TIDMBD49
RNS Number : 8801P
Electricity North West Limited
31 May 2018
Electricity North West Limited (the "Company") is pleased to
announce its Annual Financial
Report for the year ended 31 March 2018.
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
For the year ended 31 March 2018
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 now carry electricity
both from the national grid to 2.4 million premises and five
million customers and, as generation becomes more local and
widespread, around the network. Our job is to keep electricity
flowing safely to our customers' homes and businesses, keeping the
power on 24 hours a day, seven days a week.
We are proud of who we are, the essential role we play for our
customers and the investment we make locally.
North West - We are champions of the North West and proud that
it is our network that connects communities and will support the
success of the Northern Powerhouse.
Service - We invest in our people and they are experts who
ensure we provide exceptional service.
Innovation - We believe in continuous improvement, leading in
energy innovation.
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 2018. Further information on our Company can also be found by
visiting our website: www.enwl.co.uk. The Company is limited by
shares and incorporated in the United Kingdom under the Companies
Act 2006.
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
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 2018
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
2018 are not due for submission to Ofgem until July 2018, and will
be reviewed by Ofgem after their submission.
Website and investor relations
Electricity North West Ltd'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 visiting our website
www.enwl.co.uk/about-us/investor-relations.
Contents Page
Chairman's Statement 1
Chief Executive Officer's Statement 2
Strategic Report 4
- Company Background 4
- Corporate Social Responsibility 9
- Key Performance Indicators 13
- Financial Performance 17
- Risk Management 23
Corporate Governance Report 28
- The Board 28
- Report of the Audit Committee 34
- Report of the Nominations Committee 37
- Report of the Remuneration Committee 37
- Report of the Health, Safety & Environment Committee
39
Directors' Report 40
Directors' Responsibilities Statement 42
Independent Auditor's Report to the Members of Electricity North West Limited 43
Financial Statements 52
- Consolidated and Company Income Statement 52
- Consolidated and Company Statement of Comprehensive Income 53
- Consolidated and Company Statement of Financial Position
54
- Consolidated Statement of Changes in Equity 55
- Company Statement of Changes in Equity 56
- Consolidated and Company Statement of Cash Flows 57
Notes to the Financial Statements 58
Glossary 119
Chairman's Statement
I am pleased to present the Annual Report and Consolidated
Financial Statements of the Electricity North West Limited Group
for the year ended 31 March 2018, the third year of the current
eight year regulatory period.
This has been a successful year, with significant progress made
across a number of areas.
The first two priority challenges that Peter Emery set when he
took up his post as Chief Executive Officer in May 2016 were in the
critical areas of safety and customer satisfaction.
I am pleased to report that we have made significant progress in
both of these areas.
In safety this progress is most apparent in the reduction in
lost time injuries in the year, noting, in particular, that we went
ten months without a single lost time injury.
In customer satisfaction, as measured by the Ofgem customer
satisfaction survey, performance has also improved, with the
overall measure increasing to 84.7% for the year, from 83.2% in the
previous year.
Overall Performance
The legitimacy of the returns made in the energy networks sector
is currently an area of focus. To put this into context, we charge
to a typical domestic customer GBP1.52 per week, or GBP79 for the
full year out of a typical total electricity bill of GBP517.
The financial statements presented today comply with
International Accounting Standards. Given the nature of the
regulatory framework, these financial statements do not reflect the
actual returns made by a distribution network.
We are in support of clear and transparent reporting of returns
and are working with Ofgem, other network operators and consumer
groups to develop the regulatory reporting regime to present fair
and comparable views of regulatory returns across the sector.
Ofgem presents the results of the networks as a Return on
Regulated Equity ('RoRE'). The Company is allowed to make a return
of 6% p.a. real across the RIIO-ED1 period.
Returns above this rate are delivered through above target
performance. This may be, for example, through efficiencies in the
delivery of our services (which are shared at a rate of 42% with
customers). It may also be through better than planned service to
customers. For example, Ofgem has incentivised the network
operators to make investments to improve network reliability and
allow them to recover their investment by charging 50% of the value
to customers (as calculated by Ofgem) of the improvement in
reliability.
After taking into account the timing of expenditures against the
timing of allowances and outputs, we have estimated our average
RoRE for the first three years of RIIO-ED1 at an annual rate of 5.5
% on an actual equity basis.
In broad terms, this figure reflects the 6% allowed return, with
incentives for improved performance adding an additional 2.2 %. Our
debt costs reflect the market prices in the debt markets at the
time of issuance. These costs are higher than Ofgem allows us to
pass on to our customers. This is the principal element reducing
our performance to the overall 5.5%.
We continue to strive to maintain the balance in reducing costs
to customers, whilst improving the service quality that they
value.
I would like to thank my Board colleagues for their support and
contribution during the year and, finally, I would like to extend
the Board's thanks to all Electricity North West employees and
contractors for their continued commitment to keeping the power on
for our customers.
Dr John Roberts CBE
Chairman
Chief Executive Officer's Statement
I am pleased to introduce my second annual report as Chief
Executive Officer of Electricity North West. In 2017/18 we have
made real progress in improving our performance in the key areas of
safety, customer service and reliability. These improvements
provide us with a strong foundation to build momentum going into
2018/19.
Our operating environment is changing rapidly and as a
distribution network operator, we play a fundamental role in
supporting our communities as we transition to a low-carbon
economy. In response to this changing environment, we recognised
that our vision and values needed to change to better reflect the
crucial role we play and engage our colleagues in delivering this
role.
Working with over 400 of our colleagues, we developed a new
Purpose statement. Our new Purpose states that 'Together we have
the energy to transform our communities'. Accompanied by new
Principles of 'We are switched on,' 'We are adaptable' and 'We take
pride', these statements provide clarity and ambition for our
business and clear direction for our colleagues.
During the year, we have continued to focus on our safety and
customer service performance. We embarked on a company-wide
initiative to create an enhanced safety culture. I'm pleased with
the way our colleagues have responded to this and with the progress
we have made. At the end of January, we were able to report that we
went nine months without a lost time injury, the Company's longest
period without a lost time injury to either our employees or our
contractors. We will continue to strengthen our safety culture and
the safety of our network to protect our colleagues, our customers
and our communities.
Our customer satisfaction performance has continued to improve,
with performance now closer to that of comparable companies. We
have strong plans in place to continue this progress and secure
further improvements next year.
The reliability of the network remains a priority for our
customers and investment in both technological and process changes
have helped us to maintain our leading customer interruptions
performance. We remain committed to continuous improvement in this
area with further investment already underway. This will secure a
quality and resilience of supply that is amongst the best in the UK
for our customers here in the North West.
We remain conscious of the impact of our costs on customer bills
and are committed to delivering our service efficiently, with a
particular focus on innovation to lower costs to customers. This is
essential in our region with high levels of fuel poverty and where
the nature of such poverty is varied. To respond to this we have
created three Fuel Poverty Referral Networks designed to directly
meet these varying needs and the networks have already delivered a
GBP357,000 benefit to the customers helped.
Sustainability runs through every element of our business and we
continue to outperform targets set for carbon emission reductions
at the beginning of RIIO-ED1. We are also embracing new challenges
and developing responses and solutions in collaboration with
regional and national stakeholders.
Future Outlook
The transition to Distribution System Operator ('DSO') is a
fundamental enabler of high levels of renewable generation. It will
change our industry significantly and is central to our thinking.
The Open Networks Project is a joint initiative by the UK network
companies, Ofgem and the Department of Business, Energy and
Industry Strategy to develop the systems and processes which will
underpin this change. We hold several leading positions on the
Project, which is providing us with early visibility of the
opportunities this will bring. During the year, we held a
consultation event attended by almost 50 regional stakeholders to
help inform our approach.
Chief Executive Officer's Statement (continued)
Offering non-domestic customers flexible connections,
successfully transitioning the CLASS Project from innovation to
business as usual and the call for capacity from our customers all
demonstrate the Company's understanding of, and ability to
successfully operate in, the new and changing environment. The
implementation of our new Network Management system in 2018/19 will
consolidate this position. This new system will drive higher levels
of network performance as well as support the transition to
Distribution System Operator.
Community energy has in the last few years emerged as a rapidly
developing trend in continental Europe and latterly the UK.
Community energy is the collaboration of customers to collectively
generate, purchase, store, sell and consume their own energy. We
have started to engage with leading community energy groups,
developing potential strategies to address both customer issues of
fuel poverty and energy efficiency and help manage capacity
challenges in the network as demand increases.
Our commitment to innovation continues to improve our business
and provide leadership to the sector. We are proud that our
partnership with Kelvatek on the development of smart fuse
technology has been recognised by the award to Kelvatek of a
Queen's Award for Innovation and that we have been able to utilise
this technology in new ways. Application of smart fuse technology
in multi-occupancy buildings in the North West means we have been
able to provide an improved level of risk management to these
properties. This is an important innovation in a post-Grenfell
Tower world.
This is a challenging time for distribution network operators.
External stakeholders are subjecting the sector to robust criticism
and scrutiny. Legitimacy in the eyes of all our stakeholders is
important to us and we will continue to demonstrate our commitment
to our customers and to the communities we serve.
We will continue to be open and transparent about our business
and to engage in the debate about the sector. As we prepare for
RIIO-ED2, we understand the importance of building strong
relationships with those in the communities we serve and to build
our business plan in partnership with them. We will continue to
develop our approach to this in 2018/19.
Our Purpose commits that 'Together we have the energy to
transform our communities'. In 2017/18 we improved our performance
and created momentum in key business performance areas. We are well
placed to build on these improvements as we move in to 2018/19.
