TIDMBD49
RNS Number : 9135Z
Electricity North West Limited
01 June 2016
Electricity North West Limited (the "Company") is pleased to
announce its Annual Financial Report for the year ended 31 March
2016.
The Annual Financial Report is available to view on the
Company's website: www.enwl.co.uk.
In accordance with the requirements of Listing Rule 17.3.1, a
copy of the annual financial report has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at: http://www.hemscott.com/nsm.do.
In accordance with Disclosure and Transparency Rule 6.3.5 the
Annual Financial Report is here reproduced in full unedited text
(the Company has not taken advantage of the exemption afforded in
6.3.5 (2)).
For further information please contact Electricity North West's
press office on 0844 209 1957 or email pressoffice@enwl.co.uk
Annual Report and Consolidated Financial Statements
For the year ended 31 March 2016
Electricity North West Limited
Registered number 02366949
Introduction
Electricity North West Limited ('Electricity North West' or 'the
Company') is the electricity distributor for the North West of
England. We own, invest in, operate and maintain the network of
poles, wires, transformers and cables which carry electricity from
the national grid to 2.4 million premises and five million
customers. Our job is to keep electricity flowing safely to our
customers' homes and businesses, keeping the lights on 24 hours a
day, seven days a week.
We are pleased to present the Annual Report and Consolidated
Financial Statements of the Company and its subsidiaries (together
referred to as 'the Group') to shareholders for the year ended 31
March 2016. Further information on our Company can also be found by
visiting our website: www.enwl.co.uk.
Notice regarding limitations on directors' liability under
English law
The information supplied in the Strategic Report and Directors'
Report has been drawn up and presented in accordance with English
company law. The liabilities of the Directors in connection with
that report shall be subject to the limitations and restrictions
provided by such law.
Strategic Report
In preparing the Strategic Report, the Directors have complied
with s414 of the Companies Act 2006. The Strategic Report has been
prepared for the Electricity North West Group as a whole comprising
of Electricity North West Limited ('the Company') and its
non-trading subsidiaries ('the Group').
Cautionary statement regarding forward-looking statements
The Chairman's Statement, Chief Executive Officer's Statement
and Strategic Report section of the Annual Report and Consolidated
Financial Statements ('the annual report') have been prepared
solely to provide additional information to the shareholders to
assess the Group strategies and the potential for those to succeed.
These sections and other sections of the annual report contain
certain forward looking statements that are subject to factors
associated with, amongst other matters, the economic and business
circumstances occurring within the region and country in which the
Group operates. It is believed that the expectations reflected in
these statements are reasonable but they may be affected by a wide
range of variables which could cause actual results to differ
materially from those anticipated at the date of the annual report.
The Group does not undertake any obligation to update or revise
these forward-looking statements, except as may be required by law
or regulation.
Regulatory reporting and regulatory audits for the year ended 31
March 2016
Certain regulatory performance data contained in this annual
report remain subject to regulatory audit by the Office of Gas and
Electricity Markets ('Ofgem'). The final regulatory reporting pack
and regulatory financial statements for the year ended 31 March
2016 are not due for submission to Ofgem until July 2016, and will
be reviewed by Ofgem after their submission.
Website and investor relations
Electricity North West's website, www.enwl.co.uk, gives
additional information on the Company and Group. Notwithstanding
the references we make in this annual report to Electricity North
West's website, none of the information made available on the
website constitutes part of this annual report or shall be deemed
to be incorporated by reference herein. Interested institutional
debt investors can also gain access to additional financial
information by either contacting the Head of Strategic Planning and
Investor Relations, or by registering for the Investor Relations
Secure Area on the Investor Relations page of the website.
Contents Page
Chairman's Statement 4
Chief Executive Officer's Statement 5
Strategic Report 7
- Company Background 7
- Corporate Social Responsibility 14
- Key Performance Indicators 18
- Financial Performance 21
- Risk Management 25
Corporate Governance Report 28
- The Board 28
- Report of the Audit Committee 35
- Report of the Nominations Committee 38
- Report of the Remuneration Committee 38
- Report of the Health, Safety & Environment Committee
41
Directors' Report 42
Independent Auditor's Report to the Members of Electricity North West Limited 45
Financial Statements 51
- Consolidated Income Statement 51
- Consolidated and Company Statement of Comprehensive Income 52
- Consolidated and Company Statement of Financial Position
53
- Consolidated Statement of Changes in Equity 54
- Company Statement of Changes in Equity 55
- Consolidated and Company Statement of Cash Flows 56
Notes to the Financial Statements 57
Glossary 119
Chairman's Statement
I am pleased to introduce the Group's results for the year ended
31 March 2016 and confirm that the Group started this first year of
the eight-year regulatory price control with some major
achievements, notably in the handling of Storm Desmond.
This performance has been driven by a consistent focus on the
needs of our customers which are central to achieving our goal to
be the leading energy delivery business.
As in previous years, we continue to commit to a high standard
of corporate governance, as detailed in our Corporate Governance
Report on page 28. Central to good governance is an experienced and
skilled Board that is able to provide leadership and appropriate
challenge.
It was announced during the year that Steve Johnson, who has
been Chief Executive Officer for seven years, would be stepping
down from the Board. Since its separation from United Utilities,
Steve has successfully ensured that Electricity North West is
recognised and valued by customers and other stakeholders for the
benefits it provides to the region. The Board thanks him for his
exceptional service.
I am delighted to welcome Peter Emery to Electricity North West
as Chief Executive Officer. Throughout his career, Peter has
demonstrated a clear focus on achieving the highest levels of
customer service delivered through colleagues working in a safe
operating environment. His appointment will enable the Company to
improve in these important areas.
After six years as an Independent Non-Executive Director, John
Gittins stepped down from the Board on the 20 July 2015. The
Nominations Committee undertook a recruitment process and I am
delighted that Rob Holden joined us as an Independent Non-Executive
Director in January 2016. I am also pleased to report that David
Brocksom was appointed to the role of Chief Financial Officer in
May 2015 and joined the Board in October 2015.
I would also like to take this opportunity to thank my Board
colleagues for their continued commitment and valued contribution
throughout the year and also to thank the Executive Leadership Team
and all of our employees for their hard work and commitment.
This last year saw some unprecedented weather conditions which
created enormous challenges in maintaining and restoring power to
the homes and businesses in our region. I would particularly like
to thank our employees and our contractors who work tirelessly to
maintain and invest in the network for our customers.
Dr John Roberts CBE
Chairman
Chief Executive Officer's Statement
The winter of 2015/16 was a challenging one for the Company. The
region we serve was devastated by flooding and the Christmas and
New Year plans of many of our customers and communities were left
in tatters as they contended with the most challenging of
conditions.
Above all, the safety of customers and of our colleagues and
contractors remained our key concern. I am pleased to note that
during the operational response to the floods we maintained the
safety of our colleagues and customers in these challenging
conditions, with no accidents or safety incidents occurring.
I am also proud to say that throughout these unprecedented
events, we were able to demonstrate responsiveness and resilience
in the service of our customers. Our colleagues gave up their own
Christmas preparations and worked alongside colleagues from our
supply chain partners and from other Distribution Network Operators
to mobilise the resources required to keep many of our customers on
supply and to restore power to those that lost power supplies. Many
of our own staff worked hard to restore supplies to their
communities despite their own properties being flooded and their
own families being directly affected.
The mobilisation in response to Storm Desmond included
everything from the largest ever single deployment of generators to
maintain supplies, to the provision of over 30,000 hot meals for
those directly affected by the floods. We proactively contacted
those Priority Services Registered customers that were affected and
used all media channels to reassure and engage with as many people
as possible throughout the region. Working effectively with local,
regional and national stakeholders, we created a shared
understanding of the issues and delivered focussed and responsive
plans and updates.
Our performance during the storms demonstrates our commitment to
delivering the very highest levels of service to our customers, a
commitment which informs and defines everything we do.
Customers tell us they want their distribution service to be
affordable, reliable and sustainable. We have arranged our business
activities and our decision making to align to these, necessarily
conflicting, demands.
Good progress has been made against the 40 commitments we made
to our customers for this price review, although progress was
hampered in some areas as a consequence of the storms. The storms
impacted both our short term priorities, for example to focus on
restoration of damage, as well as delaying long term investment
activities for example as a result of saturated ground
conditions.
A comprehensive report of our performance against our regulatory
incentives and our business plan commitments will be published
later in the summer. We have plans in place to address those areas
where performance was impacted by the storms event and expect
overall performance to be back in line with expectations during
2016.
In November 2014, Ofgem confirmed that the Electricity North
West price cut for the RIIO-ED1 period is the largest for any
region in Great Britain. We are committed to demonstrating value to
customers in the choices we make every day as a company. In a
region where fuel poverty is higher than the national average,
delivering prices that are fair to customers is a key driver for
Electricity North West.
In addition to these considerations, it is important to us and
to our customers that, in the long term, the shareholders and other
financiers of the Company continue to receive a level of return on
their investments that supports the necessity of their continued
investment in the network.
We achieve the lowest prices through a determined focus on
finding more efficient and effective ways of providing a reliable
power supply. Changes range from small marginal operational gains
through to significant network investment decisions.
Chief Executive Officer's Statement (continued)
Ofgem not only confirmed that our price cut at the start of the
regulatory period was the largest in the sector but they also rated
Electricity North West as the industry leader in the price review
league table. The table combined efficiency during the previous
price review period with efficiencies promised in the RIIO-ED1
business plan. Such performance demonstrates significant progress
towards our vision of being 'the leading energy delivery
business'.
Our customers continue to benefit from year on year improvements
in the reliability of our network evidenced by a fall in the number
of interruptions and a fall in the length of time they are without
supply. Our performance in each of these areas (excluding the major
storms) exceeded Ofgem-set targets and this year saw our best ever
performance in customer minutes lost and our second best ever
performance in customer interruptions.
We also continue to focus on our Customer Service League Table
Performance. Our performance against this measure is below our
targeted levels. We have developed a three-year plan which we
believe will enable us to deliver leading customer service
performance by 2019. We have also played a full role in the
development of the Single Emergency Number; a sector-wide
initiative which will deliver significant benefit to our
customers.
Over the 8 year regulatory period, we will invest around GBP2.6
billion in the network, providing critical infrastructure
investment in the region and continue to provide the reliable and
sustainable network to our customers. We carefully plan and manage
this investment and invest in new technologies to drive performance
and value in both the short and long term.
We deliver through partnership and collaboration with key
regional stakeholders. The North West is an ambitious region and by
developing effective dialogue with these stakeholders we can ensure
that we are fully and appropriately playing our part to support the
ambitions of the region whilst maintaining the efficiency needed to
match the customer affordability challenge.
Our Future Networks team continue to develop smart solutions
that benefit our customers and the wider industry whilst delivering
or enhancing our performance and safety. As part of our commitment
to sustainability we continue to successfully develop and deliver
Low Carbon Network Fund and Network Innovation Competition
projects. Electricity North West is a leader in delivering the
innovations which will enable the energy sector to help meet global
and national climate change targets and we will continue to build
on this successful record.
This is my last report as Chief Executive Officer of Electricity
North West. I am pleased to report that the Company is well placed.
It is powered daily by the determination of our colleagues to
deliver the very highest levels of service to our customers at a
price they can afford.
I am grateful for the support I have received over the last
seven years and I am very proud of what has been achieved. I leave
you with some sadness but also with my very best wishes for a
successful future.
Steve Johnson
Chief Executive Officer
Strategic Report
Company Background
Electricity North West Limited is the electricity distributor
for the North West of England. We are based here and we invest
here.
The Company serves approximately 5 million customers at 2.4
million domestic and industrial locations, has over 1,600 employees
and provides a safe and reliable electricity supply, keeping the
lights on 24 hours a day, seven days a week.
We own, invest in, operate and maintain the network of poles,
wires, transformers and cables which carry electricity from the
national grid to homes and business across the North West.
We charge our customers through their electricity suppliers in
the case of domestic and small customers, or directly for larger
suppliers.
The prices that we charge our customers for distributing
electricity are regulated by the Gas and Electricity Markets
Authority which operates through Ofgem but ultimately it is our
customers that fund the business. Approximately 17p from every
pound of a standard domestic electricity bill comes to Electricity
North West to provide our services equivalent to GBP79 per home per
year.
From April 2015 charges have been regulated by Ofgem through the
RIIO model, which stands for Revenue = Incentives + Innovation +
Outputs. This model determines how much the Company is allowed to
charge its customers to fund network investment and operating costs
in the period from 2015 to 2023 and is designed to drive real
benefits for customers.
The RIIO price controls have been developed to ensure that the
revenues collected from customers are linked to company
performance. Income in each year is largely fixed but will increase
or decrease depending on performance against the outputs we deliver
through a number of incentive mechanisms.
These mechanisms aim to ensure to level of customer service and
to minimise both the number of interruptions that customers suffer
and the average length of those interruptions. Performance is
assessed each year and any positive or negative adjustments are fed
annually into a process which will modify revenues for subsequent
years.
The RIIO price control model also incentivises cost reductions.
These are shared between customers and shareholders, again after an
annual review.
The Company also charges separately for new connections to and
diversions of the network. This activity is also closely regulated
by Ofgem.
The Company is committed to ensuring the sustainability of the
network for our customers now and in the future.
We routinely inspect the network and these inspections inform
our maintenance and asset replacement programmes taking load and
customer numbers into account.
Investment and innovation continues to ensure the development
and availability of the appropriate technology to meet the changing
demands of electricity supply and meet the challenge of a low
carbon future, at a price our customers can afford to pay.
Strategic Report (continued)
Company Background (continued)
Company ownership
Electricity North West is a private limited company registered
in England and Wales, ultimately owned by two shareholders each
being long term infrastructure funds as shown in Note 28.
Vision and goals
The Company is driven by a vision to be the leading energy
delivery business, aiming to provide customers with a good service
and a safe and reliable electricity network now and in the
future.
Electricity North West has set itself an overarching Company
Goal to improve its Customer Satisfaction performance score to be
the best in the electricity distribution sector. It is a goal that
resonates with our employees who live and work in their local
communities.
Our corporate goals
-- Safety - safety is the number one priority - every day.
-- Customer - to provide excellent customer service.
-- Affordability - to keep costs down for customers.
-- Reliability - to keep power flowing to customers, 24 hours a day, seven days a week.
-- Sustainability - to maintain the network now and for future generations.
-- People - to ensure the best working climate possible.
Recognising that the Company operates in a high hazard
environment, Safety is the key goal. There is a twin approach to
safety. The Company seeks to ensure that well trained people are
able to operate safely within policy driven procedures backed by
compliance, alongside a behavioural approach that seeks to ensure
that all staff and contractors approach any task with a strong
behavioural attitude to safety.
At the heart of these goals, alongside the key Customer goal,
are the three Customer priorities which were identified through
Customer engagement. These recognise that the Company has
constantly to make decisions that balance the conflicting
priorities of maintaining a Reliable network in the near term,
investing to ensure this is Sustainable in the long term, whilst
keeping costs as low as reasonably practicable to meet the
Affordability challenge for our Customers.
The People goal is also a key priority. The Company recognises
that the best results are obtained from highly motivated staff, and
seeks to ensure constant improvement in the organisational
'climate', through improved communication and engagement with
colleagues.
Performance in these areas is reviewed in this Strategic Report
and through Key Performance Indicators shown on page 18.
Strategic Report (continued)
Company Background (continued)
Safety
The safety of the Company's people and customers is a
fundamental cornerstone of the business.
Safety considerations are an integral part of the organisational
structure with ownership and accountability integrated into every
role. Operational leaders have a clear responsibility for
delivering safety performance and they are supported in this with
learning and development activities including pursuing the
Institute of Occupational Safety and Health 'Managing Safely'
qualification.
The health, safety and environment strategy sets out the
objectives and plans for delivering exceptional performance in the
management of risks and challenges faced and maximising the
opportunities to support the wellbeing of the Company's people. The
strategy covers the key areas of leadership, competence, systems
and processes, communication, ownership and accountability,
support, learning and continuous improvement as well as the need to
choose safety.
In line with the plans for each of these areas, during the year
ended 31 March 2016, health and safety was integrated into the
organisation's leadership programmes and the Company provided
specific training for inclusion in the Institute of Occupational
Safety and Health 'Managing Safely' and National Construction
Certificate qualifications.
Behavioural safety 'Think Safety' training continued to be
provided to all employees along with task specific training in
areas such as plant operation, asbestos awareness and ladder safety
systems.
The Company has continued to work closely with contractors and
other network operators to ensure that it remains at the forefront
of innovation in health and safety management.
Through leadership and communication there was continued
promotion of the benefits of identifying and dealing with hazards
(near misses). This was supported with the introduction of a new
user-friendly system for reporting actions taken and tracking
additional actions as well as providing feedback and management
information.
On wellbeing, the business embarked on a support programme for
employees with a focus on mental health and wellbeing. Included in
this was the successful delivery of awareness sessions by the
mental health charity MIND.
The key performance measures used to track the impact of the
health, safety and environment strategy are the leading indicator
of the number of near misses reported coupled with logging
indicators of the lost time accident frequency rate and the total
number of accidents reportable under RIDDOR.
Near miss reporting is actively encouraged to promote a safety
culture. In the year ended 31 March 2016, the number of near misses
reported by Electricity North West employees was 9,240 reported,
this compared with 4,800 in the previous year and significantly
outperforming the target of 5,000. This significant increase in
reported incidents was due to the leadership focus in this vital
learning process, encouraging not just the raising of near miss
reports (and enabling corrective and preventative action to be
taken) but also encouraging a constant safety focus and
dialogue.
The total number of lost time accidents involving employees and
contractor employees for the year ended 31 March 2016 was four
(2015: ten), the lowest ever annual total. Of the total number of
accidents in the year, the number reportable under RIDDOR was also
four (2015: ten). The corresponding lost time accident frequency
rate for the year ended 31 March 2016 was 0.06 (2015:0.23).
In regard to safety related training, employee attendance was as
planned.
Strategic Report (continued)
Company Background (continued)
Safety (continued)
Safety will continue to be the Company's main priority moving
into the next financial year, maintaining the momentum in
implementing the health, safety and environment strategy and in the
delivery of next generation of behavioural based safety training.
Continued development of near miss reporting will remain an area of
focus along with shared learning and the provision of appropriate
training.
Customer
The aim of Electricity North West is to put customers at the
heart of everything the Company does.
During the year, Electricity North West introduced a number of
improvements to deliver enhanced customer service including the
installation of a new Customer Relationship Management ('CRM')
system and telephony improvements to introduce queuing for all
customers.
The CRM tool supports improvements in customer experience and a
simplified process for the automatic payment, in line with
guaranteed standards.
The implementation in 2016/17 of a new high volume call handling
system will enhance the customer experience when contacting the
Company during high impact events, for example during storms.
At the centre of improving communications with customers are
real time updates from the field. These will provide the ability
for both automated communications and customer service
representatives to deliver an improved service to our
customers.
During the year ended 31 March 2015 we undertook surveys to
understand in more depth the requirements of vulnerable customers.
The vulnerable customer strategy based on this feedback as well as
engagement with various stakeholders drove change during the year
ended 31 March 2016. For example, we provided training for all our
field-based colleagues, to give them the skills to recognise signs
of vulnerability and the confidence to engage these customers. More
than 1,100 colleagues have now taken part in the training sessions,
including jointers, engineers, excavation teams and reinstatement
teams.
During the year ended 31 March 2016 a reduction was seen in the
customer satisfaction results measured through the Ofgem survey.
The Company's overall satisfaction rating was 80% and the ranking
among the Distribution Network Operators fell to 14(th) position.
This is disappointing for the Company and colleagues and has
prompted a cross-business focus on this area.
The overall complaints performance within the year continued to
outperform the Ofgem penalty incentive, despite the increased
volume following Storms Desmond and Eva. The Ombudsman praised our
proactive engagement with them and other stakeholders. Zero
Ombudsman cases have been found against Electricity North West
during the year.
A three year plan has been developed to deliver the commitment
to be a leader in customer service by the mid-point of the eight
year regulatory period. The roadmap has cross-business commitment
and clearly defines the changes and improvements which will be
delivered over this period to secure both a relative and absolute
leadership position on the Customer Service League Table.
The Company is partnering with all other Distribution Network
Operators (including independents) to deliver a Single Emergency
Number for customers to contact in the event of a fault. This
ambitious project, which is supported by the Department for Energy
and Climate Change ('DECC') and Ofgem, will be delivered in the
summer of 2016 and Electricity North West is fully playing its part
in supporting the development, implementation and operation of this
new customer service.
We have also commenced the development of an improved website
which will continue into the year to March 2017.
Strategic Report (continued)
Company Background (continued)
Customer (continued)
The procurement process for this project is well advanced and
the focus for development will be to enhance the digital customer
journey for both network and connections customers.
Reliability
Customers say that "keeping the lights on" is their top
priority. This is achieved by investing in the network both to
limit the number of faults and also to limit the number of
customers affected by those faults that do occur. Incidents are
responded to quickly and there has been extensive investment in
additional technology to enable the finding and fixing of faults
more quickly.
Performance is tracked using a variety of metrics including:
delivery of the capital programme outputs, delivery against
guaranteed standards of performance and network reliability
measures including customer interruptions ('CIs') and customer
minutes lost ('CMLs').
This year saw our best ever performance in customer minutes
lost, which measures the speed with which we restore supply after a
fault occurs.
The average number of minutes for which customers were without
supply during the year to 31 March 2016 was 32.7 (2015: 34.8),
which outperformed the target of 47.4 set by Ofgem.
In the year ended 31 March 2016, the average number of
interruptions per 100 customers was 37.2, (2015: 36.6)
outperforming the target set by Ofgem. It was our second best ever
performance, marginally behind the 2015 result.
During the last price review period, GBP43.3m was invested in
installing remote control and automation to the network to minimise
the effects of any faults that do occur. A further GBP2.5m was
invested in the year ended 31 March 2016. This is part of the
Company's declared target to improve both customer interruptions
and customer minutes lost by 20% by 2019 compared to the 2012
baseline.
Most customers enjoy excellent service from us but we recognise
that there is variability in the level of service experienced. A
few customers experience a level of service significantly worse
than average, usually by virtue of their location or due to
localised network issues. These are described as Worst Served
Customers. Ofgem has changed this definition of a Worst Served
Customer, and 1,972 of our customers now fall within the new
definition.
We already have the lowest percentage of Worst Served Customers
of any DNO outside of London and we plan to reduce this to zero by
the end of the RIIO-ED1 period.
During the year ended 31 March 2016, a range of projects have
been completed that improves network resilience for 246 of these
Worst Served Customers.
Following the significant storm events that occurred in December
2015, the focus for the coming year is on a strategic programme of
increasing network resilience during extreme weather events. Next
year also sees an increase in switchgear and transformer
replacement programmes. These programmes will help to ensure the
long term reliability of the network.
Affordability
Customers are increasingly worried by rising energy prices and
we work hard to improve our efficiency and innovation to minimise
our costs and therefore reduce customer bills. We remain cognisant
of the fact that a greater number of our customers are in 'fuel
poverty' than the national average. Our operating costs for the
year ended 31 March 2016, excluding depreciation, amortisation and
restructuring costs, decreased by GBP1.1m from the prior year which
helps to keep prices low.
Investment in the network is a key part of delivering a reliable
and sustainable network that gives excellent customer service and
we seek to do this at an affordable price.
Strategic Report (continued)
Company Background (continued)
Affordability (continued)
We have a targeted initiative programme that focuses on
innovative ways of achieving network resilience and sustainability
at a reduced cost to customers. Examples of this include utilising
Demand Side Response rather than traditional network reinforcement
techniques to improve the performance of overloaded circuits
resulting in a lower whole life cost to customers. Demand Side
Response aims to save customers money by agreeing with particular
customers to reduce demand in certain conditions (for example
during faults) thereby saving all customers the significant cost of
network reinforcement.
In the year ended 31 March 2016, the first year of RIIO-ED1, a
total network investment programme of GBP91.2m was delivered (2015:
GBP122.0m) Investment levels were below plan reflecting in part the
impact of the floods on our planned delivery.
The current network has been installed over many decades and a
significant proportion of the programme relates to replacing
existing equipment at, or approaching, the end of its life with
modern equivalents. We continue to deliver this replacement
programme and to meet changing customer needs, using innovation to
also ensure the Affordability challenge is met.
Sustainability
Electricity Distribution Network Operators face significant
challenges from the UK's ongoing decarbonisation of heat and
transport. Ensuring the sustainability of our network by finding
affordable solutions is important not just for customers but for
the environment and the sustainability of the business.
We plan our activities with regard to the changing demands of
our customers. As the UK Smart Meter programme gains momentum we
are responding to the increased demands that this imposes.
Similarly, as the prospect of the new nuclear power station on the
Cumbrian coast gradually gets closer we are working closely with
colleagues at National Grid in planning the route, in planning to
minimise the risk and disruption to customers that this project
imposes.
Innovation is vital to the future success and sustainability of
the organisation. The Company is a leading network operator for
innovation with a well established track record that the Company
will continue to build on into the future.
The innovation strategy forms an integral part of the business
plan and sets out why innovation is important for customers and how
value is delivered through a series of innovative projects,
including the rollout of smart grids and smart metering.
In the first year of RIIO-ED1 we have successfully delivered our
innovation programme. This aims to meet the future needs of
customers and stakeholders in an increasingly uncertain energy
future by maximising the opportunities provided by:
-- New technologies,
-- New business and commercial models,
-- An appropriately supportive regulatory framework with associated incentives.
Strategic Report (continued)
Company Background (continued)
Sustainability (continued)
In the last five years the Company has won over GBP42m of
competitive research and development funding for five key
innovation projects and successfully achieved all major milestones
in their delivery. In the DPCR5 regulatory period funding was
granted from Ofgem's Second Tier Low Carbon Networks Fund. In
RIIO-ED1 this has been replaced by the Network Innovation
Competition (NIC). The successful projects are:
-- Capacity to Customers (C2C) - this combines new technology
with innovative commercial contracts to increase the amount of
electricity that can be transmitted through the existing
network.
