern Powergrid Holdings Company has established an audit committee for the Northern Powergrid

Group under delegated terms of reference which carries out the functions required by DTR 7.1.3 R.

Committee members:

- J Reynolds - Non-executive Director - Northern Powergrid Holdings Company (Chair)

- T E Fielden - Finance Director (resigned 15 February 2021)

- A P Jones, Finance Director (appointed 20 April 2022)

- S J Lockwood - Director of Finance (interim) (appointed 10 February 2021, resigned 14 April 2022)

- M Knowles - Independent member - Northern Powergrid Holdings Company

Page 4

Northern Electric Finance plc

Directors' Report for the Year Ended 31 December 2021 (continued)

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsibile 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 financial statements in accordance with International Financial Reporting Standards (IFRSs) as

adopted by the IASB. Under company law the directors must not approve the accounts unless they are satisfied that they

give a true and fair view of the state of affairs of the company and of the profit or loss of the Company for that period. In

preparing these financial statements, the directors are required to:

• properly select and apply accounting policies;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable International Financial Reporting Standards (IFRSs) as adopted by the IASB have been

followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will

continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the

Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and

enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for

safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and

other irregularities.

DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO DTR 4

Each of the directors as at the date of the annual reports and financial statements, whose names and functions are set out on

page 4 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 loss of the Company and the undertakings included in the

consolidation taken as a whole; and

- the management report (which is comprised of the Strategic Report and the Report of the Directors) includes a fair

review of the development and performance of the business and the position of the Company and the undertakings

included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces.

Page 5

Northern Electric Finance plc

Directors' Report for the Year Ended 31 December 2021 (continued)

Going Concern

A review of the Company's business activities during the year, together with details regarding its future development,

performance and position, its objectives, policies and processes for managing its capital, its financial risk management

objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the

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 Northern

Powergrid Group, and companies may lend within the Northern Powergrid Group. For that reason, financial health is

considered with reference to the Northern Powergrid Group. Those entities with net current liabilities position obtaining a

letter of support from Northern Powergrid Holdings Company.

When considering continuing 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, Northern Powergrid (Northeast) plc and Northern Powergrid

(Yorkshire) plc, 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. Northern Powergrid Holdings

Company, a company in the Northern Powergrid Group, Northern Powergrid (Northeast) plc and Northern Powergrid

(Yorkshire) plc 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 plans to issue long-term borrowings within the next 12 months and 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 Northern Powergrid (Northeast) plc and Northern

Powergrid (Yorkshire) plc licences to provide Ofgem with annual certificates, confirming that the directors have a

reasonable expectation that the Northern Powergrid 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 has adequate

resources to continue in operational existence for the foreseeable future. As the Company is in a net liability position, 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.

Statement as to disclosure of information to the auditor

Each of the directors, who is a director of the Company as at the date of this report, confirms that:

- so far as he is aware, there is no relevant audit information of which the Company's auditor is unaware; and

- he has taken all the steps he ought to have taken as a director in order to make himself aware of any relevant audit

information and to establish that the auditor is aware of that information.

Page 6

Northern Electric Finance plc

Directors' Report for the Year Ended 31 December 2021 (continued)

Reappointment of auditor

Deloitte LLP will continue in office in accordance with the provisions in Section 487 of the Companies Act 2006 and has

indicated its willingness to do so.

Approved by the Board on 4 May 2022 and signed on its behalf by:

A P Jones

Director

Page 7

Northern Electric Finance plc

Independent Auditor's Report to the Members of Northern Electric Finance plc

1. Opinion

In our opinion the financial statements of Northern Electric Finance plc (the 'company'):

• give a true and fair view of the state of the company's affairs as at 31 December 2021 and of its profit for the year then

ended;

• have been properly prepared in accordance with international accounting standards in conformity with the requirements

of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as issued by the International

Accounting Standards Board (IASB); and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise:

•

the statement of profit or loss;

•

the statement of financial position;

•

the statement of changes in equity;

•

the statement of cash flows; and

• the related notes 1 to 17.

The financial reporting framework that has been applied in their preparation is applicable law and International Financial

Reporting Standards (IFRSs) as issued by the IASB.

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.

Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the

financial statements section of our report.

We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the

financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to

listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters The key audit matter that we identified in the current year was:

• Valuation of borrowings and the associated interest.

Within this report, key audit matters are identified as follows:

- Newly identified (!)

- Similar level of risk (< >)

Materiality

The materiality that we used in the current year was £389k which was determined on the basis of 2.0% of interest

receivables.

Scoping

Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

Significant changes in our approach

In the previous year we identified impact of Covid-19 as a key audit matter as a result of the uncertainties, at the date of

approval of the financial statements, surrounding the pandemic outbreak in regards to company’s viability. These

judgements do not apply in the current year and accordingly we have not identified this as a key audit matter in the current

year.