Peter Emery
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 circa 1,800
employees and provides a safe and reliable electricity supply, 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, and, as
generation becomes more distributed, between homes, business and
the generation and storage facilities connected to our network.
How we charge customers
We charge our customers through their electricity suppliers in
the case of domestic and small customers, or directly for larger
customers.
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. Electricity North West's costs
are around 16% of the typical domestic electricity bill charged by
suppliers to North West customers, equivalent to GBP79 per home
last year. The graphic below illustrates how this money is
used.
Regulatory framework
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. Ofgem has started consulting on RIIO-2
which will govern the next price control period.
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 increases or
decreases depending on performance against the outputs we deliver
through a number of incentive mechanisms.
Strategic Report (continued)
Regulatory framework (continued)
These mechanisms aim to promote good customer service and to
minimise 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 electrical 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.
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 29.
Purpose, principles and corporate goals
Electricity North West is operating in a dynamic, rapidly
changing environment. Customers in the North West rely on the
services we provide to keep them connected with friends, family and
the wider world, keep their electric cars running, ensure their
homes are heated and enable them to work smarter and more
flexibly.
During 2017/18, the Company reviewed its Purpose to better
articulate the vital role Electricity North West plays for the
region during this period of radical change in the industry.
Working with stakeholders, including the Board and around 400
colleagues a new purpose was launched - "Together we have the
energy to transform our communities"
The culture of the Company is essential to support delivery of
this purpose, with three core principles:
-- We are switched on to our colleagues, customers and the world around us.
-- We are adaptable, always looking for better ways to get things done.
-- We take pride in all we do because it matters to people's lives.
The Company aims to provide customers with an excellent service
at a competitive price through a safe and reliable electricity
network. The Company constantly has 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.
Strategic Report (continued)
Purpose, principles and corporate goals (continued)
We report on our performance against 6 Corporate goals that span
these multiple priorities:
-- Safety - safety has to be a key 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.
Safety and Environment
The Company operates in a high hazard industry and the safety of
its people and customers and protection of the environment will
always be a priority for us.
Operational Safety
The safety of the Company's people, contractors and customers is
a fundamental cornerstone of the business. The Company ensures that
all people are well trained and able to operate safely, backed by
policy driven procedures and compliance assurance, alongside a
behavioural approach that seeks to ensure that all staff and
contractors approach any task with a strong behavioural attitude to
safety.
Our safety management system is continually reviewed and changes
are continually introduced to improve safety performance in our
day-to-day operations. In the past year we have focused in
particular on improving the safety culture of the Company to embed
"chronic unease" and encourage defensive behaviours at all levels
of the business, with an emphasis on peer-to-peer challenge of
unsafe behaviours. This has required changes that are structural,
leadership-led or assurance-driven in nature and which improve
clarity and drive simplification.
As a result of these interventions, 2017/18 saw an improvement
in the key measures of operational safety performance. We achieved
our lowest year end lost time incident frequency rate of 0.036
(2017: 0.10) having had 3 lost time injuries in the year (compared
to 7 in the previous year).
In 2018/19 we will continue to embed the changes introduced as
well as improving our arrangements for the selection and management
of contractors.
There is a continued focus on the valuable learning obtained
through near miss reports, a leading indicator of safety
performance with an increase in near miss reports recorded to
14,293 in the year March 2018 (2017:12,199).
Asset Safety
The safety of the Company's employees, contractors and the
public from the inherent risks of electrical assets is assured
through the Company's ongoing asset safety investment
programmes.
In 2017/18 the Company made significant progress in further
reducing the risks associated with link boxes, site security and
asbestos remediation as well as developing approaches for the
management of rising and lateral mains in multi occupancy
premises.
Environmental Performance
The Company is dedicated to achieving the highest standards of
environmental performance, not only by minimising the risks created
by our activities, but also through targeted investment in outputs
that deliver a positive environmental impact, including the removal
of fluid filled cables and the undergrounding of overhead lines
.
In terms of our own direct impact on the environment, our
principal performance indicator is the level of carbon dioxide
emissions equivalent. This measure covers the environmental impact
both from the use of fossil fuels in vehicles and generators and of
energy in buildings, as well as the impact of Sulphur Hexafluoride
(SF6), which is a strong greenhouse gas historically used as
insulation in electrical equipment.
Strategic Report (continued)
Safety and Environment (continued)
We made a commitment to our customers to reduce carbon
emissions, in tonnes of CO2 equivalent, by 10% from a 2014/15 base
year by 2020. Through targeted investment in the efficiency of our
buildings and other efficiency measures, the level of emissions has
been reduced by 16% from 2014/15 levels to 20,599 tCO2e in the year
ended 31 March 2018.
The Company undergrounded and connected 4.9km 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.
Customer
The Company aims to deliver excellent customer service,
constantly balancing 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 and at the same time providing excellent
customer service.
Reliability
Customers say that "keeping the lights on" is their top
priority. This is achieved by targeted investment 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.
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').
In the year ended 31 March 2018, the average number of
interruptions per 100 customers was 32.8, (2017: 32.1)
outperforming the target of 47.4 set by Ofgem.
The average number of minutes for which customers were without
supply during the year to 31 March 2018 was 34.4 (2017: 33.1),
which outperformed the target of 44.2 set by Ofgem.
The reliability of the network has been sustained though
proactive investment in the use of network automation and
innovative solutions, and an ongoing focus on operational response
when incidents do occur. Network reliability continued to be high
with a network availability of 99.993%. Customer Interruptions and
Customer Minutes lost performance was marginally behind the prior
year, with a larger impact from planned supply interruptions which
allow the capital investment programme to be delivered. We continue
to focus on improving network reliability and this is an area in
which we have committed additional funds to further increase the
level of automation and thereby reliability of the network.
Most customers enjoy excellent levels of reliability 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. We have continued to
invest in the year in schemes to reduce the numbers of worst served
customers, with the number of customers meeting this definition
being 48 in the year ended 31 March 2018 (2017: 46).
Key to delivering reliability to customers is proactive
investment to improve the resilience of the network to storm and
flood conditions. We're proud of the network resilience
demonstrated during the storm conditions experienced in the year
including the snow and sub zero conditions experienced during Storm
Emma and the "Beast from the East" in early March 2018. In addition
to the resilience of the network, our engineers worked tirelessly
to restore supplies to all of the 23,000 customers affected within
48 hours in very challenging conditions.
We continue to invest significantly in flood defences and
interconnectivity and key sites to provide protection to a 1 in
1,000 year flood risk.
Strategic Report (continued)
Customer (continued)
Investment in an affordable and sustainable network
In the year ended 31 March 2018, a total network investment
programme of GBP97.3m was delivered (2017: GBP89.7m).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.
Innovation is vital to the future success and sustainability of the
organisation, recognising the increasing reliance on electricity
for not only light and power but for electric cars and heat. The
Company is a leading network operator for innovation as recognised
by a discretionary award of GBP1.8m in the year by Ofgem,
reflecting the success of some of our past innovation projects, and
a testament to the ability of the Company to deliver these
projects.
Customer Service
Delivering excellent customer service e is a priority for
Electricity North West. Customer satisfaction levels have improved
during the year, achieving an overall score of 84.7% for the year
ended 31 March 2018 (31 March 2017: 83.2%). The relative ranking
among the Distribution Network Operators was 13(th) out of 14 DNOs
(2017: 14(th) position). The improvements made during the year are
reflected in the score in the second half of the year of 86.2%,
much closer to our targeted levels.
The Company is committed to further improve customer
satisfaction levels, with clear actions in place that are monitored
regularly by the Executive Leadership team. The actions focus
around simplification, compliance with the customer journey,
improvement in IT systems and resourcing strategies.
We maintain a Priority Service Register (PSR) to identify those
customers who are most dependent on our services. In 2017/18 we
have continued to promote our PSR and have developed our strategy
to offer more targeted services to higher risk customers, for
example those who are medically dependant on electricity.
Investment in staff training has also been a focus in order to help
facilitate this.
In delivering for our priority customers we have managed to
reach out to over 187,000 customers this year which exceeds our
target by 10,000. The communications were carried out through
various channels including letters, email and telephony.
During the year we have engaged with a variety of partners in a
bid to offer extra support to the customers in our region who are
impacted by fuel poverty. Through the introduction of referral
partnerships, we are now helping to provide our customers with
advice on issues such as energy saving and income maximisation, as
well as offering installation of free energy efficiency measures
and referral to other relevant services.
We track the time taken to resolve complaints when we do receive
them. The overall complaints performance within the year continued
to outperform the Ofgem penalty incentive. 82.4% (2017: 76.8%) of
complaints were resolved in 24 hours, with a complaint metric of
2.45 (2017: 3.45), forecasting us to be 5(th) position in the DNO
league table. The complaint metric reflects the percentage of
complaints unresolved within 24 hours, combined with the percentage
of complaints unresolved within 31 days.
We have continued to focus on our Guaranteed Standards of
Performance for connections during the year. Whilst we have reduced
the numbers of failures this year we are still not at the level of
service that we want to give to our customers and will be
continuing to focus on making improvements next year.
People
The Company is a major employer in the North West of England and
employs circa 1,800 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.
Strategic Report (continued)
People (continued)
We look to balance the right skills and people resources to
support the business in the long term.
The new purpose and principles were developed with our employees
and set out the required behaviours to deliver our purpose and
achieve sustained high performance.
These principles are underpinned by a continued commitment to
our management philosophy encompassing fundamentals, leadership,
ethical standards and securing competitive advantage.
Together, the 'Purpose and Principles' and the 'Management
Philosophy' produce our corporate culture.