-- Customer Load Active System Services (CLASS) - this
demonstrates that electricity demand can be managed by controlling
voltage without any discernible impact on customers.
-- Smart Street - this trials cutting edge techniques to use
voltage control to minimise the impact of low carbon technologies
while maintaining voltage within statutory limits.
-- Respond - this delivers an intelligent approach to managing
fault current, the instantaneous surge of energy which occurs under
fault conditions.
-- Celsius - this co-ordinated approach to managing the
temperature of electrical assets in distribution substations will
release additional capacity, reduce long-term costs for customers
and avoid early asset replacement.
In addition to these multi-million pound projects we also lead
numerous smaller-scale projects funded under the Network Innovation
Allowance (NIA).
Each of these projects has clearly defined successful delivery
reward criteria and we have consistently demonstrated the highest
levels of performance against these criteria.
During the next seven years of RIIO-ED1 and beyond, options to
secure funding for innovation projects will continue to be
explored. The C2C and CLASS projects will also be incorporated into
business as usual.
People
The Company is a major employer in the North West of England and
employs over 1,600 people in the region. The Company also works
with a carefully chosen contractor workforce providing even greater
levels of employment for the region. We are committed to providing
secure, long term employment and career development opportunities
for employees. We look to balance the right skills and people
resources to support the business in the long term.
The People goal remains focussed around "improving the 'working
climate' of the company" (or how employees feel about coming to
work); as this provides a measure of engagement for employees. We
believe that there is a direct relationship between 'working
climate' and business performance.
The embedding of new structure announced last year and ongoing
behavioural leadership training continues to improve the climate
and therefore improve the business performance.
The Company remains committed to ensuring that it invests in
appropriate training and development to ensure that all employees
have the right level of competence in the long term, whether they
are a leader of people or someone providing a front line service to
customers. For example all employees need a high level of awareness
of health and safety and receive behavioural safety training.
The employee recognition scheme, 'Leading Lights', has been
embedded in the business with over 300 recipients of the awards in
the year. The Company remains committed to recognising when
employees go the extra mile.
The overall approach to renewing our operational workforce has
been revised, including refreshing all trainee and apprenticeship
programmes. For example, there is a new Trailblazer programme for
craft apprentices.
Strategic Report (continued)
Company Background (continued)
People (continued)
At a senior level the business continues to invest in its
leaders, with members of its Executive Leadership Team attending
the Institute of Directors (IoD) Diploma programme working towards
Chartered Membership. During 2016 members of the Senior Leadership
Team will continue to develop their skills as part of an internal
coaching cohort. The Wider Leadership Team (240 people) continues
to work on their management and leadership skills through a
leadership development programme.
The Company remains conscious of the demographic profile of its
employees retirement profile of employees to provide opportunities
to up skill the existing workforce. There is a long plan of future
workforce requirements which takes into account how technology and
innovation will impact upon the skills required within the
business.
The Company has embarked upon the 'Open Doors' programme, which
provides focus on under-represented demographic groups. Initially
the focus has been on the development of women within the business
and a second group commences our development programme commenced in
the spring of 2016.
Success against the People goal is measured through a Climate
Survey that provides details of overall employee engagement and how
employees feel about the 'working climate'. The first employee
climate survey returned a score of 42% in July 2013; the latest
2016 survey, using a simplified question set, showed an improvement
score of 70%.
In September 2016 delivery will begin of a new Higher Level
Apprenticeship scheme for trainee engineers. The Company is
chairing the development of a new apprenticeship standard for
specialist engineers, the industry's first 'Power Engineering
Masters Degree Apprenticeship'. Working closely with the Department
of Business Innovation and Skills and colleagues in the wider power
sector and interested universities, the first apprentice is
anticipated to start in 2017.
Talent management and succession planning is high on the agenda
and six monthly review discussions have been structured to discuss
and consider options for succession planning and focussed personal
development plans to support succession activity.
Corporate Social Responsibility
Stakeholder engagement
Electricity North West is committed to ongoing stakeholder
engagement and recognises that such engagement enhances the
Company's ability to achieve its aims and objectives and to provide
the highest of service at a price customers can afford.
The Company refreshed its engagement approach this year to
ensure that delivery of the RIIO-ED1 business plan commitments is
subject to stakeholder scrutiny and underpinned by their support.
The change was also prompted by Ofgem's decision to enhance
Stakeholder Engagement Reporting to include a new section on
Vulnerable Customers.
The Company continues to follow internationally-recognised best
practice guidelines, the AA1000 AccountAbility Principles Standard
(AA1000APS). This provides a framework to identify, prioritise and
respond to material business challenges and align engagement
activity to these challenges.
This strategic approach to stakeholder engagement provides
structure to the activity undertaken by the business to support
work reported in the RIIO-ED1 Stakeholder Engagement and Customer
Vulnerability Incentive and the Connections Incentive as well as to
the dissemination and learning work undertaken to support Low
Carbon Network and Network Innovation Competition projects.
Strategic Report (continued)
Corporate Social Responsibility (continued)
Stakeholder engagement (continued)
The Company has established a number of new Stakeholder Advisory
Panels, each aligning to the company goals of Affordability,
Reliability, Sustainability and customer service, together with an
overarching Strategic Stakeholder Advisory Panel. This new approach
has been welcomed by stakeholders who value the opportunities for
the more effective collaboration that this focussed approach
provides. All work is overseen by an Executive-level Internal
Stakeholder Advisory Panel.
To support adherence to these initiatives, for the fourth year
running the Company has engaged auditors for a non-financial
assurance of its Stakeholder Engagement and Customer Vulnerability
Submission and its commitment to AA1000APS.
Our Corporate Social Responsibility approach
On top of the engagement with its stakeholders the Company is
committed to being a responsible and sustainable business and has
set out Corporate Social Responsibility focus areas being;
community, workplace, marketplace and environment.
The Corporate Social Responsibility activity is informed and
shaped by the Business in the Community (BITC) Corporate
Responsibility Index. This is the fourth year that the Company has
participated in the Index and, in line with its plan, has
maintained performance at 79%. The aim is to achieve 90% by March
2018.
Initiatives continue to be undertaken to improve performance
under the Index, for example, engaging the supply chain in a range
of social, environmental and economic issues and including
sustainability within tender documents. In addition, the
implementation of the 'Open Doors' programme contributes to the
development of a diverse workforce, and continuing colleague
engagement in recognition and innovation schemes.
Further information on these and other initiatives can be found
under the Sustainability section of the Company's website:
http://www.enwl.co.uk/sustainability
Human rights
The Company operates exclusively in the UK and, as such, is
subject to the European Convention on Human Rights and the UK Human
Rights Act 1998.
The Company respects all human rights and regards those rights
relating to non-discrimination, fair treatment and respect for
privacy to be the most relevant and to have the greatest potential
impact on key stakeholder groups of customers, employees and
suppliers.
The Company seeks to anticipate, prevent and mitigate any
potential negative human rights impacts as well as enhance positive
impacts through policies and procedures and, in particular, through
policies regarding employment, equality and diversity, treating
customers fairly and information security.
Strategic Report (continued)
Corporate Social Responsibility (continued)
Gender and diversity
Information on the composition of the workforce at the year end
is summarised below:
Turnover
2016 - 144 leavers (2015: 115 leavers)
Training courses delivered - Non operational
2016 - 1,239* (2015: 47)
Training course attendees - Non-operational employees
2016 - 4,445* (2015: 258)
*The Company introduced e-learning training courses in the year
ending 31 March 2016; the figures for 2016 above include 1,024
e-learning training courses delivered, attracting 3,394
attendees.
Workforce composition
2016 2016 Females 2015 2015
Males Males Females
Total employees
Of which 1274 367 1,286 360
Senior managers 29 12 29 10
Executive leadership
team 8 1 8 1
Directors 9 0 8 0
Environment
The protection and enhancement of the natural environment
impacted by our activities is a core value of the Company. The
Company is dedicated to achieving the highest standards of
environmental performance. This is achieved by minimising the risk
of adverse impacts such as emissions, as well as investing in
outputs that enhance the environment such as the undergrounding of
overhead cables and supporting the UK in its move to a low carbon
economy.
The RIIO-ED1 business plan and the supporting health, safety and
environment strategy, set out the objectives and plans for
delivering exceptional performance in environmental management,
delivered though an environmental management system that is
certified to ISO 14001 standard.
The Company continued during the year to implement energy
efficiency measures through the refurbishment of its buildings and
the replacement of fleet vehicles and company cars with more
efficient vehicles. The Company also developed an energy management
system in the year. This has been externally assessed against ISO
50001 Energy Management Standard with certification expected in
2016.
2016 2015
tCO2e tCO2e
Scope 1
Operational
transport 7,419 9,212
Business transport
- road 1,192 1,281
Fugitive emissions 352 877
Fuel combustion 4,113 2,847
13,076 14,217
Scope 2
Buildings
energy usage 9,840 10,198
Scope 3
Business transport
- rail 29 27
Business transport
- air 188 96
217 123
Business Carbon
Footprint
(excl losses) 23,133 24,538
Losses 728,045 728,045
Business Carbon
Footprint
(incl. losses) 691,145 752,583
-------------------- ---------- ----------
Strategic Report (continued)
Corporate Social Responsibility (continued)
Environment (continued)
Business Carbon footprint
The Company's business carbon footprint (excluding losses) for
the year was 23,133 tCO2e (tonnes of CO2 equivalent), a 5%
reduction on the year ended 31 March 2015 of 24,538 tCO2e. This
reduction was in spite of a significant increase in fuel used to
power emergency generators during the two major storm events that
occurred in the year.
The Company undergrounded and connected 3.4km of overhead lines
in the year through the completion of three schemes. It remains on
plan to complete the 80km planned in the RIIO-ED1 period.
Further oil filled cable was replaced in the year as part of the
M6 to Heysham Link Road diversion works. Overall leakage of oil
from underground cables in the year was 31,220 litres, which
although slightly above the target of 30,000 litres per year across
the RIIO-ED1 period, was in line with the forecast. The 'oil' used
to replace leaked oil is now formulated to biodegrade within days
of exposure to the environment.
Electricity losses are measured as the difference between energy
entering the network (generation) and energy exiting the network
(demand). Whilst it is impossible to eliminate these losses, we do
take steps to minimise them. This is done through installing more
efficient assets in our network, particularly low loss transformers
and cables and through our revenue protection unit, addressing the
issue of theft.
Next year the Company will continue to implement the plans set
out in the health, safety and environment strategy and the RIIO-ED1
business plan. In particular aiming to obtain certification to the
ISO 50001 energy management standard.
[1] The reported losses figure is a snapshot of received data as
of the date of this report and will change as further settlement
reconciliation runs are carried out (up to 28 months after each
relevant settlement date).
Strategic Report (continued)
Key Performance Indicators
KPI Definition and comment Performance
---------- --------------- ----------------------------------- -------------------
Safety RIDDOR Accidents involving employees 4 RIDDOR accidents
or contractors of Electricity
North West, reportable
under the Reporting of
Injuries, Diseases and
Dangerous Occurrences
Regulation ('RIDDOR').
The fall in the RIDDOR
reported accident rate
and accident frequency
rate reflects the increased
focus on developing a
safety culture.
---------- --------------- ----------------------------------- -------------------
The total number of reportable
incidents in the period
Lost time divided by the number
accident of hours worked in that
frequency period by employees, multiplied
rate by 100,000 hours. 0.06
--------------- ---------------------------------------------- -------------------
Near miss Near miss reporting is 9,240 near miss
reporting actively encouraged to reports
promote a safety culture.
In the year ended 31 March
2016 the number of near
misses reported by Electricity
North West employees was
9,240 compared with 4,800
in the previous year,
significantly outperforming
the target of 5,000. This
significant increase was
due to the leadership
focus, encouraging not
just the raising of near
miss reports (and enabling
corrective and preventative
action to be taken) but
also encouraging a constant
safety focus and dialogue.
---------- --------------- ----------------------------------- -------------------
The customer satisfaction
measure is aligned with
the Ofgem survey results
and assesses customer
satisfaction in the key
areas of interruptions,
connections and general
enquiries. Performance
this year is below target
of 85% and is a significant
Overall focus for management,
customer with detailed action plans
Customer satisfaction in place to improve performance. 80%
---------- --------------- ----------------------------------- -------------------
People Employee We measure success through 70% Climate score
engagement a Climate Survey which
provides details of overall
employee engagement and
how employees feel about
the 'working climate'.
In 2016 the survey was
simplified to encourage
employee participation.
The current engagement
score is 70%.
---------- --------------- ----------------------------------- -------------------
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
--------------- ----------------- ---------------------------------- -------------
Reliability Customer Customer minutes lost 32.7 minutes
minutes represents the time customers
lost* are without power in the
event of an interruption.
It is calculated by taking
the sum of the customer
minutes lost for all restoration
stages for all incidents,
excluding exceptional
events, and dividing by
the number of connected
customers as at 30 September
each year. The result
of 32.7 for the year outperforms
the Ofgem target of 47.4
and is the best ever performance
in this area. The year
ended 31 March 2016 figure
is yet to be audited by
Ofgem.
--------------- ----------------- ---------------------------------- -------------
Customer Customer interruptions 37.2 CIs
interruptions* represents the number
of interruptions our customers
experience. It is calculated
by taking the total number
of customers affected
divided by the total number
of customers connected
to the networks, multiplied
by 100, adjusted for exceptional
events. The result of
37.2 for the year outperforms
the Ofgem target of 48.4
and is our second best
year ever. The year ended
31 March 2016 is yet to
be audited by Ofgem.
--------------- ----------------- ---------------------------------- -------------
Affordability Average The average prices are 2016: GBP79
price calculated by assuming
usage at the Ofgem September
2015 medium Typical Domestic
Consumption Value (3100kWh)
and applying this to the
Domestic Unrestricted
tariffs for each year.
Prices are adjusted for
inflation at the RPI rate
reported by HM Treasury
in line with the indexation
applied to our allowed
revenue. Our charges for
the year ended 31 March
2015 included a reduction
to the Domestic Unrestricted
fixed rate equivalent
to GBP5 per annum, which
was recovered by increasing
the fixed charge in the
year ended 31 March 2016.
As this reduction was
a brought forward benefit
of our RIIO business plan,
the impact of this fixed
charge adjustment has
been excluded from this
calculation.
---------------
Sustainability Carbon footprint We are aware of the environmental 23,133 tCO2e
excluding impacts we can have and
losses are committed to manage
the impact of our operations.
The classification of
carbon sources in the
calculations follows the
requirements of Ofgem
and excludes losses arising
from the operation of
the network which cannot
be directly controlled.
Included in the figure
is the impact of generators
used on the network. In
this regard, emissions
fell in spite of the efforts
to restore power during
the storms using generators.
For more information see
pages 16-17
--------------- ----------------- ---------------------------------- -------------
* The Customer Minutes Lost and Customer Interruptions figures
exclude the effects of exceptional events
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
----------- --------------- ------------------------------------ ------------
Financial Revenue Our revenue is largely GBP450.8m
KPIs fixed and is determined
by Ofgem to allow recovery
of efficient costs to
maintain the network,
along with an opportunity
to earn incentive revenue
for delivering our outputs.
This revenue is profiled
over a price review period
with the year to 31 March
2016 representing the
first year of the RIIO
ED1 price review. Revenues
have declined from the
prior year back in line
with our commitment to
customers as we strive
to deliver operating efficiencies
and innovation in our
network investment strategy.
It also reflects the impact
of the comparative DPCR5
revenue profile. Other
revenues arise from work
directly performed for
connections customers
for example connections.
----------- --------------- ------------------------------------ ------------
Profit before Profit before tax and GBP122.6m
tax and fair value is the operating
fair value profit after interest
movements charges. This has reduced
as a result of the reduction
in charges to customers.
----------- --------------- ------------------------------------ ------------
Net debt Net debt includes the GBP1,090.2m
total borrowings, current
and non-current, net of
cash and cash equivalents
and money market deposits.
--------------- ------------------------------------ ------------
Regulatory Asset Value
('RAV') gearing is measured
as borrowings at nominal
value, plus accretion
where applicable, net
of cash and short-term
deposits divided by the
estimated RAV of GBP1,643m
as at March 2016 (2015:
GBP1,609m). There is a
requirement to keep our
gearing below 65%, with
an internal target of
RAV gearing 63%. 62%
--------------- ------------------------------------------------ ------------
Interest Interest cover is the 4.5 times
cover number of times the net
interest expense, adjusted
for indexation and capitalisation
of borrowing costs, is
covered by operating profit
from continuing operations.
--------------- ------------------------------------------------ ------------
Capital This represents investment GBP221.3m
expenditure in the network to maintain
its reliability and resilience
for future customers.
Capital expenditure represents
the total additions to
property, plant and equipment
and software. Expenditure
is less than the prior
year reflecting the investment
programme for RIIO ED1
and the impact of the
December 2015 storms causing
delays in delivery.
--------------- ------------------------------------------------ ------------
Strategic Report (continued)
Financial Performance
Given the nature of the business, traditional revenue and
profitability measures are less meaningful than in other trading
organisations. Our revenues are set largely by Ofgem to allow
sufficient cash inflow to fund operating costs, capital expenditure
to maintain and improve our network, and to service our debt. The
level of efficiency then determines the overall result. The measure
that is most closely aligned to this result is cash flow before
financing activites (see page 22).
Revenue
Revenue is largely fixed across a price review period, it is set
at a level that meets our efficient operating costs and expenses,
as well as funding efficient investment, interest on necessary loan
funding, taxes so it allows for a return to shareholders at a level
that regulates the return and encourages future investment.
Revenue has decreased to GBP451m (2015: GBP534m) during the
year, as a result of a reduction in allowed Distribution Use of
System (DUoS) revenue under the RIIO price control.
The allowed revenue is recovered against an estimated level of
electricity demand across the network. Given the difficulty of
predicting this demand each year we end up with either an over or
an under recovery.
For the year 31 March 2016 there was an over recovery of DUoS
revenue of GBP10.4m against plan, before adjustment for RPI
indexation (2015: GBP22.9m under-recovery), reflecting variability
against forecast in consumption volumes year on year. This over
recovery will be corrected through adjustments in pricing in two
years, in accordance with Ofgem methodology.
Operating profit
Operating profit has decreased to GBP215m (2015: GBP301m) as a
result of the reduction in revenue detailed above and higher
operating costs caused by the December 2015 storms.
Profit before tax
Profit before tax has increased to GBP122m (2015: GBP92m),
reflecting the lower operating profit, offset by the lower finance
expenses, mainly as a result of the significant decrease in the
fair value movements on the financial instruments. The profit
before tax and fair value movements has reduced from prior year by
GBP74m and at 31 March 2016 are GBP164m.
Taxation
Corporation tax is calculated at 20% (2015: 21%) of the
estimated assessable profit for the period. The rate will be
reduced to 19% on 1 April 2017 and 18% on 1 April 2020. The Finance
Bill 2016 proposes a further rate reduction to 17% on 1 April 2020
but as the legislation is not substantially enacted at the
Statement of Financial Position date, the tax disclosures reflect
deferred tax measured at the 18% rate from 1 April 2020.
The overall taxation for the year has changed from charge of
GBP20m in 2015 to GBP5m in 2016 mainly as a result of the impact of
the changes in future tax rates on deferred tax.
Dividends and dividend policy
The Group's dividend policy is to distribute the maximum amount
of available cash in each financial year at semi-annual intervals.
Distribution decisions take into account the forecast business
needs, the Group's treasury policy on liquidity, financing
restrictions, applicable law in any given financial year and are
subject to the Company's licence obligations.
In the year ended 31 March 2016 the Company declared interim
dividends of GBP30m, which were paid in December 2015. In the year
ended 31 March 2015 the Company declared and paid a final dividend
for the year-ended 31 March 2014 of GBP37m.
Strategic Report (continued)
Financial Performance (continued)
Property, plant and equipment and software
The Group's business is asset-intensive. The Group allocates
significant financial resources in the renewal of its network to
maintain services, improve reliability and customer service and to
invest to meet the changing demands of the UK energy sector.
The total original cost of the Group's property, plant and
equipment at 31 March 2016 was GBP4,391m (2015: GBP4,187m), with a
net book value of GBP2,943m (2015: GBP2,837m). In the year ended 31
March 2016, the Group invested GBP206m (2015: GBP239m) in property,
plant and equipment in a large number of projects to reinforce and
improve the network, and GBP15m (2015: GBP11m) on new computer
software platforms. New investment is financed through a
combination of operating cash flows and increased borrowing
capacity against the Regulatory Asset Value.
Pension obligations
The valuation of the Group's Pension Scheme under IAS 19 has
resulted in a net pension deficit at 31 March 2016 of GBP16m (2015:
GBP34m). The fall in the deficit is due to the increase in the
discount rate from 3.3% to 3.5% which has reduced values placed on
the liabilities, offset by the performance of the scheme's
assets.
The most recent triennial valuation of the Group's Pensions
Scheme was carried out as at 31 March 2013 and identified a
shortfall of GBP188m against the Trustee Board's statutory funding
objective. In the event of underfunding, the Group must agree a
deficit recovery plan with the Trustee Board within statutory
deadlines. As part of the 2013 Actuarial valuation, the Group
agreed to remove the shortfall by paying additional annual
contributions from April 2015 to March 2025.
Cash flow before financing activities
Cash generated before financing in the year was GBP32m (2015:
GBP60m), reflecting the fall in cash from operations offset by
reduced investment.
Net debt
Net Debt 31 2016 2015
March GBPm GBPm
Cash and deposits 143 161
Borrowing (1,233) (1,261)
Net debt (1,090) (1,100)
Included within the total borrowings figure are GBP70.9m of
loans from the parent company North West Electricity Networks Plc,
due to mature in March 2023 (2015: GBP90m) and GBP197m loans from
an affiliated company ENW Finance Plc, maturing in 2021 (2015:
GBP197m).
All other borrowings are repayable after more than one year and
include bonds with long term maturities of GBP711m (2015: GBP722m)
And European Investment Bank loans of GBP254m (2015: GBP253m). Note
18 provides more details on the borrowings.
Liquidity
The Group's primary source of liquidity is from Group operations
and from funding raised through external borrowings.
Short-term liquidity
Short-term liquidity requirements are met from the Group's
operating cash flows. Further liquidity is provided from short term
deposit balances and unutilised committed borrowing facilities.
As at 31 March 2016, the unutilised committed facilities were
GBP50m (2015: GBP50m) and together with GBP143m (2015: GBP161m) of
cash and short-term deposits provide substantial short-term
liquidity for the Group.
Utilisation of undrawn facilities remains subject to limits
based on gearing levels determined against the Regulatory Asset
Value.
Strategic Report (continued)
Financial Performance (continued)
Long-term liquidity
The Group's long term debt is comprised of a combination of
fixed, floating and index-linked debt, with a range of maturities
and interest rates reflective of prevailing market rates at
issue.
The Group issues debt in the public bond markets and maintains
credit ratings with a number of leading credit rating agencies.
During the period, the Group's credit ratings have been formally
reviewed and affirmed on a stable outlook basis. Long-term debt
ratings have also remained stable. Currently the Group is rated
BBB+ with stable outlook by Standard and Poor's, Baa1 with stable
outlook by Moody's Investors Service and A- with stable outlook by
Fitch Ratings. Our short-term debt ratings are A-2 and F2 with
Standard and Poor's and Fitch Ratings respectively. Further details
are available to credit investors on the Companies' website
www.enwl.co.uk.
Treasury policy
The Group's treasury function operates with the delegated
authority of, and under policies approved by, the Board. The
treasury function does not undertake any speculative trading
activity and seeks to ensure that sufficient funding is available
in line with policy and to maintain the agreed targeted headroom on
key financial ratios. Long-term borrowings are mainly at fixed
rates to provide certainty or are indexed to inflation to match the
Group's inflation-linked ('RPI') cash flows.
The Group's use of derivative instruments relates directly to
underlying indebtedness. The proportion of borrowings at effective
fixed rates of interest for a period greater than one year is set
in conjunction with the level of floating rate borrowings and
projected regulatory revenues that are exposed to inflationary
adjustments (index-linked).
Going concern
When considering whether to continue to adopt the going concern
basis in preparing the Annual Report and Consolidated Financial
Statements, the Directors have taken into account a number of
factors, including the following:
-- The Company's electricity distribution licence includes the
obligation in standard licence condition 40 to maintain an
investment grade issuer credit rating.
-- Under section 3A of the Electricity Act 1989, the Gas and
Electricity Markets Authority has a duty, in carrying out its
functions, to have regard to the need to secure that licence
holders are able to finance their activities, which are the subject
of obligations imposed by or under Part 1 of the Electricity Act
1989 or the Utilities Act 2000.
-- Management has prepared, and the Directors have reviewed,
Group budgets for the year ending 31 March 2017 and forecasts
covering the period to the end of the current price review in 2023.
These forecasts include projections and cash flow forecasts,
including covenant compliance considerations. Inherent in
forecasting is an element of uncertainty and our forecasts have
been sensitised for possible changes in the key assumptions,
including RPI and under recoveries of allowed revenue. This
analysis demonstrates that there is sufficient headroom on key
covenants and that there are sufficient resources are available to
the Group within the forecast period.
-- Short-term liquidity requirements are forecast to be met from
the Group's normal operating cash and short-term deposit balances.
A further GBP50m of committed undrawn bank facilities are available
from lenders; these have a maturity of more than one year. Whilst
the utilisation of these facilities is subject to gearing covenant
restrictions, 12 month projections to 31 May 2017 indicate there is
significant headroom on these covenants.
Consequently, after making appropriate enquiries, the Directors
have a reasonable expectation that the Company and Group have
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report and Financial
Statements.
Strategic Report (continued)
Financial Performance (continued)
Going concern (continued)
The going concern basis has been adopted by the Directors, with
consideration of the guidance given in 'Going Concern and Liquidity
Risk: Guidance for Directors of UK Companies 2009' published by the
Financial Reporting Council in October 2009.
Viability statement
In accordance with the provision of C.2.2 of the 2014 UK
Corporate Governance Code, the Directors have assessed viability
over a period longer than that required for going concern and have
chosen three years.