Page 8

Northern Electric Finance plc

Independent Auditor's Report to the Members of Northern Electric Finance plc (continued)

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in

the preparation of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of

accounting included:

• reviewing financing facilities and understanding the cash flows of the entity;

• considering the limited recourse features of the bonds and assessing the guarantees in place from Northern Powergrid

(Northeast) plc (Northern Powergrid Group undertaking), including the ability of Northern Powergrid (Northeast) plc to

repay the obligations of the company;

• analysing the current and forecast performance of the Northern Powergrid (Northeast) plc, by assessing management’s

assumptions and sensitivity analysis against the budgets prepared until 2030; and

• assessing the sophistication of the model used to prepare the forecasts prepared by the Northern Powergrid (Northeast)

plc, testing of clerical accuracy of those forecasts and assessing 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 company’s ability to continue as a going concern for a

period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant

sections of this report.

5. Key audit matters

Key audit matters are those 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.

5.1 Valuation of borrowings and the associated interest (< >)

Key audit matter description

The company acts as a financing company within the Northern Powergrid Group, therefore, the largest balances in the

financial statements relate to the borrowings and the associated interest reported, both of which are determined in

accordance with IFRS 9 with reference to the relevant underlying loan agreements. As disclosed in Note 12 ‘Loans &

Borrowings’ to the financial statements, borrowings as at 31 December 2020 totalled £303 million (2019: £405 million)

and consist of the 2035 5.125% bonds and 2049 2.750% bonds. The associated interest payable on these loans for the year

ended 31 December 2020 is disclosed in Note 4 ‘Finance income and cost’ to the financial statements. The accounting

policy is disclosed in Note 2 to the financial statements.

The key inputs into the calculation of the value of the loan and associated interest include the amortisation of initial costs

and the effective interest rate.. There is a risk that the balance is materially misstated due to the information not being

presented in line with the agreement, or the miscalculation of the amortised costs and effective interest rate.

How the scope of our audit responded to the key audit matter

In response to this key audit matter, we have completed the following procedures:

• Analysis of the original loan agreements to assess whether the value of the loan is in compliance with IFRS 9

requirements; and

• Recalculation of amortised costs and analysis of the effective interest rate, comparing it to prior year and assessing

whether the base calculation was appropriate.

Key observations

Based on the work performed, we concluded that the valuation of borrowing and associated interest was appropriate and in

line with IFRS 9 requirements.

Page 9

Northern Electric Finance plc

Independent Auditor's Report to the Members of Northern Electric Finance plc (continued)

6. Our application of materiality

6.1.Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the

economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in

planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality

£389k (2019: £393k).

Basis for determining materiality

2.0% (2019: 2.0%) of interest receivables.

Rationale for the benchmark applied

The company is a wholly owned subsidiary used as a financing company for the group. This entity, therefore, manages

group financing (borrowing and lending) which are the key areas of interest for the group company. Interest receivable is

the main source of income for the entity which allows the entity to pay off their liabilities. The interest income balance is

hence the main focus area for the holding company who is the main user of the financial statement of the company.

6.2. 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. Performance materiality was

set at 70% of materiality for the 2020 audit (2019: 70%). In determining performance materiality, we considered the

following factors:

a. our risk assessment, including our assessment of the company’s overall control environment and;

b. our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements

identified in prior periods.

6.3. Error reporting threshold

We agreed with the Board of Directors that we would report to the Board of Directors all audit differences in excess of

£19k (2019: £20k), 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.

Page 10

Northern Electric Finance plc

Independent Auditor's Report to the Members of Northern Electric Finance plc (continued)

7. An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the company and its environment, including internal control, and

assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed

directly by the audit engagement team.

8. Other information

The other information comprises the information included in the annual report, other than the financial statements and our

auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly

stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially

inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be

materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this

gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we

conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the

financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors

determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether

due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a

going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting

unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do

so.

10. Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable

assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will

always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered

material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of

users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Page 11

Northern Electric Finance plc

Independent Auditor's Report to the Members of Northern Electric Finance plc (continued)

11. Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line

with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The

extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

11.1. 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

company’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;

• Results of our enquiries of management, internal audit and the Board about their own identification and assessment of the

risks of irregularities;

• Any matters we identified having obtained and reviewed the company’s documentation of their policies and procedures

relating to:

- Identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of

non-compliance;

- Detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged

fraud;

- The internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

• The matters discussed among the audit engagement team and relevant internal specialists, including tax and IT specialist

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.

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 company operates in, focusing on

provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures

in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act

and tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial

statements but compliance with which may be fundamental to the company’s ability to operate or to avoid a material

penalty.

11.2. Audit response to risks identified

As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or

non-compliance with laws and regulations.