Climate is the measure the Company uses to quantify how people
feel about working for the business and, in turn, makes the link
between this 'feeling' and how the Company performs.
The Company continues to make significant investment in training
and developing employees and in developing managers into leaders to
achieve the desired culture. Half yearly surveys are undertaken to
measure both colleague engagement and levels of agreement with the
Company's identified climate priorities. Time is provided between
each survey to allow leadership teams to reflect on what they've
learnt through the survey and then act to address issues
identified.
Levels of colleague engagement are high, with a survey
completion rate of almost 1,600 colleagues. The last survey in
February 2018 had an overall agreement rate of 72.2%, a marginal
increase from the 72.0% in January 2017. We have set a target of
75% employee agreement.
The Group sets policies and encourages a working culture that
recognises, respects, values and harnesses diversity for the
benefit of the Group and the individual, and we are committed to
integrating equality and diversity into all that the Group
does.
We are committed to rewarding our colleagues equally, regardless
of gender. During the year we published our gender pay gap
information. More information is available at www.enwl.co.uk.
The Group is committed to fulfilling its obligations in
accordance with the Disability Discrimination Act 1995 and best
practice. As an equal opportunities employer, equal consideration
is given to applicants with disabilities in the Group's employment
criteria. The business will modify equipment and practices wherever
it is safe and practical to do so, both for new employees and for
those employees that become disabled during the course of their
employment.
Corporate Social Responsibility
Our approach
The nature of our operations means that our activities can have
an enormous impact on our people, customers and communities. It is
important that we operate in a responsible manner now and for the
future.
Our industry, along with society, is changing, and we are seeing
a significant shift towards a low carbon economy and the consequent
future increase in demand on electricity distribution as the use of
electric vehicles and heating increases. This puts additional
reliance on our operations, but also highlights our
responsibilities to the environment and to the growing social
aspects of fuel poverty and the attraction and retention of skilled
employees and partners to deliver these future opportunities.
The review of our Purpose and Principles in 2017 reinforced our
commitment to being a responsible and sustainable business.
Together we have the energy to transform our communities
It reinforced our support for our people and partners, our role
in the low carbon future and the interconnected role that we have
with the communities of the North West.
For many years our Corporate Social Responsibility approach has
focused on: community, workplace, marketplace and environment.
Strategic Report (continued)
Corporate Social Responsibility (continued)
Following the work done this year to define our Purpose and
Principles, we are currently reviewing this approach towards a
Purpose-led Responsibility Framework which will be launched in
2018.
The Corporate Social Responsibility activity is informed and
shaped by the Business in the Community (BITC) Corporate
Responsibility Index. This is the sixth year that the Company has
participated in the Index and has increased performance to 85%
(2017: 79%). The aim is to achieve 90% by September 2018.
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 level of service at a price customers can afford.
The Company has a number of Stakeholder Advisory Panels, each
aligning to the Company goals of affordability, reliability,
sustainability and customer service, together with an overarching
Strategic Stakeholder Advisory Panel. All work is overseen by an
Executive-level Internal Stakeholder Advisory Panel.
Following Panel recommendations, this year the Company has:
-- supported Community and Local Energy groups to assist with
the expansion of renewable energy generation
-- undertaken research and invested in referral networks to
support customers in fuel poverty in the North West
-- improved welfare services to vulnerable customers and small
businesses during power interruptions.
We are also an active partner in the Mayor of Greater
Manchester's Green Summit, leading the future energy demand
workstream.
To support adherence to these initiatives, for the 7th 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.
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 and the Modern Slavery Act 2015.
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.
This year the Company has strengthened our approach to Modern
Slavery, working with suppliers and charities to raise awareness
and provide solutions if it is identified in the course of our
operations. The Company's Modern Slavery Act statement is available
on its website:
https://www.enwl.co.uk/misc/modern-slavery-act-compliance-statement/
Anti-corruption and anti-bribery
At Electricity North West we are proud of our strong commitment
to high ethical standards in the way that we work. The business
takes a zero-tolerance approach to bribery and corruption, and is
committed to acting professionally, fairly and with integrity in
all our business dealings and relationships wherever we operate,
implementing and enforcing effective systems to counter bribery. It
is important that our regulator and other stakeholders have
confidence in the arrangements and integrity of the
organisation.
Strategic Report (continued)
Corporate Social Responsibility (continued)
Anti-corruption and anti-bribery (continued)
The Company operates a number of policies governing the
anti-bribery and anti-corruption matters: Anti-Corruption and
Bribery policy, Disclosure (whistleblowing) policy, Ethics policy
and Conflict of Interest policy.
These policies apply to all employees and officers of
Electricity North West and form part of the employee Code of
Conduct. Other individuals performing functions for the Company,
such as agency workers and contractors, are also required to adhere
to our anti-bribery and anti-corruption policies.
To support our whistleblowing policy we have in place a
confidential independent reporting line called Safecall.
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 and an energy management system
certified to ISO 50001.
During the year, 10km of oil filled cable was removed although
our overall leakage of oil from underground cables was 65,788
litres which was significantly above our target of 30,000 litres
per year. This increase was due to a leak on a 33kV cable running
from Lancaster Grid substation. The leak was caused by a fault in
the cable which could not be de-energised until late 2017 due to a
combination of abnormal running arrangements of the circuits at
Lancaster and ongoing flood protection work both of which were a
direct result of the devastation caused by Storm Desmond in
December 2015.
Gender and diversity
Information on the composition of the workforce at the year end
is summarised below:
Turnover
2018 - 117 leavers (2017: 145 leavers)
Training courses delivered
2018 - 303* (2017: 281*)
Training course attendees
2018 - 7,974 (2017: 6,482)
*These figures include e-learning courses and operational and
non-operational training.
Workforce composition
Total employees 1,400 480 1,287 415
Senior managers 32 15 30 10
Executive leadership team* 7 1 7 1
Directors 9 - 9 -
---------------------------- ------ ---- ------ ----
* The Executive leadership team figure includes the two
Executive Directors, who are also included in the Directors
figure.
Scope 1
Operational transport 6,977 7,151
Business transport
- road 1,254 1,231
Fugitive emissions 1,254 1,276
Fuel combustion 3,763 2,657
-------- --------
13,248 12,315
-------- --------
Scope 2
-------- --------
Buildings energy
usage 7,262 8,595
-------- --------
Scope 3
Business transport
- rail 21 19
Business transport
- air 68 83
-------- --------
89 102
-------- --------
Business Carbon
Footprint (excl.
losses) 20,599 21,012
-------- --------
Electrical
Losses 520,176 580,352
Business Carbon
Footprint (incl.
losses) 540,775 601,364
-------------------------------------------------------------------------------------------------- -------- --------
Strategic Report (continued)
Corporate Social Responsibility (continued)
Business Carbon footprint
The Company's business carbon footprint (excluding losses) for
the year was 20,599 tCO2e (tonnes of CO2 equivalent), a 2%
reduction on the year ended 31st March 2017 of 21,012 tCO2e.
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.
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.
Strategic Report (continued)
Key Performance Indicators
KPI Definition and comment Performance
---------- --------------------- ----------------------------------------- -------------------------
Definition: The total number
of reportable incidents in the
period divided by the number
of hours worked in that period
by employees and contractors'
employees, multiplied by 100,000
hours.
Performance: This year saw the
lowest ever level of lost time
injuries, with a total of three
lost time incidents involving
employees and contractor employees
(year ended 31 March 2017: seven).
The corresponding lost time incident
Lost time incident frequency rate for the year ended
Safety frequency rate 31 March 2018 was 0.036 (2017:0.10). 0.036
---------- --------------------- ----------------------------------------- -------------------------
Near miss reporting Definition: Near miss reports 14,293 near miss reports
are collected to provide valuable
information on hazards and behavioural
attitude. Near miss reporting
is actively encouraged to promote
a safety culture.
Performance: In the year ended
31 March 2018 the number of near
misses reported by Electricity
North West employees was 14,293
compared with 12,199 in the previous
year and also above the target
of 8,000. Having seen an increase
in the volume of near misses
over the last two years, the
intention is now to focus on
improving the quality and level
of 'behavioural challenge'.
---------- --------------------- ----------------------------------------- -------------------------
Definition: The overall customer
satisfaction score is a composite
score from an Ofgem survey, assessing
levels of customer satisfaction
for connections quotations and
delivery, interruptions and general
enquiries.
Performance: Performance this
year has improved to 84.7%, from
83.2% in the prior year and reflects
the ongoing focus on improvement
actions. Performance in this
Overall customer area remains a key focus area
Customer satisfaction with improvement actions in place. 84.7%
---------- --------------------- ----------------------------------------- -------------------------
People Employee engagement Definition: Climate is measured 72.2% Climate score
through an employee survey which
through a series of questions
provides details of overall employee
engagement and how employees
feel about the 'working climate'.
Performance: Overall employee
engagement remains consistent
with prior year at 72%.
---------- --------------------- ----------------------------------------- -------------------------
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
--------------- ------------------------ -------------------------------------------- -------------
Reliability Customer interruptions2 Definition: Customer interruptions 32.8 CIs
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 network,
multiplied by 100, adjusted for
exceptional events.
Performance: The result of 32.75
for the year outperforms the
Ofgem target of 47.45. The performance
is ahead of our internal targets
and reflects the ongoing investment
in network automation and interconnection,
to secure supplies to our customers.
--------------- ------------------------ -------------------------------------------- -------------
Customer minutes Definition: Customer minutes 34.4 minutes
lost lost represents the time customers
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.