Whilst the Board has no reason to believe the Group will not be
viable over a longer period, the period over which the Board
considers it possible to form a reasonable expectation as to the
Group's longer-term viability, based on the risk and sensitivity
analysis undertaken, is the three-year period to 31 March 2019.
Whilst this period is shorter than the forecast period the Board
reviews, this three-year forecast period gives management and the
Board sufficient, realistic visibility of the future. The Board has
considered whether it is aware of any specific relevant factors
beyond the three-year horizon and confirmed that there are
none.
The Directors have conducted a robust assessment of the
principal risks facing the Company and believe that it is in a
position to manage these risks.
In arriving at their conclusion, the Directors have considered
the Company's forecast financial performance and cash flow over the
three year viability period. The forecast has been subject to
sensitivity analysis driven by the principal risks and the
potential impact has been considered by sensitising a number of key
assumptions, including Retail Price Index (RPI), interest rates and
incentive revenue performance. Each analysis considered the
Company's ability to meet its operational and financial obligations
throughout the period, including debt covenant compliance.
On the basis of this assessment, and assuming that the principal
risks are managed or mitigated as expected, the Directors have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three
year period of their assessment.
Fair, balanced & understandable
The Directors have reviewed the thorough assurance process in
place within the Group with regards to the preparation,
verification and approval of financial reports. This process
includes:
-- Detailed review and appropriate challenge from key internal
Group functions, such as Group Risk, Control and Assurance;
-- Formal sign-offs from the business area senior managers, the
finance managers and Chief Financial Officer;
-- Group Audit Committee oversight, involving a review of key
financial reporting judgements, review and appropriate challenge on
matters such as any changes to significant accounting policies and
practices during the year, significant adjustments and the going
concern assumption;
-- The involvement of qualified, professional employees with an
appropriate level of expertise and experience throughout the
business; and
-- Engagement of a professional and experienced external
auditor, a framework for full transparent disclosure of information
during the audit process and post audit evaluation.
As a result of these processes together with the information and
assurance provided by the day to day internal control processes,
the information provided by the Executive Leadership Team and the
in-depth reporting required by Ofgem, both the Audit Committee and
the Board are satisfied that the Annual Report and Consolidated
Financial Statements taken as a whole, provide a fair, balanced and
understandable assessment of the Group's position at 31 March
2016.
Strategic Report (continued)
Risk Management
The Board is responsible for the alignment of strategy and risk,
and for maintaining a sound system of risk management and internal
controls. Our processes and systems are always evolving with the
needs of our business and have been developed in accordance with
the Financial reporting Council's (FRC's) Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting.
Our Corporate Risk Register currently details a wide range of
risks. These risks are considered in the context of the corporate
goals - Safety, Customer, Affordability, Reliability,
Sustainability and People and monitored by a business wide network
of Risk Co-ordinators.
The key features of the risk management system include:
-- Clear risk management strategy approved by the Board.
-- Board oversight in identifying and understanding significant risks to the Group.
-- Dedicated Board and Executive Committees to oversee the management of risks for the Group.
-- Appropriate operational and non-operational risks being
managed within a corporate risk system.
-- The underpinning of the corporate register by a number of
"local" risk registers across the business with a network of Risk
Co-ordinators which enhance the local monitoring process.
Principle risks and uncertainties
The Group considers the following to be the principal risks that
may it faces.
Strategic Report (continued)
Risk Management (continued)
Risk Mitigations
----------- --------------------------- ------------------------------------------------------------------
Safety Risk associated
with unsafe working * Board Health, Safety and Environment Committee to
practices, man-made oversee this area.
or naturally occurring
hazards which
could cause harm * Behavioural safety training programme across all
to people or the areas of the organisation.
environment.
* Robust authorisation process to control who works on
the network and the activities that they can perform.
* Annual programme of audits and an inspection regime.
* Enhanced hazard and near miss reporting.
----------- --------------------------- ------------------------------------------------------------------
Customer Not meeting the
required target * A programme of improvement activities described in
level of customer more detail on pages 10 to 12 is being co-ordinated
satisfaction performance. by the Executive Leadership Team to optimise
Electricity North West's position against all
elements of the customer satisfaction measure.
----------- --------------------------- ------------------------------------------------------------------
People Not delivering
required employee * Employee 'working climate' survey.
engagement and
talent management.
* Projects to gain feedback across the business and
identify improvements.
* Well-being and reward programmes.
* Training delivered throughout the Company to ensure
employees are equipped to do their roles competently
and effectively.
----------- --------------------------- ------------------------------------------------------------------
Cyber External / internal
Security breach of our * A training programme in place to inform all users of
security regime the risks of e mail and social engineering attacks.
and access to
key systems.
* A cyber risk assessment methodology implemented
within the Group.
* Pre-employment screening.
* A strong governance and inspection regime to protect
infrastructure assets and operational capacity.
* Physical and technological security measures.
* Key laptops are encrypted preventing the loss of
data.
* Data Centre infrastructure providing enhanced
security monitoring and management tools, 'next
generation' firewalls and network traffic analysis.
* Periodic internal and external security reviews.
* Key systems migration and testing.
----------- --------------------------- ------------------------------------------------------------------
Regulatory Compliance failure
leading to an * Overall governance and control framework in place,
adverse affect including established compliance routines and
on the business. accountabilities, owned by the Executive Leadership
Team and ultimately the Board.
* Specialist teams in place to ensure compliance and
assurance is carried out.
* An internal audit programme focussing on the Group's
key risk area, including fraud, regulatory compliance
and business processes.
* Established controls in place, including segregation
of duties and restricted access to systems.
----------- --------------------------- ------------------------------------------------------------------
Strategic Report (continued)
Risk Management (continued)
Risk Mitigations
--------------- --------------------------- ------------------------------------------------------------------
Reliability Delays in the
investment programme * Fault response times and team performance closely
leading to an monitored.
adverse impact
on customer interruptions
and customer minutes * Planned supply interruptions to minimise customer
lost performance. impact.
* Network automation to minimise the effect of faults.
* Significant expenditure on routine maintenance to
reduce the causes of network interruption.
* Initiatives to improve dispatch and mobilisation of
response teams.
--------------- --------------------------- ------------------------------------------------------------------
Affordability Macro-economic
factors, such * Monitoring the potential exposure to fluctuating
as Retail Price factors through forecasts from a range of financial
Index (RPI), impacting institutions.
negatively on
the business.
* Inflation sensitivities reported quarterly through
the business valuation process.
* A significant proportion of our Group debt is
RPI-linked to provide an economic hedge between
allowed revenues and some of our financing costs.
--------------- --------------------------- ------------------------------------------------------------------
Failure to deliver
performance costs * Robust plans in place to achieve or outperform where
and efficiencies possible.
against the commitments
made to our customers
in the RIIO-ED1 * Controls in place regarding the ongoing reporting of
period (2015-2023). performance against targets.
--------------- --------------------------- ------------------------------------------------------------------
Failure to identify
and effectively * A formal treasury policy in place to manage exposure
manage treasury to counterparty, liquidity and market risk, overseen
and tax exposures by the Audit Committee.
and to meet the
Group's funding
requirements and * A well established monthly banking covenant
obligations. monitoring process.
--------------------------- ------------------------------------------------------------------
Under performance
of the Pension * Active monitoring of the Scheme's investments carried
Scheme investments, out on a quarterly basis.
market impacts
and/ or an increase
in the scheme * The Trustee engages professional legal, actuarial and
liabilities giving investment advice for all decisions taken and
rise to higher regularly consults with the Company.
contributions.
--------------- --------------------------- ------------------------------------------------------------------
Sustainability Events outside
of our control, * As seen in action during the severe weather storms
for example environmental that hit the region in December 2015, the Group has
or medical emergencies, comprehensive contingency plans for network
affecting large emergencies, including key contract resources such as
areas. mobile generators and overhead line teams.
* Business continuity testing on a regular basis.
* Reciprocal arrangements with other DNO's.
* Ongoing targets and monitoring of environmental
performance
--------------- --------------------------- ------------------------------------------------------------------
The Strategic Report, outlined on pages 7 to 27, has been
approved by the Board of Directors and signed on behalf of the
Board 27 May 2016.
D Brocksom
Director
Corporate Governance Report
Introduction
As is required by the Company's Regulator, Ofgem, the Company
reports on how the principles and provisions of the UK Corporate
Governance Code (the Code) have been applied during the year. There
are some limited areas of non-compliance, all of which are
considered appropriate to the privately owned status of the Company
and are explained on page 34.
The Board
Board Members at 31 March 2016
John Roberts
Independent Non-Executive Chairman
Appointed on 1 March 2014
John Roberts was Chief Executive of United Utilities plc from
1999 to 2006. He has a wealth of experience and knowledge,
particularly in the utilities sector, having also been Chief
Executive of Manweb in 1995. He has also sat on Ofgem's
Environmental Advisory Panel and has chaired the North West Energy
Council.
Chris Dowling
Independent Non-Executive Director
Appointed on 1 May 2014
Chris Dowling was, until December 2013, Chairman of Challenger -
Europe with particular responsibility for Challenger's European
Infrastructure investments. Prior to that he was Managing Partner
of Rutland Partners LLP, the Private Equity fund, and a founding
director of Rutland Trust plc. Chris has a degree in Economics and
qualified as a Chartered Accountant with Deloitte Haskins &
Sells (now PricewaterhouseCoopers LLP 'PwC').
Rob Holden
Independent Non-Executive Director
Appointed on 1 January 2016
Rob Holden combines a portfolio of Non-Executive Directorships
with consultancy roles. He has undertaken assignments in the UK on
HS1, HS2, Thames Tideway Tunnel, the Type 26 Frigate and the QE
Carrier programmes. Overseas Rob has worked in the USA on High
Speed Rail projects and in Australia on a regional rail project. He
is also a member of PwC's Infrastructure Advisory Panel.
Niall Mills
Non-Executive Director
Appointed on 12 June 2009
Niall Mills is employed by First State Investments Management
(UK) Limited where he is a Partner in the Direct Infrastructure
Investment business. He has extensive infrastructure experience
gained in senior industry roles across a variety of sectors,
including utility companies, rail and airports. He is also a
director of several other fund investments across Europe. He has
been a Non-Executive Director of Anglian Water Group plc since
September 2008. He is a Fellow of the Institution of Civil
Engineers and holds a Masters of Business Administration from the
London Business School and an Institute of Directors' Diploma in
Company Directorship.
Hamish Lea-Wilson
Non-Executive Director
Appointed on 23 November 2015
Hamish Lea-Wilson is employed by First State Investments
Management (UK) Limited where he is a Director in the Direct
Infrastructure Investment business. Hamish is also a director of
several other fund investments across Europe including New Finerge
SA (Portuguese operator of wind farms with gross installed capacity
of 843MW) and HH Ferries AB (high frequency ferry route operator
operating between Denmark and Sweden). He is holds a B.Sc. (Hons)
Economics degree from Durham University.
Mike Nagle
Non-Executive Director
Appointed on 28 January 2011
Mike Nagle was the Group Company Secretary and Solicitor of
SEEBOARD plc and Senior Vice President, Legal Services at Metronet
Rail. Having now retired as a solicitor, Mike is still involved in
consultancy work and is also a Non-Executive Director on the board
of Greensands Holdings Limited (the parent company of Southern
Water).
Corporate Governance Report (continued)
The Board (continued)
Mark Walters
Non-Executive Director
Appointed on 7 March 2014
Mark Walters is an Executive Director and Senior Investment
Principal in the J.P. Morgan Infrastructure Investments Group,
based in London. He holds a B.Sc. (Hons) degree from the University
of Manchester and is a Fellow of the Institute of Chartered
Accountants in England and Wales, having qualified with Arthur
Andersen. Mark is also a board member of Zephyr Investments
Limited, a UK wind farm owner and operators and the Water and Waste
Water Services company serving the Southeast of England, Southern
Water Services Limited.
Peter Emery
Chief Executive Officer
Appointed on 27 May 2016
Peter Emery joined the company in 2016 from Drax Group plc where
he was the Group Operations Director and an Executive Director on
the Group Board. Peter was also Chairman of Capture Power, the Drax
Joint Venture with Alstom and Linde established to develop the
White Rose Carbon Capture and Storage Project in conjunction with
National Grid. He had previously been with ExxonMobil as Operations
Manager at Fawley Refinery and a member of the ExxonMobil European
Leadership Team for Refining and Supply, following a 20 year career
in strategic planning, refining and supply in the UK and the USA.
He is currently a Non-Executive Director of N.G. Bailey Group
Limited, a Board member of the York, North Yorkshire and East
Riding Local Enterprise Partnership (LEP) and a member of the
Sheffield University Energy 2050 Industrial Advisory Board.
Steve Johnson
Outgoing Chief Executive Officer
Appointed on 8 September 2008
Resigned on 27 May 2016
Steve Johnson joined the Company in 2008 and served as Chief
Executive until Peter Emery joined the Company. Steve joined from
Morrison plc where he was Managing Director, having previously been
with United Utilities Group plc as Managing Director of its
Industrial and Commercial Business. Prior to this, he worked for
both Norweb and Yorkshire Electricity. Steve is currently Chair of
the Energy Networks Association SHE Committee - the industry Health
Safety and Environment body for the UK's electricity distribution
and transmission networks and represents the industry on DECC and
Ofgem's Smart Grid Forum. He is a member of the Institute of
Engineering and Technology and was appointed as a Non-Executive
Director of South West Water Limited in September 2014.
David Brocksom
Chief Finance Officer
Appointed on 5 October 2015
David Brocksom joined the company as interim Chief Financial
Officer in September 2013 and served until January 2015. He
rejoined the Company in May 2015 and became a Director in October
2015. Previously he has held a number of Chief Financial Officer
roles including at UK Coal plc and Pace plc. He is a fellow of the
Institute of Chartered Accountants in England and Wales qualifying
with Price Waterhouse (now PricewaterhouseCoopers LLP 'PwC') and
holds an MA from Cambridge University.
Corporate Governance Report (continued)
The Board (continued)
Mark Rogers
Non-Executive Director
Appointed on 17 September 2012, resigned 23 November 2015
John Gittins
Independent Non-Executive Director
Appointed on 16 July 2009, resigned 20 July 2015
Andrew Dench
Executive Director
Appointed 29 January 2015, resigned on 5 May 2015
Niall Mills and Mark Walters have both appointed alternate
Directors. Niall's alternate was Marcus Ayre until 23 November 2015
when Tomas Pedraza was appointed. Mark's alternate was Andrew
Truscott throughout the period.
Attendance at Board meetings
The Company Secretary attended all Board meetings during the
year, as did the Interim Chief Financial Officer, (with one meeting
missed) David Brocksom, until his formal appointment to the
Board.
Where a Director was unable to attend a Board meeting, their
views were canvassed by the Chairman prior to the meeting.
At the discretion of the Board, senior management were invited
to attend meetings when appropriate to specific items subject to
discussion.
Corporate Governance Report (continued)
The Board (continued)
The below table shows Board and Board Committee attendance
during the year for committee members only. Informal meetings to
discuss board member replacements are not included nor are
attendances by Directors at committee meetings where they are not
formal members.
Attended / Scheduled
Board Member ENWL Audit Remuneration Nominations Health,
Board Committee Committee Committee Safety
& Environment
Committee
------------------- ------- ----------- ------------- ------------ ---------------
John Roberts 5/5 3/3 3/3 1/1 -
------------------- ------- ----------- ------------- ------------ ---------------
Chris Dowling 5/5 3/3 - 1/1 -
------------------- ------- ----------- ------------- ------------ ---------------
Rob Holden 1/1 - - - -
------------------- ------- ----------- ------------- ------------ ---------------
Niall Mills 5/5 3/3 3/3 1/1 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Hamish Lea-Wilson 1/1 1/1 - - -
------------------- ------- ----------- ------------- ------------ ---------------
Mark Walters 5/5 3/3 3/3 1/1 -
------------------- ------- ----------- ------------- ------------ ---------------
Mike Nagle 5/5 3/3 3/3 - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Steve Johnson 5/5 - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
David Brocksom 2/2 - - - -
------------------- ------- ----------- ------------- ------------ ---------------
Mark Rogers 3/5 2/2 3/3 - -
------------------- ------- ----------- ------------- ------------ ---------------
John Gittins 2/2 1/1 2/2 - -
------------------- ------- ----------- ------------- ------------ ---------------
Executive
Team
------------------- ------- ----------- ------------- ------------ ---------------
Greg Fernie - - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Helen Sweeney - - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Paul Bircham - - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Martin Deehan - - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Lee Maxwell - - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Mark Williamson - - - - 2/2
------------------- ------- ----------- ------------- ------------ ---------------
Corporate Governance Report (continued)
Diversity
The Board supports diversity in its broadest sense and
accordingly aims to ensure that its number is made up of a diverse
range of experience and expertise appropriate to the industry in
which it operates, its operational business model and the extensive
financial, governance, risk management and legal expertise
required.
The Audit Committee reviews the Board's Diversity Statement
annually.
Composition
The Board comprises three Non-Executive Directors considered
under the Code to be independent, one of whom is the Chairman, four
Non-Executive Directors representing the two shareholders and two
Executive Directors. The Directors' biographies are on pages
28-29.
After it was announced that Steve Johnson would be resigning as
Chief Executive Officer, a rigorous recruitment process resulted in
the announcement of the appointment of Peter Emery to the Board on
the 27 May 2016.
Following the resignation of John Gittins as a Non-Executive
Director in July 2015, the Nominations Committee undertook an
equally rigorous recruitment process and appointed Rob Holden was
appointed with effect from 1 January 2016.
Two of the Independent Non-Executive Directors, Chris Dowling
and John Roberts have been named to Ofgem as fulfilling the role of
Sufficiently Independent Directors as required by Ofgem. The role
of the Sufficiently Independent Director was introduced from 1
April 2014 as part of a range of enhancements made to the
ring-fence conditions in the Company's licence to protect consumers
should a distribution operator experience financial distress.
Leadership
The Board provides leadership of the Company, ensuring it
continues to balance the needs of stakeholders while delivering the
Company's strategy. Individually the Directors act in a way that
they consider will promote the long term success of the
Company.
The role of the Chairman and the Chief Executive Officer is
separate and each has a clear role description set out in writing
and agreed by the Board.
The Chairman is responsible for the leadership and governance of
the Board and the Chief Executive Officer for the operational
management of the Company and implementation of the strategy on the
Board's behalf. The Chief Executive Officer is assisted by the
Executive Leadership Team which comprises the operation unit
directors.
Advice
All Directors are able to consult with the Company Secretary and
the appointment and removal of the Company Secretary is a matter
reserved for the Board.
Any individual Director, or the Board as a whole, may take
independent professional advice relating to any aspect of their
duties at the Company's expense. This is clearly stated in the
Terms of Reference of the Board and of its Committees.
How the Board operates
The Board's role is to promote the long-term success of the
Company and provide leadership within a framework of effective
controls. The Board is responsible for approving the strategy and
for ensuring that there are suitable resources to achieve it. In
doing so, the Board takes into account all stakeholders, including
its shareholders, employees, suppliers and the communities in which
it operates.
The Board has Terms of Reference that detail matters
specifically reserved for its decision, including the approval of
budgets and financial results, assessment of new Board
appointments, dividend decisions, litigation which is material to
the Group and Directors' remuneration.
The Board has delegated authority to a number of Committees to
assist it in delivering its responsibilities and ensuring there is
appropriate independent oversight of internal control and risk
management.
Corporate Governance (continued)
How the Board operates (continued)
The Board engaged during the year in succession planning for
both the Executive and Non-Executive roles, both directly as a
Board and, through its Nominations Committee.
Evaluation
In July 2015, the Board undertook a questionnaire based
evaluation process to which there was a 100% response.
The evaluation concluded that Board members believed the Board
and its Committees were operating effectively. A resulting action
from the process has been the introduction of programmed "deep
dive" sessions through the year to explore key issues in depth with
the Executive Leadership Team.
A further questionnaire based evaluation will be undertaken in
late 2016 and an externally facilitated evaluation will be
conducted in 2017.
Training
The Chairman is responsible for ensuring that all Directors
update their skills, knowledge and familiarity of the Company.
Directors regularly receive reports facilitating greater
awareness and understanding of the Company, its regulatory
environment and the industry. The Board held a strategy meeting
which enabled it to develop a greater understanding of the
Company's operations and provided the opportunity to meet with
senior managers.
Committee members received detailed presentations at meetings
focussing on areas of relevance to the Committee and Board members
are invited to workshops with shareholder representatives which are
able to delve into areas of interest in greater detail.
In addition, Directors were provided with updates throughout the
year on other developments in the legal and regulatory area that
could impact the Company.
The Chairman is also responsible for ensuring that all new
Directors receive a tailored induction programme that reflects
their experience and position as either an Executive or
Non-Executive Director. This involves meetings with the Board, the
Company Secretary, other members of the Executive and Senior
Leadership Teams and site visits. Additional documentation is
provided as appropriate.
Appointments
Independent Non-Executive Directors (are provided with a
detailed letter of appointment) and are appointed for an initial
three-year term, to be reviewed every three years thereafter if
they are reappointed. The Chief Financial Officer is on a fixed
term contract expires in August 2017.
Non-Executive Directors are appointed by the Company's
shareholders. The minimum expected time commitment required from
Non-Executive Directors is six to ten days per year and is detailed
in their letter of appointment.
In 2014, the outgoing Chief Executive Officer joined South West
Water Limited as a Non-Executive Director on the basis that it
would not adversely affect his executive responsibilities. He
retains the fees from the appointment.
Conflicts of interest
The Board has appropriate processes in place to assess and
manage any potential conflicts of interest. As part of these
procedures the Board:
-- Considers conflicts of interest as part of the agenda for all meetings.
-- Asks Directors annually if there are any changes to their
conflict of interest declarations, including appointments to the
Boards of other entities.
-- Keeps records and Board minutes regarding any decisions made.
-- Maintains a companywide conflicts of interest register.
Directors' and officers' insurance
The Group maintains an appropriate level of directors' and
officers' insurance whereby directors are indemnified against
liabilities to third parties to the extent permitted by the
Companies Act.
Corporate Governance (continued)
Delegation to committees
To ensure the integrity of financial controls and the risk
management framework, the Board has delegated the detailed review,
but not approval of, these issues to its Audit Committee. The
Committee comprises Non-Executive Directors and is chaired by
Independent Non-Executive Director Chris Dowling. The Chief Finance
Officer, Chief Executive Officer, Head of Risk, Control and
Assurance and the external auditor, Deloitte LLP, attend meetings
by invitation.
The report of the Audit Committee can be found on page 35.
The Board's responsibility for the remuneration of its Executive
Directors is delegated to the Remuneration Committee. The Committee
comprises only Non-Executive Directors and is chaired by Niall
Mills. The committee regularly reviews the Company's remuneration
policy in the context of the Company's risk management framework to
ensure that it does not inadvertently promote irresponsible
behaviour. The report of the Remuneration Committee can be found on
page 38.
Areas of non-compliance with the UK Corporate Governance
Code
There are some areas where the Company does not comply with the
UK Corporate Governance Code, all of which are due to its privately
owned status and are discussed below. The Company has endeavoured
to comply with the spirit of the Code in the areas where compliance
with the provision is either impractical or inappropriate.
Senior independent director
The Board has not appointed a Non-Executive Director as a Senior
Independent Director under the Code. The Board meets the objectives
behind this requirement through its shareholder representation on
the Board.
Constitution of the Board
The Code states that half the Board should be Independent
Non-Executive Directors. As the Company is privately owned and both
shareholders are represented on the Board, it is felt that the
needs of shareholders are met through their presence on the
Board.
In addition to the two Sufficiently Independent Directors
required by Ofgem, there is a further Independent Non-Executive
Director. The Board considers that the three Independent
Non-Executives offer an appropriate perspective, allowing for the
refreshment of its Committees while allowing meaningful individual
participation and effective collective decision making.
Annual election of Directors
The Board does not subject its Directors to annual elections as
the shareholder representation on the Board allows the opportunity
to challenge a Director's performance directly rather than having
to make their voice heard via an Annual General Meeting.
Publication of the terms and conditions of Non-Executive
Directors
As a privately owned company Electricity North West is not
required to provide a remuneration report in line with the Large
and Medium Sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013.
The purpose of the remuneration report is to enable shareholders
to exercise judgement over directors' remuneration. With the
presence of shareholder representatives on the Remuneration
Committee, this purpose is directly met.
Engagement with stakeholders
As a privately owned company, Electricity North West does not
have a large or dispersed shareholder base with which to formally
communicate, nor are there any minority shareholders. Therefore
Annual General Meetings are not held.
Shareholders:
In addition to formal Board meetings and workshop sessions, the
meeting cycle includes quarterly valuation workshops to focus on
financial and treasury matters and detailed periodic workshops to
meet the requirements of strategic planning and more detailed
performance reviews.
Corporate Governance (continued)
Engagement with stakeholders (continued)
The Company works closely with its shareholders and both
shareholders endorse the UK Stewardship Code and see their
stewardship commitments as a key feature of their investment
philosophy. They are committed to maintaining the integrity and
quality of the markets in which they operate and allocate
investment capital to productive purposes, while protecting and
enhancing their clients' capital over the longer term.
Stakeholders:
The Company has strong and open relationships with stakeholders,
including Ofgem, local government and schools, emergency services,
MPs and national government. There are a number of key
relationships and a vast range of public sector stakeholders. The
Company also engages across the industry with electricity
suppliers, employees and contractors and other utilities.
Our stakeholder engagement strategy is outlined on page 8
Board Committees
The Board has an extensive workload and therefore has delegated
the detailed oversight of certain items to six standing Committees
and two ad-hoc Committees:
Standing Committees, meeting
on a regular pre-planned
cycle:
===============================
Audit Committee
===============================
Remuneration Committee
===============================
Nominations Committee
===============================
Health, Safety and Environment
Committee
===============================
Use of Systems Pricing
Committee
===============================
Financing Committee
===============================
Ad-hoc Committees, meeting
as required to deal with
their specific areas
of business:
===============================
Banking Committee
===============================
Retail Property Committee
===============================
The minutes of each Committee are made available to the
Board.