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 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

• 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 12

Northern Electric Finance plc

Independent Auditor's Report to the Members of Northern Electric Finance plc (continued)

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

• The information given in the strategic report and the directors’ report for the financial year for which the financial

statements are prepared is consistent with the financial statements; and

• The strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit,

we have not identified any material misstatements in the strategic report or the directors’ report.

13. Matters on which we are required to report by exception

13.1. 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, or returns adequate for our audit have not been received from branches

not visited by us; or

• The financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

13.2. 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.

14. Other matters which we are required to address

14.1. 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 23 years, covering the years ending 31 December 1998 to 31 December 2020.

14.2. 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).

15. Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters

we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we

do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our

audit work, for this report, or for the opinions we have formed.

Anthony Matthews FCA (Senior Statutory Auditor)

For and on behalf of Deloitte LLP, Statutory Auditor

Newcastle upon Tyne

United Kingdom

4 May 2022

Page 13

Northern Electric Finance plc

Statement of Profit or Loss for the Year Ended 31 December 2021

Note

2021

£ 000

2020

£ 000

Revenue

- -

Administrative expenses (22) (20)

Operating loss

(22) (20)

Finance costs

3 (12,354) (19,531)

Finance income

12,424 19,451

Profit/(loss) before tax

48 (100)

Income tax (expense) / credit

(9) 16

Profit/(loss) for the year

39 (84)

There has been no other comprehensive income during the year (2020: £nil).

The notes on pages 18 to 37 form an integral part of these financial statements.

Page 14

Northern Electric Finance plc

(Registration number: 03070482)

Statement of Financial Position as at 31 December 2021

Note

31 December

2021

£ 000

31 December

2020

£ 000

Assets

Non-current assets

Trade and other receivables

7 295,958 295,812

Current assets

Trade and other receivables

7 4,126 4,126

Cash and cash equivalents

1,585 1,547

5,711 5,673

Total assets

301,669 301,485

Equity and liabilities

Equity

Share capital

9 (50) (50)

Retained losses 1,798 1,837

Total equity 1,748 1,787

Non-current liabilities

Loans and borrowings

11 (295,963) (295,817)

Current liabilities

Trade and other payables

12 (5) (5)

Loans and borrowings

11 (7,440) (7,440)

Income tax liability (9) (10)

(7,454) (7,455)

Total liabilities (303,417) (303,272)

Total equity and liabilities

(301,669) (301,485)

Approved by the Board on 4 May 2022 and signed on its behalf by:

A P Jones

Director

The notes on pages 18 to 37 form an integral part of these financial statements.

Page 15

Northern Electric Finance plc

Statement of Changes in Equity for the Year Ended 31 December 2021

Note

Share capital

£ 000

Retained

losses

£ 000

Total

£ 000

At 1 January 2021

50 (1,837) (1,787)

Profit for the year - 39 39

Total comprehensive expense - 39 39

At 31 December 2021

50 (1,798) (1,748)

Share capital

£ 000

Retained

losses

£ 000

Total

£ 000

At 1 January 2020

50 (1,753) (1,703)

Loss for the year - (84) (84)

Total comprehensive expense - (84) (84)

At 31 December 2020

50 (1,837) (1,787)

The notes on pages 18 to 37 form an integral part of these financial statements.

Page 16

Northern Electric Finance plc

Statement of Cash Flows for the Year Ended 31 December 2021

Note

2021

£ 000

2020

£ 000

Cash flows from operating activities

Profit/(loss) for the year

39 (84)

Adjustments to cash flows from non-cash items

Finance income

3 (12,424) (19,451)

Finance costs

3 12,354 19,531

Interest received

12,278 21,155

Loan repayments from parent company

- 100,000

Income tax paid / (receipt)

9 (16)

Net cash flow used in operating activities

12,256 121,135

Income taxes (paid)/received

(10) 35

Net cash flow from operating activities 12,246 121,170

Net cash flows used in financing activities

Repayment of long-term external borrowings

- (100,000)

Interest paid (12,208) (21,149)

Net cash flows used in financing activities (12,208) (121,149)

Net movement in cash and cash equivalents

38 21

Cash and cash equivalents at 1 January

1,547 1,526

Cash and cash equivalents at 31 December

1,585 1,547

The notes on pages 18 to 37 form an integral part of these financial statements.

Page 17

Northern Electric Finance plc

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 under the Companies Act and domiciled in

England and Wales.

The address of its registered office is Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF.

2 Accounting policies

Statement of compliance

The Company financial statements have been prepared in accordance with International Financial Reporting Standards and

its interpretations adopted by the 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 historical cost accounting rules.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It

also requires management to exercise its judgement in the process of appyling the Company's accounting policies.

The nature of the Company's business model, strategic objectives, operations and activities are set out in the Strategic

Report.

Page 18

Northern Electric Finance plc

Notes to the Financial Statements for the Year Ended 31 December 2021 (continued)

2 Accounting policies (continued)