Performance: The result of 34.35
for the year outperforms the
Ofgem target of 44.23. This was
negatively impacted by the storms
in the second half of the year
and higher levels of planned
supply interruptions to allow
for necessary improvement work
on the network.
--------------- ------------------------ -------------------------------------------- -------------
Sustainability Carbon footprint Definition: Carbon footprint 20,599 tCO2e
excluding electrical measures the impact of our operations
losses on the environment and is calculated
in line with Ofgem guidance.
The calculation excludes electrical
losses arising from the operation
of the network which cannot be
directly controlled or accurately
measured.
Performance: We are aware of
the environmental impacts we
can have and are committed to
manage the impact of our operations.
Our carbon footprint has reduced
by 2% from the prior year reflecting
the ongoing focus in energy usage.
There may be some year-on-year
volatility in emissions dependant
on levels of generation deployed
on the network as a result of
interruptions or exceptional
events.
--------------- ------------------------ -------------------------------------------- -------------
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
-------------- ------------------ --------------------------------------- ------------
Affordability Total Expenditure Definition: Totex is a key financial GBP249.2m
measure for the business. It
is an abbreviation which stands
for total expenditure. It includes
the money we spend on running
our business day-to-day, and
the amount we invest in new assets
through our network investment
programme. We aim to deliver
efficiencies in totex which we
share with our customers and
that helps reduce customers'
bills.
Performance: Totex for the year
ending 31 March 2018 was GBP249.2m
compared to an Ofgem allowance
of GBP253.6m in outturn prices.
Expenditure was higher than the
previous year as the network
investment programme was progressed
and the prior year being suppressed
by a one-off insurance recovery
of GBP10m.
-------------- ------------------ --------------------------------------- ------------
Financial Revenue Definition: Revenue is largely GBP430.2m
KPIs fixed over time, but can vary
through over/under recovery as
demand varies against the forecasts
used to set tariffs, and other
adjustments for, for example,
incentive revenues. It is determined
by Ofgem to allow recovery of
efficient costs to maintain the
network, This revenue is profiled
over the price review period
to 2023. Additional revenue is
generated through charges for
new connections to the network,
along with an opportunity to
earn incentive revenue for delivering
improved performance.
Performance: Revenues have decreased
from the prior year in line with
the average price reduction as
efficiencies are shared with
customers. The revenue under
recovery for the year was GBP3.7m
(2017: GBP3.7m over recovery)
and it will be corrected through
adjustments in pricing in two
years' time.
-------------- ------------------ --------------------------------------- ------------
Profit before Definition: PBTFV is the profit GBP111.2m
tax and fair before tax of GBP141m (2017:
value movements GBP81m) adding back the GBP30m
('PBTFV') FV gain (2017: GBP106m loss),
per Note 9.
Performance: PBTFV has decreased
to GBP111m (2017: GBP187m), mainly
as a result of the lower revenue
and higher operating costs. As
the timings of revenues can be
largely independent of the work
performed in any given year,
the resultant profit figures
in any year can be unrelated
to earnings in that year.
-------------- ------------------ --------------------------------------- ------------
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
----------- --------------------- ------------------------------------------ ------------
Financial Net debt Definition: Net debt includes GBP1,150.3m
KPIs the total borrowings of GBP1,237m
(2017: GBP1,249m) per Note 19,
net of cash and cash equivalents
and money market deposits of
GBP87m (2017: GBP153m) per Note
17.
Performance: Net debt has increased
over the year by GBP54m, the
net effect of GBP12m lower debt
and GBP66m reduction in cash
balances. The decrease in debt
is primarily due to the decreased
fair value of the GBP250m 8.875%
2026 bond.
----------- --------------------- ------------------------------------------ ------------
Definition: 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 GBP1,758m as at March 2018
(2017: GBP1,696m), as defined
by the Financing Agreements.
Performance: The RAV gearing
is within the required maximum
level of 65% and the internal
RAV gearing target of 63%. 62%
--------------------- ------------------------------------------------------ ------------
Interest cover Definition: Interest cover is 3.7 times
the number of times the net interest
expense, adjusted for indexation
and capitalisation of borrowing
costs, is covered by operating
profit from continuing operations,
as defined by the Financing Agreements.
Performance: Interest cover has
decreased due to the GBP76m decrease
in Operating Profit, with the
interest expense (excluding inflation
movements on inflation-linked
instruments and FV movements)
remaining in line with the prior
year.
--------------------- ------------------------------------------------------ ------------
Capital expenditure Definition: This represents investment GBP218.5m
in the network to maintain its
reliability and resilience for
future customers. The figure
includes total additions to property,
plant and equipment and software.
Performance: We continue to invest
to improve the quality and reliability
of the network. During the year
we invested GBP8m more than the
previous year.
--------------------- ------------------------------------------------------ ------------
Strategic Report (continued)
Financial Performance
Overall Performance Reporting
Revenue is largely fixed across a price review period. It is set
at a level that should meet our efficient operating costs and
expenses over that period, as well as funding efficient investment,
interest on necessary loan funding and, taxes. In order to
encourage investment, it also allows for a return to shareholders
at a level that regulates the return and encourages future
investment, which has been set by Ofgem at 6% pa real for the
current regulatory period.
Actual expenditures, both capital and operating (referred to by
Ofgem as Totex), vary in any given year from the original
regulatory settlement agreed to be funded by Ofgem, as changes in
customer needs, new innovations, and changes in network investment
delivery priorities change over time. Allowed revenues are a
function of the original allowance and expenditure plans, adjusted
for under and over expenditures against allowances in earlier
years. Actual revenues in any given year reflect these allowed
revenues, although as these are collected based upon forecasts of
demand over the network set two years earlier, demand experience
means actual revenues vary from allowed revenues based upon demand
in the year, and the impact of forecast variations in earlier
years.
Actual revenues are allowed by Ofgem, not on the profiles of
Totex in the period, but based on the long term cash requirements
of the business.
In these financial statements, operating profit is therefore the
combination of revenues that are only partly related to actual
activity during the year, less those operating costs actually
incurred and excluding and excluding capital expenditure.
Consequently the profit earned in any given period does not
reflect the return to shareholders.
Whilst the statutory measure that is most closely aligned to
this result is cash flow before financing activities (see page 20),
this has a limited correlation to actual returns as a result of the
factors noted above.
Return on Regulated Equity
Ofgem has therefore been working with the network operators that
it regulates, and other consumer and other interested stakeholders,
to develop performance reporting measures that more accurately
reflect the returns to investors.
Ofgem presents the results of the networks as a Return on
Regulated Equity ("RoRE").
The Regulated Equity that they use is a percentage of the
Regulated Asset Value ("RAV"), which is essentially equivalent to
the net book value of the fixed assets of the business, only
calculated in regulatory terms. Ofgem assume that this RAV is
financed, 65% by debt and 35% by shareholders in the Company, hence
they calculate the return to shareholders based upon 35% of the
RAV.
The Company is allowed to make a return of 6% pa real (ie after
RPI inflation) across the RIIO-ED1 period, on this element.
Returns above this rate are delivered through above target
performance, in line with the incentive structure set out within
RIIO. This may be, for example, through efficiencies in the
delivery of our services which result in lower Totex (which savings
are shared at a rate of 42% with Customers).
Returns may also be above this rate through better than target
service to customers. For example, Ofgem has incentivised the
networks to make investments to improve network reliability, and
allow the networks to recover their investments by charging 50% of
the value to customers (as calculated by Ofgem) of the improvement
in reliability.
After taking into account the timing of expenditures against the
timing of allowances and outputs (enduring value calculation), we
have estimated our average post financing RoRE for the first three
years of RIIO-ED1 is at an annual rate of 5.5 % on an actual equity
basis.
In broad terms, this figure reflects the 6% allowed return, with
incentives for improved performance adding an additional 2.2%.
However, the costs of servicing our debt are higher than Ofgem
allow us, with these actual debt service costs reflecting the
prices in the debt markets at the time
Strategic Report (continued)
Financial Performance (continued)
our debt was issued. This is the principal element reducing our
performance to the overall 5.5% per annum, real, after tax and
interest.
We continue to work with Ofgem to develop simple, clear, but
comprehensive, performance reporting measures that reflect the
actual financial performance of the networks compared to
allowances.
Reconciliation of statutory profit to regulatory performance
The alternative financial performance calculation used to derive
Return on Regulatory Equity provides a measure of the performance
of operations within the price control, including the impacts of
interest and taxation but excludes operations outside the price
control. It adjusts reported profit under IFRS to reflect the
impact of the regulatory framework, outlined above, when presenting
financial performance. The post financing return generated reflects
the actual regulatory return made in each year and is used to
derive RoRE.
Profit for the
year per statutory
financial statements 117.0 71.0 116.3
Adjustments:
RAV Adjustment (82.0) (77.3) (58.9)
Deferred Taxation
Adjustment (29.0) (23.3) 4.7
Indexation and
Fair Value Movements 51.7 143.9 -
Movement in Other
Regulatory Balances (26.9) (73.5) (19.4)
Post - financing
return 30.7 40.9 42.7
Average return
for the RIIO-ED1
period 38.1
Average RAV balance 1,645.8
Average debt balance 959.2
RoRE (actual regulatory
equity) 5.5%
Adjustments in calculating regulatory financial performance
The principal adjustments from reported operating profit to
regulated financial performance are:
RAV Adjustment: The regulatory composition of costs incurred is
split between in-year revenue allowances and the creation of
additional RAV (slow money). This does not align with the
classification of costs as operating costs and fixed asset
additions under IFRS accounting principles. This adjustment
reflects the impact of the fast and slow money concept in the
regulatory settlement and the impact of regulatory depreciation
which does not form part of the statutory profit.