The Terms of Reference and the membership of each Committee were
reviewed during the period to ensure their effective operation.
Those Committees listed in green produced a report for the
year.
The Use of Systems Pricing Committee and the Financing Committee
meet as required to approve detail about system pricing contained
in Licence Condition 14 and financing transactions
respectively.
The Banking and Retail Property Committees meet on an ad hoc
basis to review bank mandates and the Company's residual retail
property portfolio as necessary.
Report of the Audit Committee
The role and responsibilities of the Committee are set out in
its Terms of Reference which are reviewed by the Committee and
approved by the Board annually. The Terms of Reference are
available on the Electricity North West website.
The Committee is responsible for the following areas: financial
reporting, the internal control and risk management framework,
whistleblowing, the external audit process, internal audit and
corporate governance.
Membership and meetings
The Committee members are all Non-Executive Directors. The Board
is satisfied that the committee chair Chris Dowling, as a Chartered
Accountant, has relevant financial experience. Attendance by
individual members is detailed in the table on page 31.
Corporate Governance (continued)
Membership and meetings (continued)
There were a number of regular attendees by invitation at each
of the Committee's meetings including the Chief Executive Officer,
the Chief Financial Officer, the Head of Risk, Control and
Assurance, the Head of Strategic Planning and Investor Relations
and the external auditor.
Over the course of the year, the Committee Chairman held
separate meetings with both the lead external audit partner at
Deloitte LLP and with the Head of Risk, Control and Assurance.
The Committee also met as a whole with the external auditor
without management present.
The role of the Committee
The key responsibilities of the Audit Committee are to:
-- Monitor the integrity of the financial statements, including
its annual and half-yearly reports and to report the Board on
significant financial reporting issues and judgements which they
contain.
-- Monitor the independence, effectiveness and remuneration of
the external auditor. Review the adequacy and effectiveness of the
Company's internal financial controls and internal control and risk
management systems.
-- Monitor the effectiveness of the Company's internal audit function.
-- Ensure that the Group's treasury function is effective and
approve treasury transactions in line with banking activity.
The significant matters considered by the Committee during the
year included:
-- Review of the 31 March 2015 Annual Report and Consolidated
Financial Statements and the September 2015 half year-report.
-- Evaluation of the effectiveness and scope of the internal
audit plan including management response to audit reports.
-- Review of the scope and methodology of the audit work to be
undertaken by the external auditor, their terms of engagement and
fees.
In accordance with UK regulations, the Company's auditor adheres
to a rotation policy based on best practice and a new Group lead
engagement partner is appointed once their predecessors have
completed a term of five years. Following an evaluation of the
audit service during the period and a change in audit partner at
the beginning of the 2012/13 financial reporting period, the Audit
Committee agreed that a full tender was not required.
The Committee keeps the need for competitive audit tender under
review. This will be reviewed in 2018 when the current audit
partner reaches the end of this current five-year term.
The significant issues considered by the Committee during the
approval of the 2015/16 financial statements were:
-- Capital and revenue allocations and ensuring the appropriate
treatment of fixed asset expenditure. Management's key controls and
a sample of projects were tested, as was capitalised interest cost
to ensure compliance with IAS23. No evidence of management bias was
identified and key assumptions were in line with external audit
expectation.
-- Accounting for the Electricity North West Group of the
Electricity Supply Pension Scheme. This is a complex area where
small changes in assumptions can have a significant effect on the
valuation of liabilities and therefore on the financial statements.
The Committee considered the evaluation by external actuaries,
benchmarking data and the disclosure requirement of IAS19. The
calculations and assumptions were considered appropriate.
Corporate Governance (continued)
The role of the Committee (continued)
-- Treasury accounting, particularly fair value calculations and
ensuring appropriate disclosures. There is a risk, due to the
complexity of the financial instruments, that they are incorrectly
valued, accounted for or disclosed, resulting in a material error
in the financial statements or a material disclosure deficiency.
The Committee noted the specialist advice received in the area and
compliance with appropriate accounting standards in valuation and
disclosure.
-- Compliance with the FRC guidance and licence condition with
regard to the going concern assessment. Consideration was given to
operational performance against budget, financing arrangements,
banking facility covenants and the application of appropriate
sensitivities and compliance with Licence Condition 30.
-- The risk of fraud in revenue recognition where considerations
included specific testing on unbilled income and analytical review.
No misstatements arising from fraud were identified.
External audit
The external auditor is engaged to express an opinion on the
Company's and Group's financial statements. The audit includes the
review and testing of the data contained in the financial
statements to the extent necessary for expressing an audit opinion
on the truth and fairness of the financial statements. This year's
report is the thirteenth conducted by Deloitte LLP.
To assess the effectiveness of the previous year's external
audit the Committee reviewed the audit approach and strategy and
received a report of Deloitte LLP's performance from both members
of the Board and Executives. The performance evaluation was
conducted via a questionnaire circulated to the Committee, the
Chief Financial Officer, the Chief Executive Officer and the
Company's senior financial leadership for completion.
The result of this evaluation was that the audit was
appropriately scoped, was well planned and executed and provided
appropriate challenge across the Company.
Auditor independence and the provision of non-audit services
The Company has a formal policy on the use of the auditor for
non-audit work and the awarding of such work is managed in order to
ensure that the auditor is able to conduct an independent audit and
is perceived to be independent by our stakeholders.
In keeping with professional ethical standards, Deloitte also
confirmed their independence to the Committee and set out the
supporting evidence in their report to the Committee prior to the
publication of the Annual Report and Financial Statements.
The non-audit services provided by Deloitte LLP during the year
were related to the regulatory audit and the covenant compliance
agreed upon procedures.
Internal control framework
The Committee, on behalf of the Board, is responsible for
reviewing the Company's internal control framework. This review is
consistent with the Code and covers all material areas of the
Group, including risk management and compliance with controls.
Further details of risk management and internal controls are set
out on pages 25 to 27.
Whistleblowing arrangements
The Committee is responsible for reviewing the Company's
Disclosure (Whistleblowing) policy and any concerns raised through
these channels and management actions taken in response. The Policy
is kept under regular review by the Committee and a confidential
service is provided by an external company whereby employees can
raise concerns by e mail or telephone in confidence. Any matters
reported are investigated and escalated as appropriate. The
Committee reviewed this policy in January 2016.
Corporate Governance (continued)
Committee effectiveness
The Committee formally reviewed its Terms of Reference and its
membership during the year to ensure both remain fit for purpose
and were considered effective by the Board.
Fair, balanced and understandable
The Audit Committee was requested to assist the Board in
confirming that the Annual Report is fair, balanced and
understandable. As part of its review, the Audit Committee took
into account the preparation process for the Annual Report and
Consolidated Financial Statements:
-- The theme and format was discussed and agreed in January 2016.
-- Different sections of the Annual Report are drafted by
appropriate senior management who have visibility of the Company's
performance in these areas.
-- Reviews of the drafts are carried out by the Executive
Directors and other members of the Executive Leadership Team.
Feedback is received from the external auditor on the content of
the Annual Report. A final draft is reviewed by the Audit Committee
before being recommended to the Board for approval.
The Directors' statement on a fair, balanced and understandable
Annual Report and Consolidated Financial Statements is set out on
page 24.
Report of the Nominations Committee
The role and responsibilities of the Committee are set out in
its Terms of Reference which were reviewed and updated and approved
by the Board in March 2015. The Terms of Reference are available on
the Electricity North West website. The Committee's
responsibilities include keeping under review the composition of
the Board, identifying and nominating candidates for approval by
the Board to fill any vacancies and succession planning for
Directors and other senior executives.
During the period, the Committee undertook the recruitment
process for both a Non-Executive Director and for a Chief Executive
Officer. In these searches the committee were aided by,
respectively, The Zygos Partnership and Korn Ferry.
Membership and meetings
Composition of the Committee and attendance by individual
members at meetings is detailed on page 31. In addition to formal
meetings, the Committee met less formally on a large number of
occasions to discuss and progress the recruitments noted above.
The Chief Executive Officer and the Customer and Business
Services Director attend meetings at the invitation of the Chairman
of the Committee.
The Committee's main activity during the year was the
recruitment and recommendation to the Board of the appointment of
Independent Non-Executive Director, Rob Holden and the new Chief
Executive Officer, Peter Emery. In each case a detailed role
description was prepared following a review of the Board's skills
and experience and the needs of the Company.
Diversity
As described in the Corporate Governance report on page 32, the
Board is committed to diversity in its broadest sense and the
Nominations Committee ensures this remains central to recruitment
and succession planning.
Report of the Remuneration Committee
The Committee's role is to determine the remuneration structure
for the Executive Directors to ensure that it balances appropriate
reward with the creation of long term value and sustainability of
the network. The Terms of Reference for the Committee are available
on the Electricity North West website.
Corporate Governance (continued)
Report of the Remuneration Committee (continued)
It is also responsible for the review of the remuneration of
other members of the Executive Leadership Team to ensure the
structure and levels of remuneration appropriately incentivise
these individuals to achieve the Company's strategic
objectives.
The Committee has been joined by invitation during the year by
the Chief Executive Officer, Chief Financial Officer and the
Customer and Business Services Director.
Membership and meetings
Composition of the Committee and attendance by individual
members is detailed on page 31.
Committee effectiveness
The Committee formally reviewed its Terms of Reference and its
membership during the year to ensure both remain fit for purpose
and were considered effective by the Board.
The Committee reviews and approves the overall remuneration
levels of employees below senior management level, but does not set
remuneration for these individuals. This oversight role allows the
Committee to take into account pay policies and employment
conditions across the Group.
Matters considered by the Committee during the year
included:
-- Approval and monitoring of the Company's former Short Term Incentive Plan.
-- Review of the Executive Leadership Team bonus and remuneration.
-- Monitoring and review of the Company's former Long Term Incentive Plan.
A significant piece of work for the Committee during the year
was reviewing the Company's Executive Incentive Plan, the long-term
incentive scheme for senior individuals covering the eight-year
period beginning on 1 April 2015, aligned with the RIIO-ED1 price
control period.
In line with the Board's commitment to comply with the Code
where appropriate the Committee approved the design of the new
Executive Incentive Plan to include:
-- An allowance for a downward adjustment to amounts not yet paid to individuals (malus); and
-- An allowance for recovery of amounts already paid from the
Executive Incentive Plan (clawback).
The Committee is of the opinion that the remuneration structure
designed for the RIIO period reflects the strategic direction of
the business and the steps taken during the year ensures that
remuneration is designed to promote the long term success of the
Company.
Share options are not offered as an incentive to either
Executive or Non-Executive Directors as the Company is privately
owned.
Corporate Governance (continued)
The table below set out the nature of the remuneration of the
Executive Directors:
Element Purpose and link to strategy Framework
Basic Salary Basic salary provides the core reward for External advice is taken on all
the role. Salaries are set at a remuneration to ensure that it remains
sufficient level effective and appropriate.
to attract and retain high calibre Levels of basic salary are benchmarked
individuals who can deliver the Group's but also reflect the Director's
strategic objectives. experience and time
at Director level.
Benefits Other benefits provided are designed, as In addition to basic salary, Directors
with basic salary, to provide a are provided with a car allowance and
competitive but not private medical
excessive reward package. insurance.
Executive Incentive Plan (EIP) An executive incentive plan was The EIP works on a balanced scorecard
introduced on 1 April 2015 to reward in approach, containing short term metrics
year performance and to evaluate
incentivise strategic and innovative in- year performance and longer term
behaviours over the longer term, aligned measures promoting a strategic focus and
to shareholder sustainable
objectives. performance.
Executive Directors may be included Partial payments are made each year
within this plan or separate arrangements based on achievement against the
may be entered balanced scorecard, with
into with incentives based on short term additional payments made in years 4 and
and longer term outcomes, the balance of 8 to ensure the balance of short and
the split long term incentivisation
being determined by the Remuneration is retained.
Committee as appropriate for the Following Health & Safety best practice,
individual. Safety is considered to be an essential
part of any
role and Directors therefore receive no
Health & Safety related incentives,
instead with safety
performance acting as a gateway to earn
bonus.
Pension Employees who joined the business before Directors are offered the same level of
2006 are members of a defined benefit defined contribution benefits as all
scheme. Anyone other employees.
joining the Group after that date is No Directors are members of the defined
offered membership of a competitive benefit scheme which is now closed to
defined contribution new members.
scheme. Life assurance cover is also
provided.
------------------------------- ------------------------------------------ -----------------------------------------
Corporate Governance (continued)
Report of the Health, Safety & Environment Committee
The Committee continues to develop the Company's health, safety
and environment strategies and strives to lead the way with health,
safety and environmental initiatives, follow best practice and to
learn from its workforce across the organisation wherever they are
based.
The Committee not only agrees targets and monitors Company
performance in this area, it regularly challenges the executive and
the health, safety and environment team to look at new initiatives,
and works with other organisations to ensure best practice.
Membership and meetings
The committee is composed of Niall Mills, Mike Nagle and Steve
Johnson, together with the Commercial Director, the Operations
Director (North), Operations Director (South) and the Energy
Solutions Director.
Attendance is detailed in the table on page 31.
The role of the Committee
The Committee has designated authority from the Board set out in
its Terms of Reference, which were reviewed and updated in July
2015. They are published on the Company's website.
The primary purpose of the Committee is to:
-- Set the corporate health, safety and environment strategy,
objectives, targets and programmes.
-- Monitor performance in these areas with a view to:
- Minimising risk;
- Ensuring legal compliance;
- Responding to significant events; and
- Ensuring significant resources are allocated for the control
of health, safety and environmental risks.
-- Report to the Board developments, trends and / or forthcoming
legislation in relation to the health, safety and environmental
matters which may be relevant to the Company's operations, assets
or employees.
-- Review the Company's external reporting in this area and regulatory disclosures.
At every meeting the Committee receives and discusses in detail
a Health, Safety and Environment performance report for the
preceding period, prepared and presented by the Head of Health
Safety and Environment who attends every meeting.
This report includes the following:
-- Results of systems audits;
-- Detail on training initiatives, including attendance figures and evaluation;
-- Carbon footprint data;
-- Any emerging trends;
-- Near miss reports;
-- Copies of safety bulletins issued during the period;
-- Synopses of significant incidents occurring in the period,
detailing contributory factors and preventative actions; and
-- Reports of significant incidents occurring at other network operators.
Directors' Report
The Directors present their Annual Report and the audited
Consolidated Financial Statements of Electricity North West Limited
('the Company') and its subsidiaries (together referred to as the
'Group') for the year ended 31 March 2016.
Dividends
In the year ended 31 March 2016 the Company declared dividends
of GBP30m, which were paid in December 2015 (31 March 2015:
GBP37m). The Directors do not propose a final dividend for the year
ended 31 March 2016 (31 March 2015: no final dividend was
proposed).
Directors
The Directors of the Company during the year ended 31 March 2016
are set out below. Directors served for the whole year except where
otherwise indicated.
Executive Directors
P Emery (appointed 27 May 2016)
S Johnson (resigned 27 May 2016)
D G Brocksom (appointed 5 October 2015)
A Dench (appointed 29 January 2015 and resigned 5 May 2015)
Non-executive Directors
Dr J Roberts
N P Mills
M A Nagle
M A Walters
C Dowling
H Lea-Wilson (appointed 23 November 2015)
R D Holden (appointed 1 January 2016)
J A Gittins (resigned 20 July 2015)
M Rogers (resigned 23 November 2015)
Alternate Directors during the year were:
M L Ayre (resigned 23 November 2015)
T Pedraza (appointed 23 November 2015)
A Truscott
At no time during the year did any Director have a material
interest in any contract or arrangement which was significant in
relation to the Group's business.
Directors' and Officers' insurance
The Group maintains an appropriate level of Directors' and
Officers' insurance whereby Directors are indemnified against
liabilities to third parties to the extent permitted by the
Companies Act.
People
The Group's policies on employee consultation, the treatment of
disabled employees and on equality and diversity across all areas
of the business are contained within the People section of the
Strategic Report.
Corporate Social Responsibility
Details of the Group's approach to Corporate Social
Responsibility can be found in the Strategic Report.
Research and development
The Group is committed to developing innovative and
cost-effective solutions for providing high quality services and
reliability to our customers, and for the benefit of the wider
community and the development of the network, as further detailed
in the Strategic Report.
Financial instruments
The risk management objectives and policies of the Group in
relation to the use of financial instruments can be found in the
Strategic Report and in note 19 to the financial statements.
Directors' Report (continued)
Fixed assets
Further details on Property, Plant and Equipment are provided in
the Strategic Report and note 12 to the financial statements.
Capital structure
The Company's capital structure is set out in note 27 to the
financial statements
Commitments
Details of commitments and contractual obligations are provided
in notes 11, 12, 19 and 32 of the financial statements
Information given to auditor
Each of the persons who are a Director at the date of approval
of this annual report confirms that:
(1) so far as the Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
(2) each Director has taken all the 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.
This confirmation is given and should be interpreted within the
provisions of s418 of the Companies Act 2006.
Independent auditor
Deloitte LLP has expressed its willingness to continue in office
as auditor of the Group. In accordance with section 487 of the
Companies Act 2006, Deloitte LLP are deemed to be re-appointed as
auditor of the Company.
Registered address
Electricity North West Limited
304 Bridgewater Place
Birchwood Park
Warrington
WA3 6XG
Registered number: 02366949
Approved by the Board on 27 May 2016 and signed on its behalf
by:
D Brocksom
Director
Directors' Report (continued)
Directors' Responsibilities Statement
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the Group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union (EU) and have also chosen to
prepare the parent Company financial statements under IFRS as
adopted by the EU. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Company
and of the profit or loss of the Group and Company for that period.
In preparing these financial statements, International Accounting
Standard 1 requires that Directors:
-- Properly select and apply accounting policies;
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- Make an assessment of the 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 Group's
transactions and disclose with reasonable accuracy at any time the
financial position of 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
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
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- The financial statements, prepared in accordance with IFRSs
as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company
and the undertakings included in the consolidation taken as a
whole;
-- 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 that they face; and
-- The annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the company's performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 27 May 2016 and is signed on its behalf by:
D Brocksom
Director
Independent Auditor's Report to the Members of Electricity North
West Limited
Opinion on financial statements of Electricity North West
Limited
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
March 2016 and of the group's profit for the year then ended;
-- the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
The financial statements comprise the Consolidated Income
Statement and the Consolidated and Company Statements of
Comprehensive Income, Consolidated and Company Statements of
Financial Position, Consolidated and Company Statements of Changes
in Equity, Consolidated and Company Statements of Cash Flows and
the related notes 1 to 32. The financial reporting framework that
has been applied in their preparation is applicable law and IFRSs
as adopted by the European Union and, as regards the parent company
financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
Going concern and the directors' assessment of the principal
risks that would threaten the solvency or liquidity of the
group
We have reviewed the directors' statement regarding the
appropriateness of the going concern basis of accounting contained
within note 1 to the financial statements and the directors'
statement on the longer-term viability of the group on pages
23-24.
We have nothing material to add or draw attention to in relation
to:
-- the directors' confirmation on page 25 that they have carried
out a robust assessment of the principal risks facing the group,
including those that would threaten its business model, future
performance, solvency or liquidity;
-- the disclosures on pages 25-27 that describe those risks and
explain how they are being managed or mitigated;
-- the directors' statement in note 1 to the financial
statements about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the group's ability
to continue to do so over a period of at least twelve months from
the date of approval of the financial statements;
-- the directors' explanation on page 24 as to how they have
assessed the prospects of the group, over what period they have
done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation
that the group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We agreed with the directors' adoption of the going concern
basis of accounting and we did not identify any such material
uncertainties. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the
group's ability to continue as a going concern.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Independence
We are required to comply with the Financial Reporting Council's
Ethical Standards for Auditors and we confirm that we are
independent of the group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also
confirm we have not provided any of the prohibited non-audit
services referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are
those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of
the engagement team:
Risk How the scope of our audit responded to the risk
Treasury accounting
Treasury is a complex area and includes the accounting Due to the complexity of the financial instruments held
for material financial instruments in the group our audit team includes
including index-linked swaps and bonds. Due to the financial instrument specialists.
complexity of the accounting there is a We tested a sample of valuations in respect of the
risk that these instruments are incorrectly valued, interest rate and index-linked swaps held
accounted for or disclosed in the financial by the group, including an assessment of the application
statements which may result in a potential material of credit risk under IFRS 13. In
error. addition we recalculated the carrying value of the bonds
We note that there has been an issue of GBP100m held at both amortised cost and at
index-linked swaps in the year. fair value through profit and loss in the group, along
with the associated amortisation and
interest charges as the bonds unwind to maturity.
We have reviewed the accounting for the new GBP100m
tranche of swaps entered into in the year
and assessed whether the swaps were recognised in
accordance with the accounting treatment
under IFRS 13. We have challenged management regarding
the approach to classifying the derivatives
as Level 3. In addition our review of the financial
statements assessed whether the disclosures
made in note 19 are consistent with the requirements of
IFRS 13 and IFRS 7.
---------------------------------------------------------- ----------------------------------------------------------
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Risk How the scope of our audit responded to the risk
Pensions accounting
Accounting for defined benefit pension schemes under IAS We have reviewed the assumptions behind the actuarial
19 Revised is complex and involves valuation of the pensions liabilities
actuarial assumptions that are judgemental. We focus our as at 31 March 2016, focussing our work on the
significant risk to the assumptions assumptions employed in the discount rate.
behind the discount rate employed in the pension With involvement of our internal actuaries, we reviewed
valuation. This is because a small movement the assumptions behind the actuarial
in the discount rate can have a large impact on the valuation of the pensions liabilities as at 31 March 2016
funded status of the pension deficit. by comparing to the Deloitte illustrative
As at 31 March 2016 the fair value of the Group's defined benchmarks for comparator companies in order to assess
benefit obligations were GBP1,219.9m, their appropriateness. We also reviewed
and the fair value of the scheme's assets were the disclosures made in the financial statements to
GBP1,203.7m as disclosed in note 20. determine whether they are in line with
IAS 19 Revised.
---------------------------------------------------------- ----------------------------------------------------------
Inappropriate capitalisation of costs
The effect of inappropriate capitalisation of costs is As part of our tangible fixed asset audit we tested a
that items capital in nature are expensed, sample of additions to consider whether
whilst items which are expenditure in nature are those items are capital in nature. We also tested a
conversely capitalised. We focus the significant representative sample of re-charges and
risk in relation to capital versus revenue to the consider the level of overhead absorption on a
allocation/percentage rates applied to employee departmental basis. In addition, a sample of
cost overhead absorption. In particular we focus on those capital projects are reviewed in detail, with discussions
judgemental areas, for example engineer and supporting documentation obtained
and electricians whose time is split between capital from the project managers in order to better understand
projects and repair and maintenance on those projects and determine the specific
the network. The risk is that this can lead to misstated nature of the spend and method of overhead absorption. We
profits and assets. Total employee have reviewed the Company's assumptions,
costs are GBP102.3m in the year (2015: GBP98.2m), of policies and procedures with regards to overhead
which GBP55.1m (2015: GBP53.7m) has been absorption and compared to the balances capitalised.
transferred directly to fixed assets.
---------------------------------------------------------- ----------------------------------------------------------
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
The description of risks above should be read in conjunction
with the significant issues considered by the Audit Committee
discussed on page 35 onwards.
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.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the group to be GBP4.1 million
(2015: GBP4.4 million) using revenue as the determining base. This
materiality is below 3.4% (2015: 4.8%) of pre-tax profit and below
1% (2015: 1%) of equity.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP79,000 (2015:
GBP88,000), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Given the nature of the group's corporate structure where all
evidence relating to each entity is compiled at the group's head
office and statutory audits are required for each non-dormant
entity within the group, we performed an audit covering 100% of the
group's companies and accordingly our work was performed on each
individual component's total assets, revenue and profit.
We have also tested the consolidation process.
Opinion 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
and the Directors' Report.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
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 arising from this
matter.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we
are required to report to you if, in our opinion, information in
the annual report is:
-- materially inconsistent with the information in the audited financial statements; or
-- apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the group acquired in the
course of performing our audit; or
-- otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider
the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we
communicated to the audit committee which we consider should have
been disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
Other Matters
Although not required to do so, the directors have voluntarily
chosen to make a corporate governance statement detailing the
extent of their compliance with the UK Corporate Governance Code.
We reviewed the part of the Corporate Governance Statement relating
to the company's compliance with certain provisions of the UK
Corporate Governance Code. We have nothing to report arising from
our review.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). We
also comply with International Standard on Quality Control 1 (UK
and Ireland). Our audit methodology and tools aim to ensure that
our quality control procedures are effective, understood and
applied. Our quality controls and systems include our dedicated
professional standards review team, strategically focused second
partner reviews and independent partner reviews.
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/or those further matters we have expressly
agreed to report to them on in our engagement letter 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the group's and the parent company's circumstances
and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the annual report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Jane Boardman BSc FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Manchester, United Kingdom
27 May 2016
Financial Statements
Consolidated Income Statement
for the year ended 31 March 2016
Note Group Group
2016 2015
GBPm GBPm
Revenue 2 450.8 533.7
--------------------------------- ---- ------- -------
Employee costs 3,4 (47.2) (44.5)
Depreciation and amortisation
expense (net) 3 (94.4) (85.7)
Retail property provision
credit 3,21 1.0 -
Other operating costs (95.6) (99.4)
Restructuring costs 3,6 - (2.8)
Total operating expenses (236.2) (232.4)
Operating profit 3 214.6 301.3
Investment income 7 0.9 0.3
Finance expense (net) 8 (94.0) (209.7)
Profit before taxation 121.5 91.9
Taxation 9 (4.5) (20.1)
Profit for the year attributable
to equity shareholders 26 117.0 71.8
The results shown in the Consolidated Income Statement for the
current and preceding year are derived from continuing
operations.