Deferred taxation adjustment: Future revenues are expected to
recover cash taxation costs, including the unwinding of deferred
taxation balances created in the current year (note 10).
Indexation and fair value movements: Fair value movements on
debt and derivative financial instruments included within statutory
profit are excluded from the regulatory performance calculation and
an adjustment made to remove the inflation component of actual
interest costs.
Movement in other regulatory balances: Regulatory performance
reflects performance on an "earned" basis, with revenue being
adjusted for this performance in future years. IFRS recognises
these revenues when they flow through invoices to customers and not
in the period to which they relate. The principle adjustments are
for incentive revenues earned in the year, under or over recoveries
of allowed revenue in the period, differences in timing of the
funding of pension deficit repair payments and the adjustments for
enduring value. Enduring value adjusts regulatory performance for
the impact of timing differences between the receipt of allowed
revenue and actual expenditure incurred i.e. timing differences
that will unwind over the regulatory period.
Strategic Report (continued)
Financial Performance (continued)
Adjustments in calculating regulatory financial performance
(continued)
The enduring value adjustment has been calculated by considering
the cumulative expenditure variance by regulatory category and uses
approved Company business plans to assess the extent to which these
timing differences will unwind. The enduring value adjustment
requires a high level of management judgement. Methodologies for
calculating enduring value are evolving as we work with Ofgem and
other network operators to develop a standardised approach.
Equity component:
RoRE performance has been presented on a real equity basis,
representing the balance of the RAV that is not debt funded.
Average equity for the period is 41%, higher than the assumed 35%
"notional" equity funding. The difference between the actual and
notional equity has the effect of reducing the allowed equity
return from 6% to an actual equity return of 5%.
Financial Reporting Measures
Revenue
Revenue has decreased to GBP430m (2017: GBP486m) during the
year, in line with the allowed Distribution Use of System (DUoS)
revenue under the RIIO price control.
As noted above, the allowed revenue is recovered against an
estimated level of electricity demand across the network. Given the
difficulty of predicting this demand two years in advance we
generate either an over or an under recovery against planned
revenue. These over or under recoveries are included in the profit
and loss account for the period and will be corrected in future
periods through the Ofgem price setting mechanism.
For the year 31 March 2018 there was an under recovery of DUoS
revenue of GBP3.7m against plan, before adjustment for RPI
indexation (2017: GBP3.7m over-recovery), reflecting variability
against forecast in consumption volumes year on year. This under
recovery will be corrected through adjustments in pricing in two
years' time, in accordance with Ofgem's methodology.
Operating profit
Operating profit has decreased to GBP183m (2017: GBP260m) as a
result of the reduction in revenue detailed above and higher
operating costs in the period.
Profit before tax and fair value movements
Profit before tax and fair value movements has decreased to
GBP111m (2017: GBP187m), mainly as a result of the reduction in
revenue detailed above and higher operating costs.
Taxation
Corporation tax is calculated at 19% (2017: 20%) of the
estimated assessable profit for the period. The rate will be
reduced to 17% on 1 April 2020. The deferred tax is calculated
based on the expected future tax rates.
The overall taxation for the year has increased from a charge of
GBP10m in 2017 to a charge of GBP25m in 2018 mainly as a result of
the prior year reflecting 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,
with reference to 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 2018 the Company declared a final
dividend for the year ended 31 March 2017 of GBP12m, paid in June
2017, and an interim dividend of GBP63.6m that was paid in December
2017. In the year ended 31 March 2017 the Company declared a final
dividend for the year ended 31 March 2016 of GBP18m, paid in June
2016, and an interim dividend of GBP63m that was paid in December
2016.
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 2018 was GBP4,788m (2017: GBP4,586m), with a
net book value of GBP3,138m (2017: GBP3,037m). In the year ended 31
March 2018, the Group invested GBP209m (2017: GBP200m) in property,
plant and equipment in a large number of projects to reinforce and
improve the network, and GBP10m (2017: GBP10m) 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 2018 of GBP18m (2017:
GBP58m). The main reason for the decrease in the deficit is due to
an increase in the discount rate from 2.5% to 2.6%, and the payment
of deficit repair contributions by the Company.
The most recent triennial valuation of the Group's Pension
Scheme was carried out as at 31 March 2016 and identified a
shortfall of GBP142.6m 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 2016 Actuarial valuation, the
Group agreed to eliminate the shortfall by paying additional annual
contributions from April 2016 to December 2023.
Cash flow before financing activities
Cash generated before financing in the year was GBP12m (2017:
GBP112m), reflecting the reduction in operating profit and
increased asset investment.
Net debt
Cash and deposits 87 153
Borrowings (1,237) (1,249)
Net debt (1,150) (1,096)
Included within the total borrowings figure are GBP74m of loans
from the parent company North West Electricity Networks plc, due to
mature in March 2023 (2017: GBP71m) and GBP198m loans from an
affiliated company ENW Finance plc, maturing in 2021 (2017:
GBP198m).
Of the borrowings, GBP6.6m (2017: GBP6.4m) is due to be repaid
within the next year, under European Investment Bank ('EIB') loans
that have an amortising repayment profile.
All other borrowings are repayable after more than one year and
include bonds with long-term maturities of GBP706m (2017: GBP724m)
and EIB loans of GBP253m (2017: GBP249m). Note 19 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 2018, the unutilised committed facilities were
GBP25m (2017: GBP25m) and together with GBP87m (2017: GBP153m) of
cash and short-term deposits these provide 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 BBB+ 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 2019 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 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 GBP25m 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 2019 indicate there is
significant headroom on these covenants.
Strategic Report (continued)
Financial Performance (continued)
Going concern (continued)
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.
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 - which is referenced for best practice
and there are some limited areas of non-compliance, as explained on
pages 32 and 33 - the Directors have assessed viability over a
period longer than that required for going concern and have chosen
the duration to the end of the regulatory period in 2023.
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 period to 31 March 2023. The Board has
considered whether it is aware of any specific relevant factors and
notes, in particular, the Ofgem's RIIO2 consultation document,
which indicates lower equity returns and possibly a changed
incentive environment for RIIO2. Whilst it is impractical to assess
the viability in any meaningful way, beyond the current regulatory
period, given the nature of the regulatory cycle, we continue to
note Ofgem's "financeability duty".
The Directors have conducted a robust assessment of the
principal risks facing the Company and believe that the Company 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
viability period to 2023. 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 five
year period of their assessment.
Strategic Report (continued)
Financial Performance (continued)
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, senior
managers and the Chief Financial Officer;
-- 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
2018.
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 electricity industry is undergoing unprecedented change as
we transition to the low carbon economy and demand increases. As
with any business, the achievement of our goals necessitates a
certain level of risk being taken. The key is ensuring that such a
scale of change is managed with a good understanding of the risks
involved, in a manner consistent with our strategy, and importantly
making sure that these risks are managed within our agreed risk
appetite. Risks should only be accepted where appropriate reward is
achievable given the level of resources employed to manage
them.
Our appetite for risk is defined using a framework which is
reviewed annually by the Board, framing the risks within the
business plan. The framework enables our Board to demonstrate its
risk appetite for the overall strategic direction of the business,
and maps appetite for risk taking in the pursuit of each of our
company goals at a tactical and operational level.
In line with the framework which provides descriptors on a scale
of 'averse' to 'bold', the Company generally operates within a
'cautious' risk range, given that the achievement of the stretching
business plan would not be possible without a level of measured
risk taking. The areas where a 'very cautious' risk appetite is
adopted relate
Strategic Report (continued)
Risk Management (continued)
to Sustainability, given our desire to ensure that the Company
maintains its reputation for compliance and an ethical way of doing
business, and most notably our Safety goal, on the basis that sound
working practices that protect our employees and the general public
are the number one priority for the business.
The key features of the risk management system include:
-- Clear risk management strategy approved by the Board.
-- Risk appetite framework, approved annually by the Board, in
place that forms a key driver of the strategic business plan.
-- Board oversight in identifying and understanding significant
risks (and opportunities) to the Group in achieving strategic
objectives.
-- 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.
-- Target risk scores are in place for corporate risks, forming
the basis for the production of work plans by risk owners to show
how the target risk scores will be achieved.
-- 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.
Strategic Report (continued)
Risk Management (continued)
Principal risks and uncertainties
The Group considers the following to be the principal risks that
it faces.
Risk Mitigations
--------- ---------------------------- -----------------------------------------------------------------------
Safety Health Safety and the
Environment: * Board Health, Safety and Environment Committee
Risk associated with oversee this area.
unsafe working practices,
man-made or naturally
occurring hazards that * Extensive policy and procedures to ensure a safe
could cause harm to system of work and environmental management.
people or the environment.
* Behavioural safety training programme across all
areas of the organisation.
* Simple "Golden Rules" to ensure strong safety
approach throughout the Company's operations
* Robust lessons learned exercises conducted to
identify root causes when safety or environmental
issues occur.
* 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.
* Well established hazard and near miss reporting in
place.
--------- ---------------------------- -----------------------------------------------------------------------
Customer Meeting our customers'
expectations: * A programme of improvement activities described in
Failure to meet the more detail on pages 7 to 8 is being co-ordinated by
required level of customer the Executive Leadership Team to optimise the
satisfaction performance Company's position against all elements of the
and to achieve costs customer satisfaction measure.
and efficiencies against
the commitments made
to our customers in * Robust plans in place to achieve other commitment
the RIIO-ED1 period. targets, or outperform where possible.
* Controls in place regarding the ongoing reporting of
performance against targets.