Consolidated and Company Statement of Comprehensive Income
for the year ended 31 March 2016
Group and Group and
Company Company
2016 2015
Note GBPm GBPm
Profit for the year 117.0 71.8
------------------------------ ---- --------- ---------
Items that will not be
reclassified subsequently
to profit or loss:
Remeasurement of defined
benefit pension schemes 20 9.1 4.4
Deferred tax on remeasurement
of defined benefit pension
schemes taken directly
to equity 22 (1.6) (0.9)
Adjustment due to change
in future tax rates of
brought forward deferred
tax taken directly to
equity 22 (2.2) -
------------------------------ ---- --------- ---------
Other comprehensive income
for the year 5.3 3.5
Total comprehensive income
for the year attributable
to equity holders 122.3 75.3
------------------------------ ---- --------- ---------
Consolidated and Company Statement of Financial Position
as at 31 March 2016
Group Company Group Company
Note 2016 2016 2015 2015
ASSETS GBPm GBPm GBPm GBPm
Non-current assets
Intangible assets
and goodwill 11 39.5 39.5 29.4 29.4
Property, plant and
equipment 12 2,942.7 2,942.7 2,836.6 2,836.6
Investments 13 - 15.4 - 15.4
----------------------------------- ----- ----------- ------------ --------- ----------
2,982.2 2,997.6 2,866.0 2,881.4
----------------------------------- ----- ----------- ------------ --------- ----------
Current assets
Inventories 14 8.5 8.5 7.3 7.3
Trade and other receivables 15 67.9 67.9 66.3 66.3
Cash and cash equivalents 16,19 119.3 119.3 136.0 136.0
Money market deposits 16,19 23.5 23.5 25.0 25.0
Current Tax Asset - - 3.6 3.6
----------------------------------- ----- ----------- ------------ --------- ----------
219.2 219.2 238.2 238.2
----------------------------------- ----- ----------- ------------ --------- ----------
Total assets 3,201.4 3,216.8 3,104.2 3,119.6
----------------------------------- ----- ----------- ------------ --------- ----------
LIABILITIES
Current liabilities
Trade and other payables 17 (137.1) (152.8) (137.8) (153.5)
Provisions 21 (0.6) (0.6) (2.8) (2.8)
Current income tax
liabilities (7.1) (7.1) - -
Borrowings 18 (4.6) (4.6) - -
----------------------------------- ----- ----------- ------------ --------- ----------
(149.4) (165.1) (140.6) (156.3)
----------------------------------- ----- ----------- ------------ --------- ----------
Net current assets/(liabilities) 69.8 54.1 97.6 81.9
----------------------------------- ----- ----------- ------------ --------- ----------
Non-current liabilities
Borrowings 18 (1,228.4) (1,228.4) (1,261.4) (1,261.4)
Derivative financial
instruments 19 (267.7) (267.7) (212.2) (212.2)
Provisions 21 (1.9) (1.9) (3.3) (3.3)
Retirement benefit
obligations 20 (16.2) (16.2) (33.7) (33.7)
Deferred tax 22 (158.0) (158.0) (183.2) (183.2)
Customer contributions 23 (561.0) (561.0) (538.5) (538.5)
Refundable customer
deposits 24 - - (4.8) (4.8)
----------------------------------- ----- ----------- ------------ --------- ----------
(2,233.2) (2,233.2) (2,237.1) (2,237.1)
----------------------------------- ----- ----------- ------------ --------- ----------
Total liabilities (2,382.6) (2, 398.3) (2,377.7) (2,393.4)
----------------------------------- ----- ----------- ------------ --------- ----------
Total net assets 818.8 818.5 726.5 726.2
----------------------------------- ----- ----------- ------------ --------- ----------
EQUITY
Called up share capital 25 238.4 238.4 238.4 238.4
Share premium account 26 4.4 4.4 4.4 4.4
Revaluation reserve 26 93.5 93.5 99.2 99.2
Capital redemption
reserve 26 8.6 8.6 8.6 8.6
Retained earnings 26 473.9 473.6 375.9 375.6
----------------------------------- ----- ----------- ------------ --------- ----------
Total equity 818.8 818.5 726.5 726.2
----------------------------------- ----- ----------- ------------ --------- ----------
The financial statements of Electricity North West Limited
(registered number 2366949) were authorised for issue and approved
by the Board of Directors on 27 May 2016 and signed on its behalf
by:
D Brocksom
Director
Consolidated Statement of Changes in Equity
for the year ended 31 March 2016
Group
Called Share Capital
up share premium Revaluation redemption Retained Total
capital account reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2014 238.4 4.4 104.5 8.6 332.3 688.2
Profit for the
year - - - - 71.8 71.8
Transfer from
revaluation reserve - - (5.3) - 5.3 -
Other comprehensive
income for the
year - - - - 3.5 3.5
Total comprehensive
(expense)/income
for the year - - (5.3) - 80.6 75.3
Transactions with
owners recorded
directly in equity
Equity dividends
(note 10,26) - - - - (37.0) (37.0)
---------------------- ---------- --------- -------------- ------------ ---------- --------
At 31 March 2015 238.4 4.4 99.2 8.6 375.9 726.5
Profit for the
year - - - - 117.0 117.0
Transfer from
revaluation reserve - - (5.7) - 5.7 -
Other comprehensive
income for the
year - - - - 5.3 5.3
Total comprehensive
(expense)/income
for the year - - (5.7) - 128.0 122.3
Transactions with
owners recorded
directly in equity
----------
Equity dividends
(note 10,26) - - - - (30.0) (30.0)
---------------------- ---------- --------- -------------- ------------ ---------- --------
At 31 March 2016 238.4 4.4 93.5 8.6 473.9 818.8
---------------------- ---------- --------- -------------- ------------ ---------- --------
Company Statement of Changes in Equity
for the year ended 31 March 2016
Company
Called
up Share Capital
share premium Revaluation redemption Retained Total
capital account reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2014 238.4 4.4 104.5 8.6 332.0 687.9
Profit for the
year - - - - 71.8 71.8
Transfer from
revaluation
reserve - - (5.3) - 5.3 -
Other
comprehensive
income for the
year - - - - 3.5 3.5
Total
comprehensive
(expense)/income
for the year - - (5.3) - 80.6 75.3
Transactions with
owners recorded
directly in
equity
Equity
dividends
(note 10,26) - - - - (37.0) (37.0)
------------------ -------- -------- ------------ ----------- --------- -------
At 31 March 2015 238.4 4.4 99.2 8.6 375.6 726.2
Profit for the
year - - - - 117.0 117.0
Transfer from
revaluation
reserve - - (5.7) - 5.7 -
Other
comprehensive
income for the
year - - - - 5.3 5.3
Total
comprehensive
(expense)/income
for the year - - (5.7) - 128.0 122.3
Transactions with
owners recorded
directly in
equity
Equity
dividends
(note 10,26) - - - - (30.0) (30.0)
------------------ -------- -------- ------------ ----------- --------- -------
At 31 March 2016 238.4 4.4 93.5 8.6 473.6 818.5
------------------ -------- -------- ------------ ----------- --------- -------
Consolidated and Company Statement of Cash Flows
for the year ended 31 March 2016
Group Company Group Company
Note 2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Operating activities
Cash generated from
operations 30 270.8 270.8 377.8 375.6
Interest paid (46.8) (48.8) (53.9) (53.9)
Tax paid (22.8) (22.8) (52.4) (52.4)
------------------------------ ---- ------- --------- ------- ---------
Net cash generated
from operating activities 201.2 201.2 271.5 269.3
------------------------------ ---- ------- --------- ------- ---------
Investing activities
Interest received
and similar income 0.9 0.9 0.3 0.3
Purchase of property,
plant and equipment (199.5) (199.5) (242.7) (242.7)
Purchase of intangible
assets (14.9) (14.9) (11.0) (11.0)
Customer contributions
received 44.3 44.3 41.1 43.3
Proceeds from sale
of
property, plant and
equipment 0.2 0.2 1.2 1.2
------------------------------ ---- ------- --------- ------- ---------
Net cash used in investing
activities (169.0) (169.0) (211.1) (208.9)
Net cash flow before
financing activities 32.2 32.2 60.4 60.4
Financing activities
Proceeds from borrowings 1.8 1.8 72.3 72.3
Repayment of borrowings (22.2) (22.2) - -
Transfer to money
market deposits 1.5 1.5 (25.0) (25.0)
Dividends paid to
equity shareholders
of the Company (30.0) (30.0) (37.0) (37.0)
------------------------------ ---- ------- --------- ------- ---------
Net cash from/(used
in) financing activities (48.9) (48.9) 10.3 10.3
------------------------------ ---- ------- --------- ------- ---------
Net increase/(decrease)
in cash and cash equivalents (16.7) (16.7) 70.7 70.7
------------------------------ ---- ------- --------- ------- ---------
Cash and cash equivalents
at the beginning of
the year 16 136.0 136.0 65.3 65.3
------------------------------ ---- ------- --------- ------- ---------
Cash and cash equivalents
at the
end of the year 16 119.3 119.3 136.0 136.0
------------------------------ ---- ------- --------- ------- ---------
Notes to the Financial Statements
Electricity North West Limited is a company incorporated in the
United Kingdom under the Companies Act 2006.
1. Significant accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below.
Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted for
use in the European Union, including International Accounting
Standards ('IAS') and interpretations issued by the International
Financial Reporting Interpretations Committee ('IFRIC').
The financial statements have been prepared on the historical
cost basis, except for the revaluation of financial instruments,
and certain property, plant and equipment. The financial statements
are presented in Sterling which is also the functional currency.
All values are rounded to the nearest million pounds (GBPm) unless
otherwise indicated. The preparation of financial statements, in
conformity with generally accepted accounting principles ('GAAP')
under IFRS, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although these
estimates are based on management's best knowledge of the amount,
event or actions, actual results ultimately may differ from these
estimates.
Basis of preparation - going concern basis
When considering continuing to adopt the going concern basis in
preparing the Annual Report and Consolidated Financial Statements,
the Directors have taken into account a number of factors,
including the following:
-- The Company's electricity distribution licence includes the
obligation in standard licence condition 40 to maintain an
investment grade issuer credit rating.
-- Under section 3A of the Electricity Act 1989, the Gas and
Electricity Markets Authority has a duty, in carrying out its
functions, to have regard to the need to secure that licence
holders are able to finance their activities, which are the subject
of obligations imposed by or under Part 1 of the Electricity Act
1989 or the Utilities Act 2000.
-- Management has prepared, and the Directors have reviewed,
Group budgets for the year ending 31 March 2017 and forecasts
covering the period to the end of the current price review in 2023.
These forecasts include projections and cash flow forecasts,
including covenant compliance considerations. Inherent in
forecasting is an element of uncertainty and our forecasts have
been sensitised for possible changes in the key assumptions,
including RPI and under recoveries of allowed revenue. This
analysis demonstrates that there is sufficient headroom on key
covenants and that there are sufficient resources are available to
the Group within the forecast period.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Basis of preparation - going concern basis (continued)
-- Short-term liquidity requirements are forecast to be met from
the Group's normal operating cash flow. Further liquidity is
provided by cash and short-term deposit balances. Furthermore,
GBP50m of committed undrawn bank facilities are available from
lenders which have a maturity of more than one year. Whilst the
utilisation of these facilities is subject to gearing covenant
restrictions, 12 month projections to 31 May 2017 indicate there is
significant headroom on these covenants.
Consequently, after making appropriate enquiries, the Directors
have a reasonable expectation that the Company and Group have
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report and Consolidated
Financial Statements.
The going concern basis has been adopted by the Directors, with
consideration of the guidance given in 'Going Concern and Liquidity
Risk: Guidance for Directors of UK Companies 2009' published by the
Financial Reporting Council in October 2009.
Adoption of new and revised standards
Certain new and amended standards have taken effect during the
year. The Directors have determined that the following standards
have no impact on the Financial Statements:
-- Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment
entities. The Group and Company do not meet the definition of an
investment entity. Therefore the amendments have no impact.
-- Amendments to IAS 32 - Offsetting Financial Assets and
Financial Liabilities. The amendments clarify that right of offset
must be legally enforceable in the event of default, bankruptcy or
insolvency as well as in the normal course of business. This does
not affect the offsetting performed in these financial
statements.
-- Amendments to IAS 36 - Recoverable Amount Disclosures for
Non-Financial Assets. The amendment adds disclosure requirements
for impaired assets and assets with recoverable amounts based on
fair value measurements. Neither requirement is applicable to the
Group or Company.
-- Amendments to IAS 39 - Novation of Derivatives and
Continuation of Hedge Accounting. The Group does not designate any
hedge relationships, therefore there is no impact from the
amendment.
-- IFRIC 21 - Levies. The Group has no levies. Therefore there is no impact from the amendment.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
New standards in issue not yet effective
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and had not yet been adopted by the EU):
IFRS 15: Revenue from customer contracts (Effective for the year
ended 31 March 2018)
IFRS 9: Financial Instruments (Effective for the year ended 31
March 2019)
IFRS 16 Leases (Effective for periods beginning on or after 1
January 2019)
The Group intends to adopt these standards, as applicable, when
they become effective.
IFRS 9 will impact the measurement and disclosure of the Group's
financial instruments. IFRS 15 may impact the measurement of the
Group's revenue. The Group is assessing the impact of both these
IFRSs.
There are no other IFRSs or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group.
Beyond the information above, it is not practicable to provide a
reasonable estimate of the effect of these standards until a
detailed review has been completed.
Basis of consolidation
The Group financial statements consolidate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries), made up to 31 March each year.
The results of subsidiaries acquired or disposed of during the
year are included in the Consolidated Income Statement from the
effective date of acquisition or up to the effective date of
disposal, as appropriate.
Subsidiaries
Control is achieved where the Company has the power to govern
the financial and operating policies, generally accompanied by a
shareholding of more than one half of the voting rights, of an
invested entity so as to obtain benefits from its activities. On
acquisition, the assets and liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair
values of the identifiable net assets acquired is recognised as
goodwill. If the cost of acquisition is below the fair values of
the identifiable net assets acquired the difference is recognised
as negative goodwill and immediately written-off and credited to
the Income Statement in the year of acquisition. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation. Investments in subsidiaries are stated at cost less,
where appropriate, provisions for impairment.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Business combinations and goodwill
The acquisition of subsidiaries is accounted for using the
purchase method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the group in exchange for control of the acquiree plus
any costs directly attributable to the business combination. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition date. All
costs associated with business combinations are expensed to the
Income Statement.
Goodwill arising on the acquisition is recognised as an asset
and initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, then the negative goodwill is recognised,
but immediately written-off to the Income Statement. Goodwill is
allocated to cash-generating units and is not amortised but is
tested annually for impairment. Goodwill is considered as having an
indefinite useful life.
Intangible assets
Intangible assets are measured initially at cost and are
amortised on a straight-line basis over their estimated useful
lives. Carrying amount is reduced by any provision for impairment
where necessary.
Amortisation periods for categories of intangible assets
are:
Computer software 3-10 years
Intangible assets under construction are not amortised.
Amortisation commences from the date the intangible asset is
available for use.
Property, plant and equipment
Property, plant and equipment comprise operational structures
and other assets (including properties, over ground plant and
equipment and electricity operational assets).
Operational structures
Infrastructure assets are depreciated by writing off their
deemed cost less the estimated residual value, evenly over their
useful lives, which range from 5 to 80 years. Employee costs
incurred in implementing the capital schemes of the Group are
capitalised within operational structure assets.
In 1997 the Company undertook a revaluation of certain assets
due to a business combination. This resulted in the creation of a
revaluation reserve of GBP234.9m. The additional depreciation
created as result of the revaluation is transferred from the
revaluation reserve to retained earnings on an annual basis.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Property, plant and equipment (continued)
Other assets
All other property, plant and equipment is stated at historical
cost less accumulated depreciation.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Subsequent costs are
included in the asset's carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. All other
repairs and maintenance are charged to the Income Statement during
the financial year in which they are incurred.
Freehold land and assets in the course of construction are not
depreciated. Other assets are depreciated by writing off their cost
evenly over their estimated useful lives, based on management's
judgement and experience, which are principally as follows:
Buildings 30-60 years
Fixtures and equipment, vehicles and other 3-40 years
Depreciation methods and useful lives are re-assessed annually
and, if necessary, changes are accounted for prospectively.
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sale proceeds and
the carrying amount of the asset and is recognised in the Income
Statement.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's Statement of Financial Position when the Group becomes a
party to the contractual provisions of the instrument.
Trade receivables
Trade receivables are stated at nominal value with any
allowances made for any estimated irrecoverable amounts.
Trade payables
Trade payables are stated at their nominal value.
Cash and cash equivalents
In the consolidated cash flow statement and related notes, cash
and cash equivalents includes cash at bank and in hand, deposits,
other short-term highly liquid investments which are readily
convertible into known amounts of cash and have a maturity of three
months or less and which are subject to an insignificant risk of
change in value.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Money market deposits
Money market deposits with terms to maturity in excess of three
months are not included as cash or cash equivalents and are
separately disclosed on the face of the Statement of Financial
Position.
Financial investments
Investments (other than interests in subsidiaries and fixed
deposits) are recognised and derecognised on a trade date basis and
are initially measured at fair value, including transaction costs.
Investments are classified as available-for-sale and are measured
at subsequent reporting dates at fair value. Gains and losses
arising from changes in fair value are recognised directly in
equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously
recognised in equity is included in the net profit or loss for the
year.
Financial assets
All financial assets are recognised and derecognised on a trade
date basis where the purchase or sale of a financial asset is under
a contract whose terms require delivery of the financial asset
within the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except
for those financial assets classified as at fair value through
profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified
categories: financial assets 'at fair value through profit or loss'
(FVTPL) and 'loans and receivables'. The classification depends on
the nature and purpose of the financial assets and is determined at
the time of initial recognition.
The effective interest method is a method of calculating the
amortised cost of a debt instrument and of allocating interest
income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the debt
instrument, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt
instruments other than those financial assets classified as at
FVTPL.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Equity instruments issued by the Group are
recorded at the proceeds received, net of direct issue costs.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the
proceeds received, net of direct issue costs. The Group
derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire.
Borrowing costs and finance income
All borrowing costs and finance income that are not directly
attributable to the acquisition, issue or disposal of a financial
asset or financial liability are recognised in the Income Statement
in the year in which they are incurred. Transaction costs that are
directly attributable to the acquisition or issue of a financial
asset or financial liability are included in the initial fair value
of that instrument.
Finance charges, including premiums payable on settlement or
redemption and direct issue costs, are accounted for on an
amortised cost basis to the Income Statement using the effective
interest method and are added to the carrying amount of the
instrument to the extent that they are not settled in the year in
which they arise. The effective interest rate is a method of
calculating the amortised cost of a financial liability and of
allocating interest expense to the relevant year. The effective
interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability,
or where appropriate, a shorter period.
Under IAS 23 borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset are
capitalised. A qualifying asset is any major project with a
projected timescale of greater than 12 months. Capitalisation
commences when activities are undertaken to prepare the asset for
use, and expenditure and borrowing costs are being incurred.
Capitalisation ceases when substantially all of the activities
necessary to prepare the intended asset for its intended use or
sale are complete.
Borrowing costs capitalised in the year under IAS 23 were
GBP1.0m (2015: GBP0.8m), using an average annual capitalisation
rate of 4.9% (2015: 5.9%).
Derivatives and borrowings
The Group's default treatment is for borrowings to be carried at
amortised cost, whilst derivatives are recognised separately on the
Statement of Financial Position at fair value with movements in
those fair values reflected through the Income Statement. This has
the potential to introduce considerable volatility to both the
Income Statement and Statement of Financial Position.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Embedded derivatives
Derivatives embedded in other financial instruments, or host
contracts, are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host
contracts and the host contracts are not measured at FVTPL.
An embedded derivative is presented as a non-current asset or
non-current liability if the remaining maturity of the hybrid
instrument to which the embedded derivative relates is more than 12
months and is not expected to be realised or settled within 12
months.
The Group is therefore subject to volatility in the Income
Statement due to changes in the fair values of the derivative
financial instruments. Further information is provided in note 19
to the financial statements.
Financial liabilities designated at fair value through profit or
loss ('FVTPL')
The Group applied fair value through profit or loss to the
GBP250m 8.875% 2026 bond upon initial recognition as the complexity
of the associated swaps at that time meant that the criteria to
allow hedge accounting was not met.
Financial liabilities at FVTPL are stated at fair value, with
any gains or losses on re-measurement recognised in the Income
Statement. The net gain or loss recognised in the Income Statement
incorporates any interest paid on the financial liabilities and is
included in the interest charge. Fair value is determined in the
manner described in note 19.
The Group elects to designate a financial liability at inception
as fair value through the Income Statement on the basis that it
meets the conditions specified in IAS 39 'Financial Instruments:
Recognition and Measurement'. IFRS 13 provides clarity around the
methodology for measuring fair value. The Group applies the
definition of fair value on the basis of an 'exit price' notion and
uses a 'fair value hierarchy', which results in a market-based,
rather than entity-specific, measurement.
Derivative financial instruments and hedge accounting
Interest rate and index linked swap agreements are used to
manage interest rate exposure. The Group does not use derivative
financial instruments for speculative purposes.
All financial derivatives are initially recognised at fair value
at the date the derivative contract is entered into and are
subsequently re-measured to their fair value at each Statement of
Financial Position date. Changes in the fair value of all
derivative financial instruments are recognised in the Income
Statement within finance expense as they arise; the Group does not
currently designate derivatives into hedging relationships and
apply hedge accounting.
The fair value methodology for derivative financial instruments
under IFRS 13 takes into account the non-performance risk inherent
within the instruments held for both assets and liabilities.
Determination of the non-performance risk is based on the
transaction price for similar instruments or market data on
appropriate credit spreads for the Group and counterparties.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Hedge accounting
There are two types of hedge accounting strategies that the
Group considers; a fair value hedge and a cash flow hedge. There
are currently no formal hedging relationships in the Group.
Operating profit
Operating profit is stated after charging operating expenses but
before investment income, net finance expense and other gains and
losses.
Taxation
The tax expense represents the sum of current and deferred tax
charges for the financial year, adjusted for prior year items.
Current taxation
Current tax, representing UK corporation tax, is based on the
taxable profit for the year and is provided at amounts expected to
be paid (or recovered) using the tax rates and laws that have been
enacted or substantively enacted at the Statement of Financial
Position date. Taxable profit differs from the net profit as
reported in the Income Statement because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are
provided, using the liability method, on all taxable temporary
differences at the Statement of Financial Position date. Such
assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries except where the
Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax is measured at the average tax rates that are
expected to apply in the years in which the temporary timing
differences are expected to reverse based on tax rates and laws
that have been enacted or substantively enacted at the Statement of
Financial Position date. The carrying amount of deferred tax assets
is reviewed at each Statement of Financial Position date and
reduced to the extent that it is no longer more likely than not
that sufficient taxable profits will be available to allow all or
part of the asset to be recovered. Deferred tax is charged or
credited to the Income Statement, except when it relates to items
charged or credited to equity, in which case the deferred tax is
also dealt with in other comprehensive income.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Employee benefits - Retirement benefit obligations
The Group's defined pension benefit arrangements are provided
through a division of the Electricity Supply Pension Scheme (ESPS).
The most recent actuarial valuation for the scheme for funding
purposes was carried out at 31 March 2013; agreed Actuarial
valuations are carried out thereafter at intervals of not more than
three years. The pension cost under IAS 19 (Revised 2011) 'Employee
Benefits' is assessed in accordance with the advice of a firm of
actuaries. The assumptions are disclosed in note 20 of the
financial statements. Results are affected by the actuarial
assumptions used. These assumptions include those made for
investment returns on the scheme's assets, discount rates, pay
growth and increases to pensions in payment and deferred pensions,
and life expectancy for scheme members. Actual experience may
differ from the assumptions made, for example, due to changing
market and economic conditions and longer or shorter lives of
participants. Defined benefit assets are measured at fair value
while liabilities are measured at present value. The difference
between the two amounts is recognised as a surplus or obligation in
the Statement of Financial Position.
IAS 19 (revised 2011) and the related consequential amendments
have impacted the accounting for the Group's defined benefit
scheme, by replacing the interest cost and expected return on plan
assets with a net interest charge on the net defined benefit. The
net interest expense is recognised within finance costs (see note
8)
The remeasurement of the defined benefit pension schemes is
recognised immediately through the Statement of Comprehensive
Income.
In addition, the Group also operates a defined contribution
pension scheme. Payments are charged to the Income Statement as
employee costs as they fall due. The Group has no further payment
obligations once the contributions have been paid.
IFRIC14: 'The limit on a defined benefit asset, minimum funding
requirements and their interaction' was published by the
interpretations committee of the International Accounting Standards
Board in July 2007 and was adopted during the year ended 31 March
2008. IFRIC14 provides guidance on the extent to which a pension
scheme surplus should be recognised as an asset and may also
require additional liabilities to be recognised where minimum
funding requirements exist. Legal opinion was obtained that a
pension surplus could be recovered on wind up of the scheme and
could therefore be recognised, along with associated liabilities.
At the current time, this interpretation does not affect the
Group.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Revenue recognition
Revenue represents the fair value of the income receivable in
the ordinary course of business primarily for the distribution of
electricity during the year, exclusive of value-added tax. Revenue
in the period includes an assessment of the volume of unbilled
energy distributed to customers between the date of income based
upon the last meter reading and the year end. Non-distribution
sales relate to the invoice value of other goods and services
provided which also relate to the electricity network.
Where turnover received or receivable in the year exceeds the
maximum amount permitted by regulatory agreement adjustments will
be made to future prices to reflect this over-recovery; no
liability is recognised as such an adjustment to future prices
relates to the provision of future services. Similarly no asset is
recognised where a regulatory agreement permits adjustments to be
made to future prices in respect of an under-recovery.
The Group recognises revenue generally at the time of delivery
and when collection of the resulting receivable is reasonably
assured. Payments received in advance of revenue recognition are
recorded as deferred revenue.
Customer contributions
Customer contributions received in respect of expenditure on
property, plant and equipment are treated as deferred income, which
is credited to the Income Statement over the estimated economic
lives of the related assets. Amortisation of contributions received
post 1 July 2009 is shown as revenue, rather than within operating
costs, following the adoption of IFRIC 18.
Refundable customer deposits
Refundable customer deposits received in respect of property,
plant and equipment are held as a liability until repayment
conditions come into effect and the amounts are repaid to the
customer or otherwise credited to customer contributions.
Leases
Operating lease rentals are charged to the Income Statement on a
straight-line basis over the period of the lease.
Research and development
Research and development costs are written off to the Income
Statement as incurred.
Critical accounting policies
In the process of applying the Group's accounting policies, the
Group is required to make certain estimates, judgements and
assumptions that it believes are reasonable based upon the
information available. These estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the years presented.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Critical accounting policies (continued)
On an ongoing basis, the Group evaluates its estimates using
historical experience, consultation with experts and other methods
considered reasonable in the particular circumstances. Actual
results may differ significantly from the estimates, the effect of
which is recognised in the year in which the facts that give rise
to the revision become known.
The following policies are those critical judgements which the
Group believes have the most significant impact on the annual
results under IFRS.
Carrying value of long-life assets
The Group's accounting policy for property, plant and equipment
('PPE') is detailed above. The carrying value of PPE under IFRS as
at 31 March 2016 was GBP2,942.7m (2015: GBP2,836.6m). Additions to
PPE, totalled GBP206.4m (2015: GBP238.7m) and the depreciation
charge was GBP100.3m (2015: GBP95.0m) in the year ended 31 March
2016. The estimated useful economic lives of PPE are based on
management's judgement and experience. When management identify
that the actual useful lives differ materially from the estimates
used to calculate depreciation, that charge is adjusted
prospectively. Due to the significance of PPE investment to the
Company, variations between actual and estimated useful lives could
impact operating results both positively and negatively, although
historically, few changes to estimated useful lives have been
required.
In accordance with IFRS, the Company is required to evaluate the
carrying values of PPE for impairment whenever circumstances
indicate, in management's judgement, that the carrying value of
such assets may not be recoverable. An impairment review requires
management to make subjective judgements concerning the cash flows,
growth rates and discount rates of the cash-generating units under
review.
In the financial year ended 31 March 2016, the Directors have
assessed the carrying value of both tangible and intangible fixed
assets in accordance with the principles of IAS 36 'Impairment of
Assets'. This review was underpinned by value in use calculations
on the recoverable amounts of the cash generating unit (CGU). For
the purpose of impairment testing the Group have determined that
there is only one CGU and, due to favourable operating cash flows
being forecast to the end of RIIO-ED1 and beyond, no impairment
exists. Furthermore, management have completed a review of tangible
fixed assets for material obsolescence and/or physical damage and
no indication of impairment was identified.
Revenue recognition
Under IFRS, the Company recognises revenue generally at the time
of delivery and when collection of the resulting receivable is
reasonably assured. Should management consider that the criteria
for revenue recognition are not met for a transaction, revenue
recognition would be delayed until such time as the transaction
becomes fully earned. Payments received in advance of revenue
recognition are recorded as deferred revenue. The Company raises
bills and recognises revenue in accordance with its entitlement to
receive revenue in line with the limits established by the periodic
regulatory price review processes.
The principal direct customers of the business are the
electricity supply companies that utilise the Company's
distribution network to distribute electricity from generators to
the end consumer.
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Revenue recognition (continued)
Revenue from such activity is known as 'use of system'. The
amount billed is dependent upon the volume of electricity
distributed, including estimates of the units distributed to
customers. The estimated usage is based on historical data,
judgement and assumptions. Operating revenues are gradually
adjusted to reflect actual usage in the period over which the
meters are read.
Taxation
Assessing the outcome of uncertain tax positions such as the tax
treatment of provisions requires judgements to be made regarding
the application of tax law and the results of negotiations with,
and enquiries from tax authorities.
Accounting for provisions and contingencies
The Group is subject to a number of claims incidental to the
normal conduct of its business, relating to and including
commercial, contractual and employment matters, which are handled
and defended in the ordinary course of business. The Group
routinely assesses the likelihood of any adverse judgements or
outcomes to these matters as well as ranges of probable and
reasonably estimated losses. Reasonable estimates involve
judgements made by management after considering information
including notifications, settlements, estimates performed by
independent parties and legal counsel, available facts,
identification of other potentially responsible parties and their
ability to contribute, and prior experience. A provision is
recognised when it is probable that an obligation exists for which
a reliable estimate can be made of the obligation after careful
analysis of the individual matter. The required provision may
change in the future due to new developments and as additional
information becomes available. Matters that either are possible
obligations or do not meet the recognition criteria for a provision
are disclosed, unless the possibility of transferring economic
benefits is remote.
Property provision
The Company held the leasehold title to a number of retail
properties as a result of its legacy retail operations whilst
trading as Norweb Plc. The Company assigned the majority of these
to a third party in 1996. However, the third party went into
administration during 2013 and the Company has a potential
liability for lease obligations under privity of contract rules for
these retail properties. The retail properties have lease expiry
dates ranging from 2016 to 2021. The Directors have recognised a
provision based on the probable financial exposure, having
consulted with both internal and external property advisors and
property management agents. Further information on the judgements
involved is provided in note 21 to the financial statements.
Retirement benefits
The pension cost under IAS 19 (revised 2011) 'Employee benefits'
is assessed in accordance with the advice of a firm of actuaries.
The assumptions are disclosed in note 20 of the financial
statements. Results are affected by the actuarial assumptions used.
These assumptions include those made for investment returns on the
schemes' assets, discount rates, pay growth and increases to
pensions in payment and deferred pensions, and life expectancy for
scheme members. Actual experience may differ from the assumptions
made,
Notes to the Financial Statements (continued)
1. Significant accounting policies (continued)
Retirement benefits (continued)
for example, due to changing market and economic conditions and
longer or shorter lives of participants.
Fair values of derivative financial instruments
The Group uses derivative financial instruments to manage the
exposure to interest rate risk and bond issues. The Board has
authorised the use of derivatives by the Group to reduce the risk
of loss arising from changes in market risks, and for economic
hedging reasons. All financial derivatives are initially recognised
at fair value at the date the derivative contract is entered into
and are subsequently re-measured to their fair value at each
Statement of Financial Position date. Changes in the fair value of
all derivative financial instruments that are not in a hedging
relationship are recognised in the Income Statement within finance
expense as they arise.
The Group is therefore subject to volatility in the Income
Statement due to changes in the fair values of the derivative
financial instruments. Further information on the judgements
involved is provided in note 19 to the financial statements.
Impairment of goodwill
On acquisition of business combinations, assessment is required
as to whether the Group has acquired any intangible assets as part
of the acquisition, and subsequent measurement of any intangible
assets must be made.
In 2010 the Group acquired the share capital of Electricity
North West Services Limited. On acquisition, in line with IFRS 3
requirements, management has performed a review for intangibles as
part of the assessment of fair values. For an intangible asset to
be recognised it must be possible to separately identify it and
also to reliably measure the value. Management did not identify any
intangible assets arising as a result of the acquisition of ENWSL,
and consequently the excess of the total consideration over
acquired net assets, after fair value adjustments, of GBP10.1m was
recognised as goodwill.
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash generating units to which goodwill
has been allocated. The value in use calculation requires the
entity to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to
calculate present value. The value in use calculation performed
concludes that no impairment loss is required against this
goodwill. The carrying amount of goodwill at the Statement of
Financial Position date was GBP10.1m.
Impairment of tangible and intangible assets excluding
goodwill
Management assesses the recoverability of tangible and
intangible assets on an annual basis. Determining whether any of
those assets are impaired requires an estimation of the value in
use of the asset to the Group. This value in use calculation
requires the Group to estimate the future cash flows expected to
arise from the asset and a suitable discount rate in order to
calculate the present value for the asset and compare that
calculation to its carrying value.
Notes to the Financial Statements (continued)
2. Revenue
2016 2015
Group GBPm GBPm
------------ ----- -------
Revenue 450.8 533.7
----------- ----- -----
Predominantly all Group revenues arise from electricity
distribution in the North West of England and associated
activities. Only one operating segment is therefore regularly
reviewed by the Chief Executive Officer and Executive Leadership
Team. Included within the above are revenues of approximately
GBP303.2m (2015: GBP370.8m) which arose from sales to the Group's
five (2015: five) largest customers. Customer 1 represented
GBP88.6m (2015: GBP109.6m), Customer 2 GBP84.0m (2015: GBP98.9m),
Customer 3 GBP61.8m (2015: GBP75.2m), Customer 4 GBP35.0m (2015:
GBP46.8m) and Customer 5 GBP33.8m (2015: GBP40.3m) of revenues. No
other customer represented more than 10 per cent of revenues either
this year or in the prior year.
3. Operating profit
The following items have been included in arriving at the
Group's operating profit:
2016 2015
Group GBPm GBPm
-------------------------------------- ------ ------
Employee costs
Employee costs (see note 4) 47.2 44.5
-------------------------------------- ------ ------
Depreciation and amortisation expense
(net)
Depreciation of property, plant and
equipment
Owned assets (see note 12) 100.3 95.0
Amortisation of intangible assets
and customer contributions
Software (see note 11) 4.8 3.6
Customer contributions(1) (see note
23) (10.7) (12.9)
Depreciation and amortisation expense
(net) 94.4 85.7
-------------------------------------- ------ ------
Other income
Profit on disposal of property,
plant and equipment (0.2) (0.7)
-------------------------------------- ------ ------
Retail property provision credit
(see note 21) 1.0 -
-------------------------------------- ------ ------
Restructuring costs (see note 6) - 2.8
-------------------------------------- ------ ------
Other operating costs include:
Research and development 6.7 3.3
Operating leases:
- land and buildings 0.7 0.8
- hire of plant and machinery 2.7 1.7
-------------------------------------- ------ ------
1 In the current year GBP4.6m (2015: GBP1.9m) of customer
contributions amortisation has been amortised through revenue in
line with IFRIC 18.
Notes to the Financial Statements (continued)
3. Operating profit (continued)
Analysis of the auditor's remuneration is as follows:
Group Group
2016 2015
GBPm GBPm
----------------------------- ----- -----
Fees payable to the
Company's auditor and
their associates for
the audit of the Company's
annual financial statements 0.1 0.1
Total audit fees 0.1 0.1
-------------------------------- ----- -----
Audit-related assurance
services 0.1 0.1
Taxation advisory services - -
Total non-audit fees 0.1 0.1
-------------------------------- ----- -----
Total fees 0.2 0.2
-------------------------------- ----- -----
Fees payable to Deloitte LLP and their associates for non-audit
services to the Company are not required to be disclosed because
the consolidated financial statements of the Parent are required to
disclose such fees on a consolidated basis.
Notes to the Financial Statements (continued)
4. Employee costs
Group Group
2016 2015
GBPm GBPm
--------------------------- ------ ------
Wages and salaries 77.3 74.7
Social security costs 7.6 7.2
Pension costs (see
note 20) 17.4 16.3
------------------------------ ------ --------
Employee costs (including
Directors' remuneration) 102.3 98.2
Costs transferred directly
to fixed assets (55.1) (53.7)
Charged to operating
expenses 47.2 44.5
------------------------------ ------ --------
The average monthly number of employees during the year
(including Executive Directors):
Group Group
2016 2015
Number Number
-------------------------- ------ ------
Electricity distribution 1,604 1,670
-------------------------- ------ ------
5. Directors' remuneration
2016 2015
GBPm GBPm
----------------------------- ----- -----
Salaries 0.9 0.6
Accrued bonus 0.1 0.3
Amounts receivable under
long term incentive schemes 0.3 1.0
Pensions - -
----------------------------- ----- -----
1.3 1.9
----------------------------- ----- -----
The aggregate emoluments of the Directors in 2016 amounted to
GBP1,295,865 (2015: GBP1,944,591). Emoluments comprise salaries,
fees, taxable benefits, compensation for loss of office and the
value of short-term and long-term incentive awards. The aggregated
emoluments of the highest paid Director in 2016 in respect of
services to the Group amounted to GBP682,000 (2015: GBP1,607,702).
Included in the salaries shown above, are amounts payable for
compensation for loss of office of GBP35,000 (2015: GBPnil) all
paid in cash. Not included in the amounts shown above are further
payments made in respect of Directors' services, as detailed in
note 29.
The highest paid director is a member of the defined
contribution section of the ENW ESPS scheme. The pension
contributions for the highest paid Director for 31 March 2016 were
GBPnil (2015: GBPnil). The accrued pension at 31 March 2016 for the
highest paid Director was GBPnil (2015: GBPnil).
As at 31 March 2016 the Directors have no interests in the
ordinary shares of the Company (2015: same).
Notes to the Financial Statements (continued)
6. Restructuring costs
At the start of the year the Company executed the redesign of
the organisational structure to respond to the challenges of the
RIIO-ED1 framework and to remove complexity in the hierarchy,
ensuring single point of accountability. As a consequence where
employees could not be redeployed within the business, redundancy
terms were agreed in the prior year.
Group
2016 Group 2015
GBPm GBPm
-------------------------- ----- -----------
Redundancy costs - 2.8
Total charge for the year - 2.8
----------------------------- ----- -----------
7. Investment income
Group
2016 Group 2015
GBPm GBPm
----------------------------------------------------------------------- ----- ----------
Interest receivable on short-term bank deposits held at amortised cost 0.9 0.3
----------------------------------------------------------------------- ----- ----------
Total investment income 0.9 0.3
----------------------------------------------------------------------- ----- ----------
Notes to the Financial Statements (continued)
8. Finance expense (net)
Group 2016 2015
GBPm GBPm
--------------------------------- ----------- -------
Interest payable
Interest payable on Group
borrowings 15.0 16.9
Interest payable on borrowings
held at amortised cost 23.3 23.2
Interest payable on borrowings
designated
at fair value through
profit or loss 22.2 22.2
Net receipts on derivatives
held for trading (12.9) (5.4)
Other finance charges
related to
index-linked debt 3.9 6.3
Interest cost on pension
plan obligations (see
note 20) 0.7 1.2
Capitalisation of borrowing
costs under IAS 23 (1.0) (0.8)
----------------------------------- ----------- -------
Total interest expense 51.2 63.6
----------------------------------- ----------- -------
Movements on financial
instruments
Fair value movement on
borrowings designated
at fair value through
profit or loss (12.7) 29.4
Fair value movement on
derivatives held for
trading 55.5 116.7
Total fair value movements 42.8 146.1
Total finance expense
(net) 94.0 209.7
----------------------------------- ----------- -------
The fair value movement of the borrowings designated at fair
value through profit or loss is derived from movements in the
market ask price of the bond; this is a Level 1 input under IFRS
13. The fair value movements on the derivatives are derived using a
discounted cash flow technique using both market expectations of
future interest rates and future inflation levels, obtained from
Bloomberg, and calibrations to observable market transactions
evidencing fair value; these are Level 2 inputs and Level 3 inputs
under IFRS 13. Note 19 provides more detail on this.
There have been no accretion payments on the index-linked swaps
in the year; these are scheduled five-yearly, seven-yearly and
ten-yearly with the next payment due in July 2016. No swaps have
been closed out in the year (2015: same).
Notes to the Financial Statements (continued)
9. Taxation
Group Group
2016 2015
GBPm GBPm
------------------------------------- ------ ------
Current tax
Current year 31.9 41.0
Prior year 1.6 (3.8)
Deferred tax
Current year (6.6) (20.2)
Prior year (1.9) 3.1
Impact of change in future tax rates (20.5) -
Tax charge for the year 4.5 20.1
---------------------------------------- ------ ------
Corporation tax is calculated at 20% (2015: 21%) of the
estimated assessable profit for the period.
The rate will be reduced to 19% on 1 April 2017 and 18% on 1
April 2020. The Finance Bill 2016 proposes a further rate reduction
to 17% on 1 April 2020 but as the legislation is not substantially
enacted at the Balance Sheet date, the tax disclosures reflect
deferred tax measured at the 18% rate from 1 April 2020.
The deferred tax credit in respect of the change from 18% to a
17% tax rate is expected to be in the region of GBP9m.
The table below reconciles the notional tax charge at the UK
corporation tax rate to the effective tax rate for the year:
Group Group
2016 2015
GBPm GBPm
---------------------------------------------------------- ------- -----
Profit before tax 121.5 91.9
----------------------------------------------------------- ------- -----
Tax at the UK corporation tax rate of 20%
(2015: 21%) 24.3 19.3
Prior year tax adjustments (0.3) (0.6)
Reduction in current year deferred tax due to rate change 0.7 1.0
Non taxable expense 0.3 0.4
Impact from change in future tax rates (20.5) -
Tax charge for the year 4.5 20.1
----------------------------------------------------------- ------- -----
Notes to the Financial Statements (continued)
10. Dividends
Amounts recognised as distributions to equity holders in the
year comprise:
Group and Company 2016 2015
GBPm GBPm
--------------------------------- ----- -----
Final dividends for the year
ended 31 March 2014 of 7.76
pence per share - 37.0
---------------------------------- ----- -----
Interim dividends for the year
ended 31 March 2016 of 6.29
pence per share (31 March 2015:
nil) 30.0 -
---------------------------------- ----- -----
30.0 37.0
---------------------------------- ----- -----
At the current and prior year ends, there were no proposed final
dividends subject to approval by equity holders of the Company and,
hence, no liabilities have been included in the financial
statements at 31 March 2015 and 31 March 2016 respectively.
Notes to the Financial Statements (continued)
11. Intangible assets and goodwill
Assets
under the
course
Goodwill Software of construction Total
Group and Company GBPm GBPm GBPm GBPm
-------------------- -------- -------- ---------------- -----
Cost
At 1 April 2014 10.1 55.9 66.0
Additions - - 11.0 11.0
Disposals - - - -
At 31 March 2015 10.1 55.9 11.0 77.0
Additions - 5.9 9.0 14.9
Transfers - 6.6 (6.6) -
At 31 March 2016 10.1 68.4 13.4 91.9
-------------------- -------- -------- ---------------- -----
Amortisation
At 1 April 2014 - 44.0 - 44.0
Charge for the year - 3.6 - 3.6
Disposals - - - -
At 31 March 2015 - 47.6 - 47.6
Charge for the year - 4.8 - 4.8
Disposals - - - -
At 31 March 2016 - 52.4 - 52.4
-------------------- -------- -------- ---------------- -----
Net book value
At 31 March 2016 10.1 16.0 13.4 39.5
-------------------- -------- -------- ---------------- -----
At 31 March 2015 10.1 8.3 11.0 29.4
-------------------- -------- -------- ---------------- -----
In the Company, goodwill arose on the acquisition of assets and
liabilities of ENWSL in the year ended 31 March 2011. This value
reflects the excess of the investment over the book value of the
trade and assets at the date of acquisition.
At 31 March 2016, the Group and Company had entered into
contractual commitments for the acquisition of software amounting
to GBP11.1m (2015: GBP15.5m).
At each balance sheet date the Group reviews the carrying
amounts of its goodwill and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss (See note 12).
Notes to the Financial Statements (continued)
12. Property, plant and equipment
Group and Company
Fixtures Assets
Non operational and equipment, under the
Operational land vehicles course
Structures and buildings and other of construction Total
GBPm GBPm GBPm GBPm GBPm
------------------ ----------- --------------- --------------- ---------------- -------
Cost or valuation
At 1 April
2014 3,586.3 22.9 58.2 287.9 3,955.3
Additions 67.8 1.8 4.6 164.5 238.7
Transfers 119.8 (0.1) 11.4 (131.1) -
Disposals (3.8) - (3.5) - (7.3)
At 31 March
2015 3,770.1 24.6 70.7 321.3 4,186.7
Additions 138.5 2.4 7.7 57.8 206.4
Transfers 238.9 4.1 14.6 (257.6) -
Disposals (1.4) - (0.8) - (2.2)
At 31 March
2016 4,146.1 31.1 92.2 121.5 4,390.9
------------------ ----------- --------------- --------------- ---------------- -------
Accumulated
depreciation
and impairment
At 1 April
2014 1,217.3 5.6 39.0 - 1,261.9
Charge for
the year 81.8 0.8 12.4 - 95.0
Disposals (3.8) - (3.0) - (6.8)
At 31 March
2015 1,295.3 6.4 48.4 - 1,350.1
Charge for
the year 87.6 0.8 11.9 - 100.3
Disposals (1.4) - (0.8) - (2.2)
At 31 March
2016 1,381.5 7.2 59.5 - 1,448.2
Net book value
At 31 March
2016 2,764.6 23.9 32.7 121.5 2,942.7
------------------ ----------- --------------- --------------- ---------------- -------
At 31 March
2015 2,474.8 18.2 22.3 321.3 2,836.6
------------------ ----------- --------------- --------------- ---------------- -------
At 31 March 2016, the Group and Company had entered into
contractual commitments for the acquisition of property, plant and
equipment amounting to GBP63.2m (2015: GBP71.3m).
At 31 March 2016, had the property, plant and equipment of the
Group been carried at historical cost less accumulated depreciation
and accumulated impairment losses, the carrying amount would have
been GBP2,828.5m (2015: GBP2,714.5m). The revaluation reserve is
disclosed in note 26, net of deferred tax. The revaluation reserve
arose following North West Water's acquisition of Norweb.
Notes to the Financial Statements (continued)
12. Property, plant and equipment (continued)
Impairment testing of intangible assets and property plant and
equipment
At each 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. 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.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
For the purposes of impairment testing the Group have determined
that there is only one CGU. The key assumptions for the value in
use calculations are those regarding discount rates and the
outcomes of future Ofgem price control settlements.
The Group has prepared cash flow forecasts for a 31 year period,
which represents the planning horizon used for management purposes
being aligned to the end of an eight year RIIO framework period.
The rate used to discount cash flows was 6.08% (2015: 6.46%)
reflecting an assumed level of risk associated with the cash flows
generated from the licence. Cash flow projections for the eight
year period to 2023 are based on the Ofgem final determination and
the Company's latest approved business plan (2015: based on
forecast business plan submission to Ofgem) and reflect recent RPI
forecasts. Forecasts beyond this point are projected forward based
on expected levels of expenditure to maintain the health of the
network and long term inflation assumptions. The forecasts have
been sensitised to a change in the discount rate of 1% either way
and that analysis indicates that there is sufficient headroom and
impairment would be required.
Based on the impairment testing performed, management are
comfortable that sufficient headroom exists between the value in
use and the carrying value of the assets such that no impairment
loss is required to be booked.
Notes to the Financial Statements (continued)
13. Investments
Group Company
GBPm GBPm
----------------------------------- ----- -------
Cost and carrying value
At 31 March 2015 and 31 March 2016 - 15.4
------------------------------------ ----- -------
Details of the investments as at 31 March 2016, all of which
were incorporated in the UK, are as follows.
Company Description of holding Proportion held Nature of business
---------------------------------------- ----------------------------- ---------------- -------------------
Subsidiary undertakings
Electricity North West Services Limited Ordinary shares of GBP1 each 100% Dormant
ENW (ESPS) Pensions Trustees Limited Ordinary shares of GBP1 each 100% Dormant
Joint venture
Nor.Web DPL Limited Ordinary shares of GBP1 each 50% Dormant
Notes to the Financial Statements (continued)
13. Investments (continued)
Other investments Description of holding Proportion held Nature of business
-------------------------------------- -------------------------------- ---------------- --------------------------
Selectusonline Ltd Ordinary shares of 66.67p each 16.67% Planning and procurement
Energy Networks Association Ltd Limited by Guarantee 11.11% Industry support services
Electricity Association Services Ltd- Ordinary shares of GBP1 each 9.09% Industry support services
in liquidation
Electralink Ltd Ordinary shares of GBP0.10 each 7.38% Industry support services
Electricity Pensions Ltd Limited by Guarantee 4.76% Industry support services
Northmere Ltd Limited by Guarantee 4.55% Industry support services
Electricity Pensions Ltd Ordinary shares of GBP1 each 3.38% Industry support services
Gemserv Ltd Ordinary shares of GBP1 each 2.78% Industry support services
DCUSA Ltd Ordinary shares of GBP1 each 1.72% Industry support services
Smart Energy Code Company Ltd Ordinary shares of GBP1 each 0.85% Industry support services
MRA Service Company Ltd Ordinary shares of GBP1 each 0.61% Industry support services
National Grid plc Ordinary shares of 11.76p each Negligible Energy Distribution
Notes to the Financial Statements (continued)
14. Inventories
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
------------------------------ ----- ------- ----- -------
Raw materials and consumables 8.5 8.5 7.3 7.3
------------------------------- ----- ------- ----- -------
15. Trade and other receivables
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
------------------------ ----- ------- ----- -------
Trade receivables 15.6 15.6 6.7 6.7
Amounts owed by Group
undertakings 4.5 4.5 4.3 4.3
Prepayments and accrued
income 47.8 47.8 55.3 55.3
Balance at 31 March 67.9 67.9 66.3 66.3
------------------------- ----- ------- ----- -------
The average credit period taken on sales is 14 days (2015: 14
days). Trade receivables do not carry interest and are stated net
of allowances for doubtful receivables of GBP0.7m (2015: GBP0.3m)
estimated by management based on known specific circumstances, past
default experience and their assessment of the current economic
environment.
51% (2015: 56%) are past due but not impaired. The majority of
balances are less than 30 days past due; a balance of GBP1.1m is
greater than 30 days past due at 31 March 2016 (2015: GBP1.0m),
against which an allowance for doubtful debt of GBP0.7m (2015:
GBP0.3m) has been made.
The movement on the provision for impairment of trade
receivables is as follows:
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
--------------------------- ---- ------ -------- ------ --------
Balance at 1 April 0.3 0.3 0.4 0.4
Charged /(credited)
to the Income Statement 0.4 0.4 (0.1) (0.1)
Utilised - - - -
Balance at 31 March 0.7 0.7 0.3 0.3
Notes to the Financial Statements (continued)
15. Trade and other receivables (continued)
The Group is required by Ofgem to accept any company as a
counterparty that has obtained a trading licence regardless of
their credit status. To mitigate the risk posed by this, all
transactions with customers are governed by a contract which all
customers are required by Ofgem to sign and adhere to the
terms.