--------- ---------------------------- -----------------------------------------------------------------------
People Developing our people:
Resource and succession * Succession plans are in place, that are subject to
planning for the business. periodic executive level review.
* Training delivered throughout the Company to ensure
employees are equipped to do their roles competently
and effectively.
--------- ---------------------------- -----------------------------------------------------------------------
Strategic Report (continued)
Risk Management (continued)
Principal risks and uncertainties (continued)
Risk Mitigations
--------------- --------------------------------- ------------------------------------------------------------------
Reliability Cyber and physical
security threat: * Dedicated qualified personnel allocated to Cyber and
Breach of our security IT security.
regime and access to
key network security
systems by an internal/external * A training programme in place to inform all users of
party. the risks of e mail and social engineering attacks.
* A cyber risk assessment methodology implemented
within the Group.
* Pre-employment screening for critical roles such as
System Administrators.
* A strong governance and inspection regime to protect
infrastructure assets and operational capacity.
* Physical and technological security measures,
including encryption of key laptops, preventing the
loss of data.
* Data Centre infrastructure providing enhanced
security monitoring and management tools, 'next
generation' firewalls and network traffic analysis.
* Ongoing security patching of critical systems.
* Periodic internal and external security reviews.
* Key systems IT disaster recovery testing.
Physical security measures are in place
to limit access to sites.
--------------- --------------------------------- ------------------------------------------------------------------
Personal Data: We continue to review and enhance the
Breach of regulations mitigations in this area. In particular
relating to data protection to do with the General Data Protection
and privacy Regulation (GDPR) requirements. Mitigations
include:
* Appropriate technological controls as noted above.
* Identification of all Personal Information assets
(both computer-based and paper records) to ensure
appropriate controls in place.
* Appointment of dedicated manager to drive programme
to achieve compliance with GDPR.
--------------- --------------------------------- ------------------------------------------------------------------
Sustainability Government and regulator
policy: * The Company has dedicated Regulation, Legal and
The Company is subject Compliance departments that provide advice and
to a high degree of guidance regarding the interpretation of political,
political, regulatory regulatory and legislative change.
and legislative intervention,
which can impact both
the current RIIO-ED1 * There is ongoing engagement by the Company with the
period, and the settlement Regulator and Government.
for ED2. The legal
and compliance framework
can change leading * There is regular engagement with the Board on
to additional compliance political and regulatory developments which may
obligations, market impact the Company.
conditions, and reporting
requirements. A changing
political focus on
the sector can have
a significant effect
on profitability.
--------------- --------------------------------- ------------------------------------------------------------------
Business resilience:
Events outside of our * The Company has comprehensive contingency plans for
control, for example network emergencies, including key contract resources
extreme weather or such as mobile generators and overhead line teams.
medical emergencies,
affecting large areas,
may negatively impact * Business continuity testing on a regular basis.
the business.
* Reciprocal arrangements with other network operators.
--------------- --------------------------------- ------------------------------------------------------------------
Strategic Report (continued)
Risk Management (continued)
Principal risks and uncertainties (continued)
Risk Mitigations
--------------- ------------------------------- ----------------------------------------------------------------
Sustainability Regulation and Compliance
risk: * Overall governance and control framework in place,
Compliance failure including established compliance routines and
leading to an adverse accountabilities, owned by the Executive Leadership
affect on the business. 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.
--------------- ------------------------------- ----------------------------------------------------------------
Affordability Financial risks:
The business is unduly * A formal treasury policy in place to manage exposure
subject to treasury, to counterparty, liquidity and market risk, overseen
tax and liquidity risk by the Audit Committee.
exposures. Under performance
of the Pension Scheme
investments, market * A well established monthly banking covenant
impacts and/ or an monitoring process.
increase in the scheme
liabilities giving
rise to higher contributions. * Tax risk scoring.
* Active monitoring of the Scheme's investments carried
out on a quarterly basis.
* The Trustee engages professional legal, actuarial and
investment advice for all decisions taken and
regularly consults with the Company.
--------------- ------------------------------- ----------------------------------------------------------------
Programme delivery
including change programmes: * Established governance controls in place to oversee
Delays in the investment the delivery of business change.
programme or major
business change activity
leading to an adverse * Processes in place to support delivery of change
impact on the company, programmes, management of risks and achievement of
particularly relating business benefits.
to customer interruptions
and customer minutes
lost performance. For activity impacting customer interruptions
and customer minutes lost performance,
the following mitigation measures are in
place:
--
* Fault response times and team performance are closely
monitored.
* Supply interruptions planned to minimise customer
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.
--------------- ------------------------------- ----------------------------------------------------------------
Macro economic factors:
Factors, such as Retail * Monitoring the potential exposure to fluctuating
Price Index (RPI), factors through forecasts from a range of financial
may impact negatively institutions.
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.
--------------- ------------------------------- ----------------------------------------------------------------
The Strategic Report, outlined on pages 4 to 27, has been
approved by the Board of Directors and signed on behalf of the
Board on 30 May 2018.
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 pages 32 and 33.
The Board
Board Members at 31 March 2018
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. He is currently a Chairman of the Halite Energy Group.
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. He has a degree in Economics and
qualified as a Chartered Accountant with Deloitte Haskins &
Sells (now PricewaterhouseCoopers LLP 'PwC'). Chris has recently
been appointed as a non-executive director of Stirling Industries
plc.
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 board roles with HS1, the Submarine
Delivery Authority, EdF and the Nuclear Decommissioning Authority.
His advisory assignments in the UK include work with HS2, Thames
Tideway Tunnel, the Type 26 Frigate and the QE Carrier programmes.
Overseas he has worked in the USA and Singapore on High Speed Rail
projects and in Australia on a regional rail project.
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. He 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 holds a B.Sc. (Hons)
Economics degree from Durham University.
Corporate Governance Report (continued)
The Board (continued)
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. Now retired as a solicitor, he remains involved in
consultancy work and is also a Non-Executive Director of the JP
Morgan Infrastructure Investments Fund and of Greensands Holdings
Limited (the parent company of Southern Water).
John Lynch
Non-Executive Director
Appointed on 31 January 2017
John Lynch is an investment principal in the Infrastructure
Investments Fund of J.P. Morgan Asset Management, based in London.
Prior to joining the firm, he had a twenty year global career in
investment banking, including the role of head of EMEA Power at
Bank of America Merrill Lynch where he led the bank's advisory and
lending efforts in utilities, conventional power generation,
renewables and energy/utility related infrastructure. He is a dual
citizen of the United States and Ireland. He graduated from
Dartmouth College and holds an MBA from the University of Chicago
Booth School of Business.
Peter Emery
Chief Executive Officer
Appointed on 27 May 2016
Peter Emery has over thirty years experience in the Energy
Sector. He spent twenty years working for ExxonMobil in corporate
planning, distribution operations, refining and supply with
experience in Europe, North America and the Far East. His final
assignment was as Operations Manager for Fawley Refinery having
full operational responsibility for the UK's largest refinery. On
leaving ExxonMobil, he became the Executive Director of Production
at Drax Power Limited and was a member of the executive team which
completed the IPO of Drax Group plc in 2005, working with the Group
until 2016, in which year he joined the Company. He is also a
Non-Executive Director of N.G. Bailey Limited, having been
appointed in September 2012 and a Board member of the York, North
Yorkshire and East Riding Local Enterprise Partnership and the
Sheffield University 2050 Advisory Board. He is a fellow of the
Institute of Materials Minerals and Mining.
David Brocksom
Chief Finance Officer
Appointed on 5 October 2015
David Brocksom joined the Company as interim Chief Financial
Officer in September 2013 and has, with a short break at the start
of 2015, been with the Company since then, becoming a Director in
October 2015. Previously he has held a number of CFO roles
including at UK Coal plc and Pace plc. He qualified as a chartered
accountant with Price Waterhouse (now PricewaterhouseCoopers LLP
'PWC') and is also a member of the Institute for Turnaround.
Niall Mills, Hamish Lea-Wilson and John Lynch are shareholder
appointed directors and have appointed alternate Directors during
their time as Board members, Hamish and Niall's alternate was Tomas
Pedraza. John's alternate was Andrew Truscott until he resigned on
6 October 2017 and was replaced by Mark Scarsella.
Attendance at Board meetings
The Company Secretary attended all Board meetings during the
year.
At the discretion of the Board, senior management were invited
to attend meetings when appropriate to specific items subject to
discussions.
Where a Director was unable to attend a Board meeting, their
views were canvassed by the Chairman prior to the meeting.
Corporate Governance Report (continued)
The Board (continued)
The table below 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 Board Audit Committee Remuneration Nominations Health, Safety
Committee Committee & Environment
Committee
------------------- ----------- ---------------- ------------- ------------ ---------------
John Roberts 6/6 3/3 2/2 1/1 -
------------------- ----------- ---------------- ------------- ------------ ---------------
Chris Dowling 6/6 3/3 - 1/1 -
------------------- ----------- ---------------- ------------- ------------ ---------------
Rob Holden 6/6 - - 1/1 4/4
------------------- ----------- ---------------- ------------- ------------ ---------------
Niall Mills* 6/6 - 2/2 1/1 4/4
------------------- ----------- ---------------- ------------- ------------ ---------------
Hamish Lea-Wilson 6/6 3/3 2/2 - -
------------------- ----------- ---------------- ------------- ------------ ---------------
Mike Nagle 6/6 2/3 2/2 - 4/4
------------------- ----------- ---------------- ------------- ------------ ---------------
John Lynch 6/6 3/3 2/2 1/1 -
------------------- ----------- ---------------- ------------- ------------ ---------------
Peter Emery 6/6 - - - 4/4
------------------- ----------- ---------------- ------------- ------------ ---------------
David Brocksom 6/6 - - - -
------------------- ----------- ---------------- ------------- ------------ ---------------
*At three Health, Safety and Environment Committee meetings
Hamish Lea-Wilson attended as an alternate Director in place of
Niall Mills.