Under the terms of the contract, the maximum unsecured credit
that the Group may be required to give is 2% of the Regulatory
Asset Value ('RAV') of the Company. In addition the contract makes
provisions for the credit quality of customers and adjusts the
credit value available to them based on credit ratings and payment
history. Where a customer exceeds their agreed credit level under
the contract the customer must provide collateral to mitigate the
increased risk posed. As at 31 March 2016 GBP2.6m (2015: GBP4.8m)
of cash had been received as security.
The RAV is calculated using the methodology set by Ofgem for
each year of ED1 (1 April 2015 to 31 March 2023) and is GBP1,643.0m
(2015: GBP1,609m) for the year ended 31 March 2016 based on the
actual retail price index (RPI) for March.
At 31 March 2016 GBP103.0m (2015: GBP112.0m) of unsecured credit
limits had been granted to customers and the highest unsecured
credit limit given to any single customer was GBP10.7m (2015:
GBP10.7m). All of the customers granted credit of this level must
have a credit rating of at least A- from Standard and Poor's and A3
from Moody's Investor Services or a guarantee from a parent company
of an equivalent rating. Alternatively, the customer must be able
to prove their creditworthiness on an ongoing basis.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
Notes to the Financial Statements (continued)
16. Cash and cash equivalents and money market deposits
2016 2015
Group and Company GBPm GBPm
Cash and cash equivalents 119.3 136.0
Short-term money market deposits
(maturity over 3 months) 23.5 25.0
142.8 161.0
Cash and cash equivalents comprise cash at bank and in hand,
deposits and other short-term highly liquid investments which are
readily convertible into known amounts of cash and have a maturity
of three months or less, net of any bank overdrafts which are
payable on demand. Money market deposits with terms to maturity in
excess of three months are not included as cash or cash equivalents
and are separately disclosed on the face of the Statement of
Financial Position.
The effective interest rate on all short-term deposits was a
weighted average of 0.7% (2015: 0.5%) and these deposits had an
average maturity of 40 days (2015: 45 days).
17. Trade and other payables
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
---------------------------- ------ -------- ------ --------
Trade payables 13.4 13.4 17.9 17.9
Amounts owed to group 3.0 3.0 3.8 3.8
Amounts owed to subsidiary
undertakings - 15.4 - 15.4
Other taxation and
social security 11.2 11.2 15.1 15.1
Customer contributions
(note 23) 23.9 23.9 17.4 17.4
Refundable customer
deposits (note 24) 2.6 2.6 0.2 0.2
Accruals and deferred
income 83.0 83.3 83.4 83.7
---------------------------- ------ -------- ------ --------
137.1 152.8 137.8 153.5
---------------------------- ------ -------- ------ --------
Trade payables and accruals principally comprise amounts
outstanding for capital purchases and ongoing costs. The average
credit period in the year was 15 days from receipt of invoice
(2015: 18 days).
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Notes to the Financial Statements (continued)
18. Borrowings
This note provides information about the contractual terms of
the Group's loans and borrowings. For more information about the
Group's exposure to credit risk, liquidity risk and market risk see
note 19.
2016 2015
Group and Company GBPm GBPm
------------------------------------------- ------- -------
Current liabilities
Bank and other term borrowings 4.6 -
------------------------------------------- ------- -------
Non-current liabilities
Bonds 711.3 722.4
Bank and other term borrowings 249.0 252.6
Amounts owed to parent undertaking 70.9 89.7
Amounts owed to affiliated(1) undertaking 197.2 196.7
=========================================== ======= =======
1,228.4 1,261.4
------------------------------------------- ------- -------
Carrying value by category
The carrying values by category of financial instruments were as
follows:
2016 2015
Year of maturity Carrying Carrying
value value
Group and Company GBPm GBPm
======================================================================================== ======== ========
Borrowings designated at fair value through profit or loss statement
8.875% GBP250m bond 2026 380.7 393.4
===================================================================== ================= ======== ========
Borrowings measured at amortised cost
8.875% GBP200m bond 2026 196.4 196.1
1.4746%+RPI(2) GBP100m index-linked bond 2046 134.3 132.9
1.5911%+RPI(2) GBP135m index-linked loan 2024 154.0 152.2
Amortising costs re: long term loans at LIBOR plus 0.70% 2017 - (0.1)
0.38%+RPI(2) GBP50m index-linked loan 2032 49.5 50.5
0.0%+RPI(2) GBP50m index-linked loan 2033 50.0 50.0
Amounts due to parent undertaking 2023 70.9 89.7
Amounts due to affiliated(1) undertaking 2021 197.2 196.7
Other financial liabilities held at amortised cost 852.3 868.0
1Affiliated companies being those owned by Companies under
common ownership with Electricity North West Limited in the North
West Electricity Networks (Jersey) Limited consolidation group.
(2) RPI - Retail Prices Index - a UK general index of retail
prices (for all items) as published by the Office for National
Statistics (January 1987 = 100).
Notes to the Financial Statements (continued)
18. Borrowings (continued)
As at 31 March 2015 and at 31 March 2016 all loans and
borrowings are unsecured and are in sterling. As in the prior year,
there were no formal bank overdraft facilities in place in the year
to 31 March 2016. The fair values of the Group's financial
instruments are shown in note 19.
The loan from parent undertaking accrues interest at 2.74 %
(2015:6.5%). The loan from the affiliated undertaking accrues
interest at 6.125% (2015: 6.125%).
Borrowing facilities
The Group and Company had GBP50m (2015: GBP50m) in unutilised
committed bank facilities at 31 March 2016 of which GBPnil expires
within one year (2015: GBPnil), GBP50m expires after one year but
less than two years (2015: GBP50m) and GBPnil expires in more than
two years (2015: GBPnil).
Notes to the Financial Statements (continued)
19. Financial instruments
A financial instrument is a contract that gives rise to a
financial asset in one entity and a financial liability or equity
in another entity. The Group uses financial instruments to invest
liquid asset balances, raise funding and manage the risks arising
from its operations.
The principal risks to which the Group is exposed and which
arise in the normal course of business include credit risk,
liquidity risk and market risk, in particular interest rate risk
and inflation risk. Derivative financial instruments are used to
change the basis of interest cash flows from fixed to either
inflation-linked or an alternative fixed profile to more accurately
match the revenue profile.
The Board has authorised the use of derivatives by the Group to
reduce the risk of loss arising from changes in market risks, and
for economic hedging reasons.
The accounting policy for derivatives is provided in note 1.
Control over financial instruments
The Group has a formal risk management structure, which includes
the use of risk limits, reporting and monitoring requirements,
mandates, and other control procedures. It is currently the
responsibility of the Board to set and approve the risk management
procedures and controls.
Risk management
All of the Group's activities involve analysis, acceptance and
management of some degree of risk or combination of risks. The most
important types of financial risk are credit risk, liquidity risk
and market risk. Market risk includes foreign exchange, interest
rate, inflation and equity price risks.
The only material exposure the Group has to foreign exchange
risk or equity price risk relates to the assets of the defined
benefit pension scheme which are managed by the pension scheme
investment managers.
The Group's risk management policies are designed to identify
and analyse these risks, to set appropriate risk limits and
controls and to monitor the risks and limits continually by means
of reliable and up to date systems. The Group modifies and enhances
its risk management policies and systems to reflect changes in
markets and products. The Audit Committee is responsible for
independently overseeing the activities in relation to Group risk
management. The Group's treasury function, which is authorised to
conduct the day-to-day treasury activities of the Group, reports on
a regular basis to the Committee. The Group's processes for
managing risk and the methods used to measure risk have not changed
since the prior year. In the year, there have been changes to the
Group's policies in relation to the management of credit risk, risk
limits and minimum credit ratings of counterparties have been
amended to reflect changes to market conditions and the associated
level of perceived risks.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
Credit risk
The Group takes on exposure to credit risk, which is the risk
that financial loss arises from the failure of a customer or
counterparty to meet its obligations under a contract as they fall
due. Credit risk arises principally from trade finance and treasury
activities. The Group has dedicated standards, policies and
procedures to control and monitor credit risk.
The counterparties under treasury activities consist of
financial institutions. In accordance with IAS 39, the Directors
have considered and quantified the exposure of the Group to
counterparty credit risk and do not consider there to be a material
credit risk adjustment required. The exposure to counterparty
credit risk will continue to be monitored. Although the Group is
potentially exposed to credit loss in the event of non-performance
by counterparties, such credit risk is controlled through regular
credit rating reviews of the counterparties and by limiting the
total amount of exposure to any one party. Management does not
anticipate any counterparty will fail to meet its obligations.
Significant changes in the economy or in the utilities sector
could result in losses not necessarily provided for at the
Statement of Financial Position date. There are only five (2015:
five) principal customers, see note 2. The credit worthiness of
each of these is closely monitored. Whilst the loss of one of the
principal customers could have a significant impact on the Group,
due to the small number of these, the exposure to such credit
losses would be mitigated in most cases by the protection the
regulator provides to cover such losses. Nonetheless, the credit
management process must be closely adhered to, to avoid such
circumstances, and the Group's management therefore closely monitor
adherence to this process.
Trade receivables
Credit risk in relation to trade receivables is considered to be
relatively low, due to the small number of principal customers, and
the fact that each of these customers has a contract in place with
the Group, and is required to provide collateral in the form of a
cash deposit subject to the amounts due and their credit
rating.
At 31 March 2016 there was GBP7.2m receivables past due (2015:
GBP3.8m) against which an allowance for doubtful debts of GBP0.7m
has been made (2015: GBP0.3m).
Treasury investments
The Directors do not believe that the Group is exposed to any
material concentrations of credit risk in relation to treasury
investments, including amounts on deposit with counterparties.
As at 31 March 2016, none (2015: none) of the Group's treasury
portfolio exposure was either past due or impaired, and no terms
had been re-negotiated with any counterparty. The Group has limits
in place to ensure counterparties have a certain minimum credit
rating, and individual exposure limits to ensure there is no
concentration of credit risk.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
The table below provides details of the ratings of the Group's
treasury portfolio:
2016 2016 2015 2015
Credit Rating for cash and cash equivalents, excluding unpresented cheques GBPm % GBPm %
AAA 52.3 26.4 99.7 60.4
AA - - - -
AA- 11.4 5.7 - -
A+ 42.1 21.3 - -
A 92.3 46.6 65.3 39.6
198.1 100.0 165.0 100.0
----------------------------------------------------------------------------- ------ ------ ------ ------
At the Statement of Financial Position date, no collateral is
held in relation to Treasury assets (2015: same).
Exposure to credit risk
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset, in the Statement of
Financial Position. For trade receivables, the value is net of any
collateral held in cash deposits (see note 15 for further
details).
2016 2016 2015 2015
Group Company Group Company
Credit risk by category GBPm GBPm GBPm GBPm
---------------------------------------------------- -------- ---------- -------- ----------
Trade receivables 15.6 15.6 6.7 6.7
Amounts owed by Group undertakings 4.5 4.5 4.3 4.3
Cash and cash equivalents 119.3 119.3 136.0 136.0
Money market deposits (maturity over three months) 23.5 23.5 25.0 25.0
162.9 162.9 172.0 172.0
---------------------------------------------------- -------- ---------- -------- ----------
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the Group will not have
sufficient funds to meet the obligations or commitments resulting
from its business operations or associated with its financial
instruments, as they fall due. The Group manages the liquidity
profile of its assets, liabilities and commitments so that cash
flows are appropriately balanced and all funding obligations are
met when due. This is achieved through maintaining a prudent level
of liquid assets, and arranging funding facilities.
The Board is responsible for monitoring the maturity of
liquidity and deposit funding balances and taking any action as
appropriate. A long-term view of liquidity is provided by Group
financial models which currently project cash flows out 31 years
ahead, to the end of the Regulatory Period ending 31 March 2047. A
medium-term view is provided by the Group business plan covering
the following accounting period, which is updated and approved
annually by the Board. Liquidity is monitored via an 18 month
liquidity projection, updated and reported to the Board monthly.
The Board has approved a liquidity framework within which the
business operates.
Available liquidity at 31 March was as follows:
2016 2016 2015 2015
Group Company Group Company
Available liquidity GBPm GBPm GBPm GBPm
Cash and cash equivalents 119.3 119.3 136.0 136.0
Money market deposits (maturity over three months) 23.5 23.5 25.0 25.0
Committed undrawn bank facilities 50.0 50.0 50.0 50.0
192.8 192.8 211.0 211.0
Cash and cash equivalents comprise cash at bank and in hand,
deposits and other short-term highly liquid investments which are
readily convertible into known amounts of cash and have a maturity
of less than three months, net of any unpresented cheques. There
was no formal bank overdraft facility in place during the year
(2015: none).
The Group and Company had committed undrawn bank facilities
including GBPnil (2015: GBPnil) of facilities that expire within
one year, GBP50m (2015: GBP50m) that expires after one year but
less than two years and GBPnil (2015: GBPnil) that expires in more
than two years.
The Group gives consideration to the timing of scheduled
payments to avoid the risks associated with the concentration of
large cash flows within particular time periods. The Group uses
economic hedges to ensure that certain cash flows can be
matched.
The following is an analysis of the maturity profile of
contractual cash flows of principal and interest payable under
financial liabilities and derivative financial instruments on an
undiscounted basis. Derivative cash flows have been shown net; all
other cash flows are shown gross.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
On
Group and Company demand <1 year 1 - 2 years 2 - 3 years 3 - 4 years >4 years Total
At 31 March 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Trade payables (13.4) - - - - - (13.4)
Refundable customer deposits (2.6) - - - - - (2.6)
Amounts owed to parent undertaking - (2.0) (1.9) (1.9) (1.9) (77.3) (85.0)
Amounts owed to affiliated companies - (12.2) (12.2) (12.2) (12.2) (218.4) (267.2)
Bonds - (41.9) (41.9) (41.9) (41.9) (877.4) (1,045.0)
Borrowings and overdrafts - (7.3) (8.8) (8.8) (8.8) (241.9) (275.6)
Derivative financial instruments (net) - 12.1 7.5 12.1 12.1 (126.3) (82.5)
(16.0) (51.3) (57.3) (52.7) (52.7) (1,541.3) (1,771.3)
On
Group and Company demand <1 year 1 - 2 years 2 - 3 years 3 - 4 years >4 years Total
At 31 March 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Trade payables (17.9) - - - - - (17.9)
Refundable customer deposits - (0.2) (4.8) - - - (5.0)
Amounts owed to parent undertaking - (3.0) (3.6) (3.6) (3.6) (105.9) (119.7)
Amounts owed to affiliated companies - (12.2) (12.2) (12.2) (12.2) (230.8) (279.6)
Bonds - (41.9) (41.9) (41.9) (41.9) (916.9) (1,084.5)
Borrowings and overdrafts - (4.2) (7.2) (8.7) (8.7) (365.7) (394.5)
Derivative financial instruments (net) - 4.7 4.7 0.5 4.7 (265.0) (250.4)
(17.9) (56.8) (65.0) (65.9) (61.7) (1,884.3) (2,151.6)
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
Market risk
Market risk is the risk that future cash flows of a financial
instrument, or the fair value of a financial instrument, will
fluctuate because of changes in market prices. Market prices
include foreign exchange rates, interest rates, inflation, equity
and commodity prices. The main types of market risk to which the
Group is exposed are interest rate risk and inflation risk. The
Board is required to review and approve policies for managing these
risks on an annual basis. The Board approves all new interest rate
swaps and index-linked swaps entered into. The management of market
risk is undertaken by reference to risk limits, approved by the
Chief Financial Officer or Treasurer under delegated authority from
the Board. The Group has no significant foreign exchange, equity or
commodity exposure.
The Group has exposure to interest rate risk and inflation risk
and this is explained in the sections below.
The Group borrows in the major global debt markets at fixed,
index-linked and floating rates of interest, using derivatives,
where appropriate, to generate the desired effective interest
basis.
Interest rate risk
Interest rate risk is the risk that either future cash flows of
a financial instrument, or the fair value of a financial
instrument, will fluctuate because of changes in market interest
rates. The Group's floating rate borrowings and derivatives are
exposed to a risk of change in cash flows due to changes in
interest rates. The Group's fixed rate borrowings and derivatives
are exposed to a risk of change in their fair value due to changes
in interest rates.
Investments in short-term receivables and payables are not
exposed to interest rate risk due to their short-term nature.
The Group uses derivative financial instruments to change the
basis of interest cash flows from fixed to either inflation-linked
or an alternative fixed profile to more accurately match the
revenue profile. The cash flows exchanged under the derivatives are
calculated by reference to a notional principal amount. The
notional principal reflects the extent of the Group's involvement
in the instruments, but does not represent its exposure to credit
risk, which is assessed by reference to the fair value.
Sensitivity analysis on interest
The Group's fixed rate borrowings and derivatives are exposed to
a risk of change in their fair value due to changes in interest
rates. The following sensitivity analysis is used by Group
management to monitor interest rate risk. The analysis below shows
forward-looking projections of market risk assuming certain market
conditions occur. The sensitivity figures are calculated based on a
downward parallel shift of 0.5% and upward parallel shifts of 0.5%
and 1% in the yield curve.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
2016 2015
Change in interest rates Change in interest rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
Debt held at fair value (14.8) 14.1 27.5 (16.1) 15.3 29.9
Interest rate swaps - - - - - -
Inflation-linked swaps (53.9) 47.8 90.6 (32.0) 28.4 53.7
Total fair value movement (68.7) 61.9 118.1 (48.1) 43.7 83.6
The sensitivity analysis above shows the amount by which the
fair value of items recorded on the Statement of Financial Position
at fair value would be adjusted for a given interest rate movement.
As fair value movements are taken to the Income Statement, there
would be a corresponding adjustment to profit in these scenarios
(figures in brackets represent a reduction to profit). However,
there would be no direct cash flow impact arising from these
adjustments.
The Group's floating rate borrowings and derivatives are exposed
to a risk of change in cash flows due to changes in interest rates.
At 31 March 2016, the Group had no floating rate borrowings (2015:
same).
Although the above measures provide an indication of the Group's
exposure to market risk, such measures are limited due to the
long-term nature of many of the financial instruments and the
uncertainty over future market rates.
Index-linked debt is carried at amortised cost and as such the
Statement of Financial Position in relation to this debt is not
exposed to movements in interest rates.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
Inflation risk
The Group's revenues are linked to movements in inflation, as
measured by the Retail Prices Index (RPI). To economically hedge
exposure to RPI, the company links a portion of its funding costs
to RPI by either issuing RPI linked bonds or by using derivative
financial instruments. The Group's index-linked swaps are exposed
to a risk of change in their fair value and future cash flows due
to changes in inflation rates. The Group's revenues are linked to
RPI via returns on the Regulated Asset Value (RAV) and an increase
in RPI would increase revenues, mitigating any increase in finance
expense.
Sensitivity analysis on inflation
The Group's inflation-linked derivatives are exposed to a risk
of change in their fair value due to changes in inflation rates.
The following sensitivity analysis is used by Group management to
monitor inflation rate risk. The analysis below shows
forward-looking projections of market risk assuming certain market
conditions occur. The sensitivity figures are calculated based on a
downward parallel shift of 0.5% and upward parallel shifts of 0.5%
and 1% in the yield curve.
2016 2015
Change in inflation rates Change in inflation rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
Inflation-linked swaps 65.6 (72.6) (153.4) 37.8 (41.6) (87.4)
Total fair value movement 65.6 (72.6) (153.4) 37.8 (41.6) (87.4)
The sensitivity analysis above shows the amount by which the
fair value of items recorded on the Statement of Financial Position
at fair value would be adjusted for a given inflation rate
movement. As fair value movements are taken to the Income
Statement, there would be a corresponding adjustment to profit in
these scenarios (figures in brackets represent a reduction to
profit). However, there would be no direct cash flow impact arising
from these adjustments.
The Group's inflation-linked borrowings and derivatives are
exposed to a risk of change in cash flows due to changes in
inflation rates. The analysis below shows the impact on profit for
the year if inflation rates over the course of the year had been
different from the actual rates.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
2016 2015
Change in inflation rates Change in inflation rates
-0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
Debt held at amortised cost - inflation-linked
interest basis 2.0 (2.0) (3.9) 2.0 (2.0) (3.9)
Inflation-linked swaps - - (0.1) - - (0.1)
Total finance expense impact 2.0 (2.0) (4.0) 2.0 (2.0) (4.0)
Hedging
The Group does not use derivative financial instruments for
speculative purposes, and has not pledged collateral in relation to
any of its derivative instruments. At 31 March 2016, the Group's
derivatives are not designated in formal hedging relationships
(2015: none), and instead are measured at fair value through the
Income Statement.
Fair values
The tables below provide a comparison of the book values and
fair values of the Group's financial instruments by category as at
the Statement of Financial Position date.
Where available, market values have been used to determine fair
values (see Level 1 in the fair value hierarchy on page 99).
Where market values are not available, fair values have been
calculated by discounting future cash flows at prevailing interest
and RPI rates sourced from market data (see Level 2 in the fair
value hierarchy on page 99 in accordance with IFRS 13, an
adjustment for non-performance risk has then been made to give the
fair value.
The non-performance risk has been quantified by calculating
either a credit valuation adjustment (CVA) based on the credit risk
profile of the counterparty, or a debit valuation adjustment (DVA)
based on the credit risk profile of the relevant group entity,
using market-available data.
Whilst the majority of the inputs to the CVA and DVA
calculations meet the criteria for Level 2 inputs, certain inputs
regarding the Group's credit risk are deemed to be Level 3 inputs,
due to the lack of market-available data. The credit risk profile
of the Group has been built using the few market-available data
points, e.g. credit spreads on the listed bonds, and then
extrapolated over the term of the derivatives. It is this
extrapolation that is deemed to be Level 3. All other inputs to
both the underlying valuation and the CVA and DVA calculations are
Level 2 inputs.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
For certain derivatives, the Level 3 inputs form an
insignificant part of the fair value and, as such, these
derivatives are disclosed as Level 2. Otherwise, the derivatives
are disclosed as Level 3.
The adjustment for non-performance risk as at 31 March 2016 is
GBP93.2m (2015: GBP76.2m), of which GBP91.3m (2015: nil) is classed
as Level 3.
The following table shows the sensitivity of the fair values of
derivatives disclosed as Level 3 to the Level 3 inputs, determined
by applying a 10bps shift to the credit curve used to calculate the
DVA.
2016 2016 2015 2015
-10bps +10bps -10bps -10bps
Group and Company GBPm GBPm GBPm GBPm
Inflation-linked swaps (3.3) 3.2 - -
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
For cash and cash equivalents, trade and other receivables and
trade and other payables the book values approximate to the fair
values because of their short-term nature.
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the Statement of Financial
Position, are as follows:
2016 2015 2015
Fair Carrying value Fair
2016 Carrying value value value
Group and Company GBPm GBPm GBPm GBPm
Current assets
Trade receivables 15.6 15.6 6.7 6.7
Cash and cash equivalents 119.3 119.3 136.0 136.0
Short-term money market deposits (maturity over 3 months) 23.5 23.5 25.0 25.0
158.4 158.4 167.7 167.7
2016 Carrying value 2016 Fair value 2015 Carrying value 2015 Fair value
Group and Company GBPm GBPm GBPm GBPm
Non-current liabilities
Borrowings designated at fair value
through profit and loss (FVTPL) (380.7) (380.7) (393.4) (393.4)
Borrowings measured at amortised cost (579.6) (722.5) (581.5) (734.9)
Amounts due to parent undertaking (70.9) (70.9) (89.7) (89.7)
Amounts due to affiliated companies (197.2) (239.6) (196.7) (243.9)
Derivative financial instruments (267.7) (267.7) (212.2) (212.2)
Refundable customer deposits - - (4.8) (4.8)
Current liabilities
Trade and other payables (13.4) (13.4) (17.9) (17.9)
Refundable customer deposits (2.6) (2.6) (0.2) (0.2)
Borrowings measured at amortised cost (4.6) (4.6)
(1,516.7) (1,702.0) (1,496.4) (1,697.0)
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
Fair value measurements recognised in the Statement of Financial
Position
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Level 1 Level 2 Level 3 Total
31 March 2016 - Group and Company GBPm GBPm GBPm GBPm
Financial liabilities at FVTPL
Derivative financial liabilities
* GBP300m notional inflation-linked swaps - (99.9) (167.8) (267.7)
Financial liabilities designated at FVTPL (380.7) - - (380.7)
(380.7) (99.9) (167.8) (648.4)
Level 1 Level 2 Level 3 Total
31 March 2015 - Group and Company GBPm GBPm GBPm GBPm
Financial liabilities at FVTPL
Derivative financial liabilities
* GBP200m notional inflation-linked swaps - (212.2) - (212.2)
Financial liabilities designated at FVTPL (393.4) - - (393.4)
(393.4) (212.2) - (605.6)
Inflation-linked swap liabilities with fair values of GBP131.4m
were transferred from Level 2 to Level 3 at the start of the
current year (2015: none), principally due to a change in the
significance of the unobservable inputs used to derive Electricity
North West's credit curve for the DVA, as described in this section
above.
Notes to the Financial Statements (continued)
19. Financial instruments (continued)
The following table provides a reconciliation of the fair value
amounts disclosed as Level 3.
2016 2015
Group and Company GBPm GBPm
At 1 April - -
Transfers into Level 3 from Level 2 (131.4) -
Total gains or losses in profit or loss;
* On transfers into Level 3 from Level 2 (26.0) -
* On new derivatives in the year (10.4) -
At 31 March (167.8) -
Fair value measurements disclosed but not recognised in the
Statement of Financial Position
Level 1 Level 2 Level 3 Total
31 March 2016 - Group and Company GBPm GBPm GBPm GBPm
Financial liabilities with fair value disclosed
Borrowings measured at amortised cost (722.5) - - (722.5)
Level 1 Level 2 Level 3 Total
31 March 2015 - Group and Company GBPm GBPm GBPm GBPm
Financial liabilities with fair value disclosed
Financial liabilities held at amortised cost (734.9) - - (734.9)
Notes to the Financial Statements (continued)
20. Retirement benefit schemes
Group and Company
Nature of Scheme
The Group's defined benefit arrangement is the Electricity North
West Group of the ESPS ("the Scheme") and forms part of the
Electricity Supply Pension Scheme ("ESPS"). Up to 31 March 2011 the
Scheme was split into two sections. However, following the
'hive-up' of the assets and liabilities of Electricity North West
Services Limited (ENWSL) to the Company and the termination of the
Asset Services Agreement between the Company and ENWSL on 31 March
2011, the two sections were merged as at that date.