*At the 24(th) October 2017 Health, Safety and Environment
Committee meeting David Brocksom attended as an alternate Director
in place of Peter Emery.
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, independence 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.
Diversity of the Board continues to be assessed on a case by
case basis as vacancies arise. This is principally a matter for the
Nominations Committee.
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 and
29.
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, defined by clear role descriptions 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 his
Executive Leadership Team that 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.
Evaluation
In September 2017, the Board undertook an internal questionnaire
based evaluation process to which there was a 100% response.
The evaluation focused on ensuring that the Board reporting is
succinct and focused and that the Board should continue to be
cognisant of the Board diversity.
During March 2018, an externally facilitated evaluation has been
undertaken by Lintstock Ltd, who have no previous connection with
the Company, with findings to be delivered to the Board in May
2018. Lintstock Ltd have been engaged to Corporate Governance
Report (continued)
Evaluation (continued)
undertake a second evaluation during 2018/19.
Training
The Chairman is responsible for ensuring that all Directors
update their skills, knowledge and familiarity of the Company.
Following feedback from the recent internally facilitated Board
evaluation, each member of the Board has been enrolled as a member
of the Non-Executive Directors Association who provide regular
training to the directors on a range of topics.
Directors regularly receive reports facilitating greater
awareness and understanding of the Company, its regulatory
environment and the industry. The Board held two workshops and a
strategy meeting during the year aimed at developing a greater
understanding of the Company's operations and to explore strategic
matters in detail.
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.
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
The three 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 four other Non-Executive Directors are appointed by the
Company's shareholders as their representatives. 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.
On his appointment, Peter Emery was a Non-Executive Director of
NG Bailey Group Limited, the Board agreed to his remaining a
Non-Executive Director with the proviso that when he is due for
re-election, this is again discussed with the Electricity North
West Board. Peter Emery is due for re-election in August 2018.
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.
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 throughout the accounts;
there are areas where compliance with the provision is either
impractical or inappropriate, outlined below.
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 (A.4.1).
Corporate Governance Report (continued)
Details of remuneration to executive directors, released to
serve as non-executive directors
The Company does not disclose the remuneration to those
Executive Directors who are released to serve as non-executive
directors elsewhere. This information is made available to the
shareholders through their representation on the Board (D.1.2).
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
(B.1.2).
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 an
Annual General Meeting (B.7.1).
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 (B.3.2).
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 (E.2.1 and E.2.4).
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. Board members are invited to attend these
meetings.
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, schools, emergency services, MPs
and central 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,
contractors and other utilities.
Our stakeholder engagement strategy is outlined on page 10.
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:
Corporate Governance Report (continued)
Audit Committee
=================================
Remuneration Committee
=================================
Nominations Committee
=================================
Health, Safety and Environment
Committee
=================================
Use of Systems Pricing Committee
=================================
Financing Committee
=================================
Banking Committee
==========================
Retail Property Committee
==========================
The minutes of each Committee are made available to the
Board.
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.
The terms of reference and membership of all those Committees in
green were reviewed and amended during the year to ensure effective
operation.
The minutes of each Committee meeting are made available to the
entire Board.
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.
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 30.
There were a number of regular attendees by invitation at
appropriate Committee meetings in whole in part, including the
Chief Executive Officer, the Chief Financial Officer, the Head of
Risk, Control and Assurance 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 and compliance with the UK Corporate Governance
Code, including an annual review of the Company's risk
register.
-- 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.
Corporate Governance Report (continued)
The role of the Committee (continued)
The significant matters considered by the Committee during the
year included:
-- Review of the 31 March 2017 Annual Report and Consolidated
Financial Statements and the September 2017 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. A new lead engagement partner was
appointed this year due to his predecessor completing her five year
term.
The significant issues considered by the Committee during the
approval of the 2017/18 financial statements were:
-- Capital and revenue allocations and ensuring the appropriate
treatment of fixed asset expenditure. The Committee considered the
management's key controls and assumptions applied to the
capitalisation of overheads
costs. The assumptions, policies and procedures in this area were considered reasonable.
-- 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.
-- 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.
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
audit is the seventeenth 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 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.
Corporate Governance Report (continued)
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 LLP
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 in connection to Ofgem regulatory requirements.
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 23 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. A revised
policy was approved by the Committee in January 2018. 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.
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:
-- 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 42.
Corporate Governance Report (continued)
Report of the Nominations Committee
The role and responsibilities of the Committee are set out in
its Terms of Reference and these are available on the Electricity
North West website. The Committee's responsibilities include
keeping under review the composition of the Board and senior
executive, identifying and nominating candidates for approval by
the Board to fill any vacancies and succession planning for
Directors and other senior executives.
Membership and meetings
Composition of the Committee and attendance by individual
members at meetings is detailed on page 30.
The Chief Executive Officer and external advisors attend
meetings at the invitation of the Chairman of the Committee.
Diversity
As described in the Corporate Governance report on page 31, 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.
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 and the Chief Financial Officer. They
do not attend for any discussions in which they are individually
discussed.
Membership and meetings
Composition of the Committee and attendance by individual
members is detailed on page 30.
Role of the Committee
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.
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 ensure 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 Report (continued)
The table below sets 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 and will 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) Executive Directors are members of the The EIP works on a balanced scorecard
Executive Incentive Plan which was approach, containing short-term metrics
introduced in April to evaluate
2015 to reward both in-year performance in- year performance and longer-term
and incentivise strategic and innovative measures promoting a strategic focus and
behaviours sustainable
over the longer term, aligned to performance.
shareholder objectives. Partial payments are made each year
based on achievement against the
balanced scorecard, with
additional payments made in years 4 and
8 to ensure the balance of short and
long-term incentivisation
is retained.
Following Health & Safety best practice,
Safety is considered to be an essential
part of any
role and Directors therefore receive no
Health & Safety related incentives.
However a range
of safety performance measures act as a
gateway to earn bonuses.
Pension Directors are offered the same level of No Director is a member of the defined
defined contribution benefits as all benefit scheme which is now closed to
other employees, new members.
or a taxable payment in lieu.
------------------------------- ------------------------------------------ -----------------------------------------
Corporate Governance Report (continued)
Report of the Health, Safety & Environment Committee
The Committee continues to develop the Company's health, safety
and environment strategies, 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 work with other organisations.
Membership and meetings
Composition of the Committee and attendance by individual
members is detailed on page 30.
The Committee's terms of reference and membership were revised
in March 2018.
Meetings are also attended by executives in charge of
operationally focussed directorates.
The role of the Committee
The Committee has designated authority from the Board set out in
its Terms of Reference which is published on the Electricity North
West 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.
At each meeting the Committee reviews Health and Safety risks
recorded on the Company's risk register.
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 2018.
Dividends
In the year ended 31 March 2018 the Company declared interim
dividends of GBP64m, which were paid in December 2017 (31 March
2017: GBP63m). The final dividend for the year ended 31 March 2017
of GBP12m was paid in June 2017. At the Board meeting in May 2018
the Directors proposed a final dividend of GBP16m for the year
ended 31 March 2018.
Details of the Group's dividend policy can be found in the
Strategic Report.
Directors
The Directors of the Company during the year ended 31 March 2018
are set out below. Directors served for the whole year except where
otherwise indicated.
Executive Directors
P Emery
D G Brocksom
Non-executive Directors
Dr J Roberts
N P Mills
M A Nagle
J E Lynch
C Dowling
H Lea-Wilson
R D Holden
Alternate Directors during the year were:
T Pedraza
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. The insurance is a group policy, held in the name of
NWEN (Jersey) and is for the benefit of that company and all its
subsidiaries.
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. During the year ended 31 March 2018 the
Group incurred GBP3.4m of expenditure on research and developments
(2017: GBP3.9m).
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 20 to the financial statements.
Fixed assets
Further details on Property, Plant and Equipment are provided in
the Strategic Report and note 13 to the Financial Statements.
Directors' Report (continued)
Capital structure
The Company's capital structure is set out in note 28 to the
Financial Statements.
Commitments
Details of commitments and contractual obligations are provided
in notes 12, 13, 20 and 32 of the Financial Statements.
Future developments
Details of the future developments of the Group can be found in
the Chief Executive Officer's Statement.
Information given to the 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 is deemed to be re-appointed as
auditor of the Company.
Registered address
The Company is registered in England, UK at the following
address:
Electricity North West Limited
304 Bridgewater Place
Birchwood Park
Warrington
England, UK
WA3 6XG
Registered number: 02366949
Approved by the Board on 30 May 2018 and signed on its behalf
by:
D Brocksom
Director
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 and parent company financial
statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (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 30 May 2018 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 Ltd
=============================================================================
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 2018 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 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements of Electricity North
West Limited (the 'parent company') and its subsidiaries (the
'group') which comprise:
* the consolidated income statement;
* the consolidated and company statements of
comprehensive income;
* the consolidated and company balance sheets;
* the consolidated and company statements of changes in
equity;
* the consolidated and company cash flow statements;
* the statement of accounting policies; 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.
Basis for opinion
=======================================================================
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor's
responsibilities for the audit of the financial statements section
of our report.