The Scheme contains both a defined benefit section and a defined
contribution section. The defined benefit section of the Scheme
closed to new entrants on 1 September 2006, with new employees of
the Group since then provided instead with access to the defined
contribution section.
The defined benefit section is a UK funded final salary
arrangement providing pensions and lump sums to members and
dependants. The defined benefit section is a separate fund that is
legally separated from the entity. The Trustee board of the Scheme
is composed of representatives from both the employer and members
of the Scheme. Under the Pensions Act 2004 at least one third of
the Trustee Board must be member nominated and the Trustee Board
has made the necessary arrangements to fulfil this obligation. The
Trustee Board of the Scheme is required by law to act in the
interest of the Scheme and all relevant stakeholders of the Scheme,
i.e. active employees, retirees and employers. The Trustee Board is
responsible for the operation, funding and investment strategy of
the Scheme.
During the year the Group made contributions of GBP24.6m (2015:
GBP15.0m) to the defined benefit section of the Scheme. The Group
estimates that contributions for the year ending 31 March 2017 will
amount to around GBP24.3m which includes GBP11.3m of expected
deficit contribution payments. In addition under the current
schedule of contributions depending on the funding position as at
31 March 2016, there is a potential catch up deficit contribution
due before 31 March 2017. The maximum possible catch up
contribution due is GBP16.8m. The total defined benefit pension
expense for the year was GBP16.2m (2015: GBP16.0m). Information
about the pension arrangements for Executive Directors is contained
in note 5.
As at 31 March 2016 contributions of GBP2.1m (2015: GBP2.7m) due
in respect of the current reporting period had not been paid over
to the defined benefit Scheme.
Funding the liabilities
UK legislation requires the Trustee Board to carry out
valuations at least every three years and to target full funding
against a basis that prudently reflects the Scheme's risk exposure.
The most recent valuation was carried out as at 31 March 2013 and
identified a shortfall of GBP188.0m against the Trustee Board's
statutory funding objective. In the event of underfunding the Group
must agree a deficit recovery plan with the Trustee Board within
statutory deadlines. As part of the 2013 Actuarial valuation the
Group agreed to remove the shortfall by paying annual contributions
to 2025.
Notes to the Financial Statements (continued)
20. Retirement benefit schemes (continued)
In addition as described above depending on the funding position
as at 31 March 2016, a further deficit catch up contribution is
payable by 31 March 2017 under certain circumstances. The next
actuarial valuation will be carried out as at 31 March 2016.
The results of the 2013 funding valuation have been projected
forward by an independent actuary to take account of the
requirements of revised IAS 19 'Employee Benefits' in order to
assess the position as at 31 March 2016 for the purpose of these
financial statements. The present value of the defined benefit
obligation, the related current service cost and the past service
cost were measured using the projected unit credit method. A
pension deficit under IAS 19 (revised 2011) of GBP16.2m is included
in the Statement of Financial Position at 31 March 2016 (2015
deficit of GBP33.7m).
The weighted average duration of the defined benefit obligation
is approximately 17 years (2015: 17 years).
Investment strategy
The Scheme assets are invested in a diversified range of assets,
details of which are set out below. The Scheme has a de-risking
strategy in place to move assets from growth to bond assets when
certain funding triggers are met. The triggers are assessed against
the Scheme's funding level on a 'low-risk' basis. The Trustees and
the Group have also agreed a mechanism to hedge interest rate and
inflation risks over time. The de-risking and hedging strategies
have been communicated to Ofgem and are currently being reviewed as
part of the 2016 actuarial valuation and ongoing consultation from
Ofgem around pensions.
The Company recognises that the interests of customers, who
ultimately fund pension costs, should be given full recognition
when implementing the de-risking strategy. The Company works in
collaboration with the Independent Scheme Trustee to ensure these
interests are considered alongside those of the members of the
pension scheme.
Other risks
The Scheme exposes the Group to risks, such as longevity risk,
inflation risk, interest rate risk and investment risk. As the
Scheme's obligation is to provide lifetime pension benefits to
members upon retirement, increases in life expectancy will result
in an increase in the Scheme's liabilities. Other assumptions used
to value the defined benefit obligation are also uncertain.
These risks are managed through de-risking and hedging
strategies and are measured and reported at Board level through a
risk dashboard.
Winding up
Although currently there are no plans to do so, the Scheme could
be wound up in which case the benefits would have to be bought out
with an insurance company. The cost of buying-out benefits would be
significantly more than the defined benefit obligation calculated
in accordance with IAS 19 (revised 2011).
Notes to the Financial Statements (continued)
20. Retirement benefit schemes (continued)
Defined Contribution arrangements
All assets within the defined contribution section of the Scheme
are held independently from the Group.
The total cost charged to the Income Statement in relation to
the defined contribution section for the year ended 31 March 2016
was GBP2.7m (2015: GBP2.3m) and represents contributions payable to
the Scheme at rates specified in the rules of the Scheme. As at 31
March 2016 contributions of GBPnil (2015: GBPnil) due in respect of
the current reporting period had not been paid over to the defined
contribution Scheme.
Defined Benefits employee benefits
The reconciliation of the opening and closing Statement of
Financial Position is as follows:
2016 2015
GBPm GBPm
At 1 April (33.7) (37.1)
Expense recognised in the Income Statement (16.2) (16.0)
Contributions paid 24.6 15.0
Total remeasurement included in Other Comprehensive Income 9.1 4.4
At 31 March (16.2) (33.7)
Movements in the fair value of the Group defined benefit
obligations are as follows:
2016 2015
GBPm GBPm
At 1 April (1,276.6) (1,130.5)
Current service cost (13.7) (12.1)
Interest expense (41.1) (48.5)
Member contributions (2.0) (2.1)
Augmentation (1.0) (1.9)
Remeasurement:
Effect of changes in demographic assumptions - -
Effect of changes in financial assumptions 52.6 (136.3)
Effect of experience adjustments - -
Benefits paid 61.9 54.8
At 31 March (1,219.9) (1,276.6)
Notes to the Financial Statements (continued)
20. Retirement benefit schemes (continued)
The liability value as at 31 March 2016 is made up of the
following approximate splits:
GBPm
Liabilities owing to active members 400.6
Liabilities owing to deferred members 93.1
Liabilities owing to pensioner members 726.2
Total liability at 31 March 2016 1,219.9
Movements in the fair value of the Group Pension Scheme assets
were as follows:
2016 2015
GBPm GBPm
At 1 April 1,242.9 1,093.4
Interest income 40.4 47.3
Return on plan assets (net of interest income) (43.5) 140.7
Company contributions 24.6 15.0
Member contributions 2.0 2.1
Benefits paid (61.9) (54.8)
Administration expenses (0.8) (0.8)
At 31 March 1,203.7 1,242.9
Notes to the financial statements (continued)
20. Retirement benefit schemes (continued)
The net pension expense before taxation recognised in the Income
Statement, before capitalisation, in respect of the Scheme is
summarised as follows:
2016 2015
GBPm GBPm
Current service cost (13.7) (12.1)
Past service cost (1.0) (1.9)
Interest income on plan assets 40.4 47.3
Interest (expense) on Scheme obligations (41.1) (48.5)
Administration expenses and taxes (0.8) (0.8)
Net pension expense before taxation (16.2) (16.0)
The above amounts are recognised in arriving at operating profit
except for the interest on Scheme assets and interest on Scheme
obligations which have been recognised within investment
income.
For the year ending 31 March 2016 the past service cost includes
GBP1.0m in respect of augmentations (2015: GBP1.9m).
The main financial assumptions used by the actuary (in
determining the deficit) were as follows:
2016 2015
% %
Discount rate 3.50 3.30
Pensionable salary increases 3.20 3.25
Pension increases 2.90 2.95
Price inflation 2.95 3.00
The mortality rates utilised in the valuation are based on the
standard actuarial tables S1PMA/S1PFA (birth year) tables with a
105% loading to allow for differences in mortality between the
Scheme population and the population used in the standard tables
(unchanged from 2015). A long term improvement rate of 1.25% p.a.
is assumed within the underlying CMI 2011 model (unchanged from
2015).
Notes to the Financial Statements (continued)
20. Retirement benefit schemes (continued)
The current life expectancies (in years) underlying the value of
the accrued liabilities for the Scheme are:
2016 2015
Male life expectancy at age 60 Years Years
Retired member 26.9 26.8
Non-retired member (current age 45) 28.4 28.3
In valuing the liabilities of the Scheme at 31 March 2016
mortality assumptions have been made as indicated above.
The following table presents a sensitivity analysis for each
significant actuarial assumption showing how the defined benefit
obligation would have been affected by changes in the relevant
actuarial assumption that were reasonably possible at the Statement
of Financial Position date. This sensitivity analysis applies to
the defined benefit obligation only and not to the net defined
benefit pension liability, the measurement of which depends on a
number of factors including the fair value of Scheme assets. The
calculations alter the relevant assumption by the amount specified,
whilst assuming that all other variables remained the same. This
approach is not necessarily realistic, since some assumptions are
related: for example, if the scenario is to show the effect if
inflation is higher than expected, it might be reasonable to expect
that nominal yields on corporate bonds will also increase.
2016 2015
Increase in Defined Benefit Obligation GBPm GBPm
Discount rate: decrease by 25 basis points 53 56
Price inflation: increase by 25 basis points 43 45
Life expectancy: increase longevity by 1 year 34 37
Notes to the Financial Statements (continued)
20. Retirement benefit schemes (continued)
As at 31 March 2016, the fair value of the Scheme's assets and
liabilities recognised in the Statement of Financial Position were
as follows:
Scheme assets at 31 March 2016 Value at 31 March 2016 Scheme assets at Value at 31 March 2015
% GBPm 31 March 2015 GBPm
%
Cash and Cash
equivalents 0.5 5.9 1.3 16.4
Equity
instruments 9.3 113.3 8.6 107.3
Debt
instruments 68.0 819.1 70.8 879.9
Real estate 12.4 148.5 11.1 138.0
Distressed debt 2.7 32.0 1.4 17.5
Hedge funds 7.1 84.9 6.8 83.8
Total fair
value of
assets
1,203.7 1,242.9
Present value
of liabilities 100.0 (1,219.9) 100.0 (1,276.6)
Net retirement
benefit
obligation (16.2) (33.7)
The fair values of the assets set out above are as per the
quoted market prices in active markets.
Notes to the Financial Statements (continued)
21. Provisions
Group and Company Group and Company
Other Other
2016 2015
GBPm GBPm
At 1 April 6.1 9.6
Release to income statement on re-estimate of liability (1.0) -
Utilisation of provision (2.6) (3.5)
At 31 March 2.5 6.1
Group and Company Group and Company
Other Other
2016 2015
GBPm GBPm
Current 0.6 2.8
Non current 1.9 3.3
At 31 March 2.5 6.1
During the year ended 31 March 2013 a provision was created in
connection with a portfolio of retail properties which the Company
was liable for under privity of contract.
The carried forward provision at 1 April 2015 was GBP6.1m. This
related to former Norweb properties, one High Street retail
property and 10 out of town retail properties. As a result of
assignments and surrenders during the year GBP2.6m of the provision
has been utilised and GBP1.0m has been released on the
re-estimation on the liabilities.
The combined closing provision of GBP2.5m which now relates to
one High Street retail property and two out of town retail
properties has been evaluated by management, is supported by
relevant external property specialists, and reflects the Company's
best estimate as at the Statement of Financial Position date of the
amounts that could become payable by the Company, on a discounted
basis.
The estimate is a result of a detailed risk assessment process,
which considers a number of variables including the location and
size of the stores, expectations regarding the ability of the
Company to both defend its position and also to re-let the
properties, conditions in the local property markets, demand for
retail warehousing, likely periods of vacant possession and the
results of negotiations with individual landlords, letting agents
and tenants, and is hence inherently judgemental.
Notes to the Financial Statements (continued)
22. Deferred tax
The following are the major deferred tax liabilities and assets
recognised by the Group and Company, and the movements thereon,
during the current and prior years.
Accelerated tax depreciation Retirement benefit obligations
GBPm GBPm
Other Total
Group and Company GBPm GBPm
At 1 April 2014 216.3 (7.5) (9.4) 199.4
Charged/(credited) to the Income
Statement 10.6 (0.2) (27.5) (17.1)
Deferred tax on remeasurement of
defined benefit pension schemes - 0.9 - 0.9
Adjustment due to change in future tax
rates of brought forward deferred tax
OCI - - - -
At 1 April 2015 226.9 (6.8) (36.9) 183.2
Charged/(credited) to the Income
Statement (23.5) - (5.5) (29.0)
Deferred tax on remeasurement of
defined benefit pension schemes - 1.6 - 1.6
Adjustment due to change in future tax
rates of brought forward deferred tax
in OCI - 2.2 - (2.2)
At 31 March 2016 203.4 (3.0) (42.4) 158.0
There are no significant unrecognised deferred tax assets or
liabilities for either the Group or Company in either the current
or prior year. Other deferred tax relates primarily to derivative
financial instruments.
Notes to the Financial Statements (continued)
23. Customer Contributions
Customer contributions are amounts received from a customer in
respect of the provision of a new connection to the network.
Customer contributions are amortised through the Income Statement
over the expected lifetime of the relevant asset.
Group and Company GBPm
At 1 April 2014 529.6
Additions during the year 41.1
Amortisation (12.9)
Amortised through revenue (IFRIC 18) (1.9)
At 1 April 2015 555.9
Additions during the year 44.3
Amortisation (10.7)
Amortised through revenue (IFRIC 18) (4.6)
At 31 March 2016 584.9
2016 2015
GBPm GBPm
Amounts due in less than one year (see note 17) 23.9 17.4
Amounts due after more than one year 561.0 538.5
584.9 555.9
24. Refundable customer deposits
Refundable customer deposits are those customer contributions
which may be partly refundable, dependent on contractual
obligations.
2016 2015
Group and Company GBPm GBPm
Amounts due in less than one year (see note 17) 2.6 0.2
Amounts due after more than one year - 4.8
2.6 5.0
Notes to the Financial Statements (continued)
25. Called up share capital
2016 2015
GBP GBP
Authorised:
569,999,996 (2015: 569,999,996) ordinary shares of 50 pence each 284,999,998 284,999,998
4 'A' ordinary shares of 50 pence each 2 2
Special rights redeemable preference share of GBP1 1 1
285,000,001 285,000,001
2016 2015
GBP GBP
Allotted, called up and fully paid:
476,821,341 (2015: 476,821,341) ordinary shares of 50 pence each 238,410,671 238,410,671
4 'A' ordinary shares of 50 pence each 2 2
238,410,673 238,410,673
The 'A' ordinary shares and the ordinary shares rank pari passu
in all respects, save that dividends may be declared on one class
of shares without being declared on the other.
Notes to the Financial Statements (continued)
26. Shareholders' Equity
Called up share Share premium Revaluation Capital Retained Total Equity
capital account reserve redemption earnings GBPm
GBPm GBPm GBPm reserve GBPm
Group GBPm
At 1 April 2015 238.4 4.4 99.2 8.6 375.9 726.5
Profit for the
year - - - - 117.0 117.0
Transfer from
revaluation
reserve - - (5.7) - 5.7 -
Remeasurement of
defined benefit
schemes - - - - 9.1 9.1
Tax on
components of
comprehensive
income - - - - (3.8) (3.8)
--------------- ---------------- ---------------- ---------------
Total
comprehensive
income for the
year - - (5.7) - 128.0 122.3
Transactions
with owners
recorded
directly in
equity
Equity dividends - - - - (30.0) (30.0)
At 31 March 2016 238.4 4.4 93.5 8.6 473.9 818.8
--------------- ---------------- ---------------- ---------------
In 1997 the Company undertook a revaluation of certain assets,
following North West Water's acquisition of Norweb. This resulted
in the creation of a revaluation reserve of GBP234.9m. The
additional depreciation created as a result of the revaluation is
transferred from the revaluation reserve to retained earnings on an
annual basis.
Capital redemption reserve, is a non distributable reserve
specifically for the purchase of own shares.
Notes to the Financial Statements (continued)
26. Shareholders' equity (continued)
Called up share Share premium Revaluation Capital Retained Total Equity
capital account reserve redemption earnings GBPm
GBPm GBPm GBPm reserve GBPm
Company GBPm
At 1 April 2015 238.4 4.4 99.2 8.6 375.6 726.2
Profit for the
year - - - - 117.0 117.0
Transfer from
revaluation
reserve - - (5.7) - 5.7 -
Remeasurement of
defined benefit
schemes - - - - 9.1 9.1
Tax on
components of
comprehensive
income - - - - (3.8) (3.8)
--------------- --------------- --------------- ---------------
Total
comprehensive
income for the
year - - (5.7) - 128.0 122.3
Transactions
with owners
recorded
directly in
equity
Equity dividends - - - - (30.0) (30.0)
At 31 March 2016 238.4 4.4 93.5 8.6 473.6 818.5
--------------- --------------- --------------- ---------------
The profit after tax for the Company for the year ended 31 March
2016 was GBP117.0m (2015: GBP71.8m) and the revenue for the year
was GBP450.8m (2015: GBP533.7m). As permitted by s408 of the
Companies Act 2006, the Company has not presented its own Income
Statement.
Notes to the Financial Statements (continued)
27. Capital structure
Details of the authorised and allotted share capital, together
with details of the movements in the Company's issued share capital
during the year are shown in note 25. The Company has Ordinary
shares which carry no right to fixed income. Each share carries the
right to one vote at general meetings of the Company. The Company
also has 'A' ordinary shares which rank pari passu in all respects
save that dividends may be declared on one class of shares without
being declared on the other.
There exists an unissued special rights redeemable preference
share which does not carry any voting rights and can only be held
by one of Her Majesty's Secretaries of State, another Minister of
the Crown, the Solicitor for the affairs of her Majesty's Treasury
or any other person acting on behalf of the Crown. This share is a
legacy from the privatisation of the Company and was issued on 19
November 1990 and redeemed on 31 March 1995.
There are no specific restrictions on the size of a holding or
on the transfer of shares which are both governed by the general
provisions of the Articles of Association and prevailing
legislation. The Directors are not aware of any agreements between
holders of the Company's shares that may result in restrictions in
the transfer of securities or on voting rights.
No person has any special rights of control over the Company's
share capital and all issued shares are fully paid up.
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association, the Companies
Act and related legislation. The Articles themselves may be amended
by special resolution of the shareholders. The powers of Directors
are described in the Articles of Association, copies of which are
available on request, and the Corporate Governance Report on pages
28 to 41.
28. Ultimate parent undertaking and controlling party
The immediate parent undertaking is North West Electricity
Networks Plc, a company incorporated and registered in the United
Kingdom. The ultimate parent undertaking is North West Electricity
Networks (Jersey) Limited, a company incorporated and registered in
Jersey. The address of the ultimate parent company is: Ogier House,
The Esplanade, St Helier, Jersey, Channel Islands, JE4 9WG.
This Group is the smallest group in which the results of the
Company are consolidated. The largest group in which the results of
the Company are consolidated is that headed by North West
Electricity Networks (Jersey) Limited.
First State Investments Fund Management S.à.r.l. on behalf of
First State European Diversified Infrastructure Fund FCP-SIF
('EDIF') and IIF Int'l Holding GP Ltd ('IIF') have been identified
as ultimate controlling parties. They are advised by Colonial First
State Global Asset Management (a member of the Commonwealth Bank of
Australia Group) and JP Morgan Investment Management Inc
respectively.
Notes to the Financial Statements (continued)
29. Related party transactions
During the year the following transactions with related parties
were entered into:
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Transactions with related parties
Recharges to Electricity North West (Construction and Maintenance) Ltd 1.2 1.2 0.6 0.6
Recharges from Electricity North West (Construction and Maintenance) Ltd 0.2 0.2 0.2 0.2
Directors' remuneration (note 5) 1.3 1.3 1.9 1.9
Directors' services 0.2 0.2 0.2 0.2
Interest payable to North West Electricity Networks Plc 2.6 2.6 4.5 4.5
Interest payable to ENW Finance plc 12.4 12.4 12.4 12.4
Dividends paid to North West Electricity Networks Plc 30.0 30.0 37.0 37.0
Amounts outstanding with related parties are as follows:
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Amounts owed to related parties
Group tax relief to North West Electricity Networks Plc 12.9 12.9 10.8 10.8
Group tax relief to North West Electricity Networks (Holdings) Ltd - - - -
Interest payable to North West Electricity Networks Plc 0.5 0.5 1.3 1.3
Interest payable to ENW Finance plc 2.4 2.4 2.5 2.5
Amounts owed to Electricity North West (Construction and Maintenance) Ltd - - - -
Amounts owed to Electricity North West Services Limited - 15.4 - 15.4
Borrowings from North West Electricity Networks Plc 70.9 70.9 89.7 89.7
Borrowings from ENW Finance plc 199.0 199.0 196.7 196.7
Amounts owed by related parties
Amounts owed by North West Electricity Networks Plc 3.7 3.7 3.6 3.6
Amounts owed by Electricity North West (Construction and Maintenance) Ltd 0.5 0.5 0.4 0.4
Amounts owed by North West Electricity Networks (Jersey) Limited 0.1 0.1 0.1 0.1
Amounts owed by North West Electricity Networks (Holdings) Ltd 0.2 0.2 0.2 0.2
Notes to the Financial Statements (continued)
29. Related party transactions (continued)
The loan from North West Electricity Networks Plc accrues
weighted average interest at 2.74% (2015: 5.35%) and is repayable
in March 2023. The loan from ENW Finance plc accrues interest at
6.125% (2015: 6.125%) and is repayable in July 2021.
Fees of GBP0.1m (2015: GBP0.1m) were payable to Colonial First
State in respect of the provision of Directors' services. Colonial
First State is part of the Commonwealth Bank of Australia which is
identified as a related party as per note 28.
Fees of GBP0.1m (2015: GBP0.1m) were payable to IIF Int'l
Holding GP Ltd ('IIF') in respect of the provision of Directors'
services which is identified as a related party as per note 28.
For disclosure relating to executive directors remuneration see
note 5.
Notes to the Financial Statements (continued)
30. Cash generated from operations
Group Company Group Company
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Operating profit 214.6 214.6 301.3 301.3
Adjustments for:
Depreciation of property, plant and equipment 100.3 100.3 95.0 95.0
Amortisation of intangible assets 4.8 4.8 3.6 3.6
Amortisation of customer contributions (15.3) (15.3) (14.8) (14.8)
Profit on disposal of property, plant and equipment (0.2) (0.2) (0.7) (0.7)
Cash contributions in excess of pension charge to operating profit (16.0) (16.0) (0.2) (0.2)
Operating cash flows before movements in working capital 288.2 288.2 384.2 384.2
Changes in working capital
(Increase)/decrease in inventories (1.2) (1.2) - -
Increase in trade and other receivables (2.0) (2.0) (1.9) (4.1)
(Decrease)/increase in payables and provisions (14.2) (14.2) (4.5) (4.5)
Cash generated from operations 270.8 270.8 377.8 375.6
Notes to the Financial Statements (continued)
31. Contingent liability
The Company is part of a Covenanter Group ('CG') which is party
to a Deed of Covenant with EA Technologies Limited (EATL) under
which certain guarantees over the benefits of members of the EATL
Group of the Electricity Supply Pension Scheme have been given. In
the event of EATL being unable to meet the obligations for its part
of the ESPS pension scheme deficit following a discontinuance
event, the members of the pension scheme can make a claim against
the CG.
In December 2015, EATL filed their annual report and financial
statements to the year ended 31 March 2015, containing an emphasis
of matter on going concern noting a material uncertainty in the
company's ability to continue as a going concern.
Under the terms of the Deed of Covenant if there was such
discontinuance event the Company is liable to pay 6.7% of the
discontinuance deficit. Management do not consider that this event
is probable and no provision has been made in these accounts. The
total deficit has been estimated at approximately GBP75m as at 31
March 2016, for which the Company's liability could be between
GBP5.0 to GBP7.0m.
32. Operating leases
The Group and Company are committed to making the following
payments over the lifetime of the lease in respect of
non-cancellable operating leases which expire in:
Land and buildings Plant and machinery Land and buildings Plant and machinery
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Within one year 0.1 - - -
In the second to fifth years
inclusive 1.5 - 2.2 -
After five years 2.8 2.9 3.1 3.0
4.4 2.9 5.3 3.0
Glossary
C(2) C Capacity to Customers (LCNF/ future networks project)
CGU Cash Generating Unit
CI Customer Interruptions
CML Customer Minutes Lost
CSR Corporate Social Responsibility
DECC Department of Energy and Climate Change
DNO Distribution Network Operator
DPCR5 Distribution Price Control 5, 2010-2015
DUoS Distribution Use Of System
ELT Executive Leadership Team
ENWL Electricity North West Limited
ENWSL Electricity North West Services Limited (formerly 'UUES')
ESPS Electricity Supply Pension Scheme
ESQCR Electricity Safety and Quality Continuity (Amendment) Regulations
FVTPL Fair Value Through Profit or Loss
GAAP Generally Accepted Accounting Principles
HI Health Indices
IFI Innovation Funding Incentive
IFRS International Financial Reporting Standard
KPI Key Performance Indicators
LCNF Low Carbon Network Fund
LI Load Indices
Ofgem Office of Gas and Electricity Markets
PPE Property, Plant and Equipment
RAV Regulatory Asset Value
RIDDOR Reporting of Injuries, Diseases and Dangerous Occurrences Regulation
RIIO Revenue using Incentives to deliver Innovation and Outputs
RIIO - ED1 Revenue using Incentives to deliver Innovation and Outputs - Electricity Distribution 1
RPI Retail Price Index
SID Sufficiently Independent Director
UUES United Utilities Electricity Services Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
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