We are independent of the group and the parent company in accordance
with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC's Ethical
Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. We confirm that the non-audit services
prohibited by the FRC's Ethical Standard were not provided to
the group or the parent company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Summary of our audit approach
==========================================================
The key audit matters that we identified in the
current year, which are consistent with the prior
year, were:
* Treasury - accounting
* Pensions - defined benefit scheme liability
assumptions
* Inappropriate capitalisation of costs.
========================================================
The materiality that we used for the group financial
statements was GBP4.31m which was determined on
the basis of 3.9% of adjusted profit before tax
(see materiality section for more details).
========================================================
All audit work for the group was performed directly
by the group engagement team.
========================================================
Our approach is consistent with the previous year.
========================================================
Conclusions relating to going concern
We are required by ISAs (UK) to report We have nothing to
in respect of the following matters where: report in respect of
* the directors' use of the going concern basis of these matters.
accounting in preparation of the financial statements
is not appropriate; or
-- the directors have not disclosed in
the financial statements any identified
material uncertainties that may cast significant
doubt about the group's or the parent company's
ability to continue to adopt the going
concern basis of accounting for a period
of at least twelve months from the date
when the financial statements are authorised
for issue.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Key audit matters
==============================================================================
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts
of the engagement team.
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
==============================================================================
Key audit matter Treasury is a complex area and includes the accounting
description for material financial instruments including index-linked
swaps and bonds. Due to the complexity of the accounting
there is a risk that these instruments are incorrectly
valued, accounted for or disclosed in the financial
statements which may result in a material error.
As at 31 March 2018 ENWL had GBP705.6m of bonds
in issue (2017: GBP724.4m) as disclosed in note
19 to the financial statements, and held derivative
financial instruments, being a portfolio of index-linked
swaps, with a fair value of GBP357.3m (2017: GBP363.5m)
as disclosed in note 20. Total fair value movements
in the year were GBP30.1m gain (2017: GBP106.2m
loss) as per note 9 to the financial statements.
See also the Audit Committee's Report on page 34
where treasury accounting is discussed as a significant
issue, the accounting policy on financial instruments
in note 2 to the financial statements and the associated
critical accounting judgement and key sources of
estimation uncertainty in note 3.
================= ===========================================================
How the scope Initially the design and implementation of the
of our audit key control around the inputs used within the calculation
responded to of the fair value of derivatives was assessed.
the key audit Due to the complexity of the financial instruments
matter held in the group our audit team includes financial
instrument specialists.
We tested a sample of valuations in respect of
the index-linked swaps held by the group, including
an assessment of the application of credit risk
under IFRS 13. In addition we recalculated the
carrying value of the bonds held at both amortised
cost and at fair value through profit and loss,
along with the associated amortisation and interest
charges as the bonds unwind to maturity.
We have challenged management by reviewing the
inputs into the valuation model and agree that
certain derivatives should be classified as Level
3. In addition our review of the financial statements
assessed whether the disclosures made in note 20
are consistent with the requirements of IFRS 13
and IFRS 7.
================= ===========================================================
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Key observations From the work performed we are satisfied that the
valuation of the Group's portfolio of bonds and
index-linked swaps is materially correct. In addition
we note that the index-linked swaps are appropriately
disclosed as Level 2 and Level 3 in the financial
statements.
================= ===========================================================
Key audit matter The key audit matter concerns the appropriateness
description of the actuarial assumptions, for example assumptions
around the discount rate, mortality and inflation,
used in calculating the Group's defined benefit
liability of GBP18.2m(2017: GBP58.0m) as shown
in note 21. The valuation of the Group's IAS 19
liability involves significant judgement, in particular
in the choice of discount rate used. This is because
a small movement in the discount rate can have
a large impact on the funded status of the pension
deficit.
See also the Audit Committee's Report on page 34
where pension accounting is discussed as a significant
matter, the accounting policy on retirement benefit
schemes in note 2 to the financial statements and
the associated critical accounting judgement and
key sources of estimation uncertainty in note 3.
================= ===========================================================
How the scope Initially the design and implementation of the
of our audit key control around the assumptions used within
responded to the pension obligation was assessed, specifically
the key audit around the discount rate assumption.
matter We have assessed the appropriateness of the assumptions
underpinning the valuation of the schemes liabilities.
Specifically we challenged the discount rate, and
other key assumptions including inflation and mortality,
by using our internal pension specialists to benchmark
the assumptions applied against comparable third-party
data and to assess the appropriateness of the assumptions
in the context of the Group's own position.
================= ===========================================================
Key observations From the work performed we are satisfied that the
assumptions applied in respect of the valuation
of the Group's IAS 19 liabilities are materially
correct. The assumptions, when taken together as
a whole, are in the middle of our benchmarked range.
================= ===========================================================
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Key audit matter This key audit matter relates to the judgmental
description percentage rates applied to employee costs initially
recorded as overhead expenditure and subsequently
capitalised into fixed assets. In particular we
focus on those judgmental areas, for example engineers
and electricians whose time is split between capital
projects and repair and maintenance on the network.
Given the significant level of judgement involved,
we considered this a potential fraud risk area.
The effect of inappropriate capitalisation of costs
from a financial statement perspective is that
items which are capital in nature are expensed,
whilst items which are expenditure in nature are,
conversely, capitalised. Given the magnitude of
overheads capitalised in the business the impact
could be material. Total employee costs are GBP115.6m
in the year (2017: GBP105.0m), of which GBP64.1m
(2017: GBP58.1m) has been capitalised directly
to fixed assets.
See also the Audit Committee's Report on page 34
where overhead absorption is discussed as a significant
issue, the accounting policy for tangible fixed
assets in note 2 to the financial statements and
the associated critical accounting judgement and
key sources of estimation uncertainty in note 3.
================= ================================================================
How the scope Initially, we have assessed the design and implementation
of our audit of the key control around the input of the stated
responded to percentages used and the subsequent calculation
the key audit was assessed.
matter We have reviewed the Company's assumptions, policies
and procedures with regards to overhead absorption
and compared these to the balances capitalised.
In respect of overhead absorption we have considered
the relative percentage capitalisation by function/operational
area in the business and challenged the key assumptions
made by management including testing on a sample
basis to appropriate support.
As part of our audit of tangible fixed assets we
tested a sample of additions to consider whether
those items are capital in nature. A sample of
capital projects were reviewed in detail, with
discussions and supporting documentation obtained
from project managers in order to better understand
those projects and determine the specific nature
of the spend and method of overhead absorption.
================= ================================================================
Key observations From the work performed we are satisfied that the
assumptions made in respect of the rates of overhead
absorption applied in the business are reasonable.
================= ================================================================
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Our application of materiality
===================================================================
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group materiality GBP4.31m, Parent Company-only
materiality GBP4.3m
=================================================================
3.9% of adjusted profit before tax for the group
and parent company financial statements. We adjusted
profit before tax to add back the volatile fair
value movements on derivatives and the mark to
market bond which the group do not formally apply
hedge accounting to. This removes any volatility
from fair value movements and allows a more stable
basis for the determination of our materiality.
=================================================================
Adjusted profit before tax is determined to be
a key metric used by users of the financial statements
of regulated utilities.
=================================================================
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP82,000 (2017:
GBP82,000) for the group, 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 the non-dormant
entity within the group, we performed an audit covering 100%
of the group's companies and accordingly our audit work achieved
coverage of 100% of the group's total assets, revenue and profit.
Component materiality level was GBP4.3m.
We have also tested the consolidation process.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Other information
The directors are responsible for the other information. We have nothing
The other information comprises the information to report in
included in the annual report, other than the respect of
financial statements and our auditor's report these matters.
thereon.
Our opinion on the financial statements does not
cover the other information and, except to the
extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider whether
the other information is materially inconsistent
with the financial statements or our knowledge
obtained in the audit or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or
apparent material misstatements, we are required
to determine whether there is a material misstatement
in the financial statements or a material misstatement
of the other information. If, based on the work
we have performed, we conclude that there is a
material misstatement of this other information,
we are required to report that fact.
Responsibilities of directors
==========================================================================
As explained more fully in the directors' responsibilities statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible
for assessing the group's and the parent company's ability to
continue as a going concern, disclosing as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have
no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
==========================================================================
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Use of our report
===================================================================
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for
the opinions we have formed.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
* the information given in the strategic report and the
directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the strategic report and the directors' report have
been prepared in accordance with applicable legal
requirements.
In the light of the knowledge and understanding of the group
and of the parent company and their environment obtained in
the course of the audit, we have not identified any material
misstatements in the strategic report or the directors' report.
Matters on which we are required to report by exception
===========================================================================================
Adequacy of explanations received and accounting
records We have nothing to
Under the Companies Act 2006 we are required report in respect of
to report to you if, in our opinion: these matters.
* 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.
Directors' remuneration
Under the Companies Act 2006 we are also We have nothing to
required to report if in our opinion certain report in respect of
disclosures of directors' remuneration have this matter.
not been made.
Independent Auditor's Report to the Members of Electricity North
West Limited (continued)
Other matters
=================================================================
Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the Shareholders in 2002 to audit the financial
statements for the year ending 31 March 2002 and subsequent
financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is
17 years, covering the years ending 31 March 2002 to 31 March
2018.
Consistency of the audit report with the additional report to
the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance
with ISAs (UK).
Chris Robertson (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Manchester, United Kingdom
30 May 2018
Financial Statements
Consolidated and Company Income Statement
for the year ended 31 March 2018
Note Group and Group and
Company Company
2018 2017
GBPm GBPm
Revenue 4 430.2 485.5
--------------------------------- ---- --------- ----------
Employee costs 5,6 (51.5) (46.9)
Depreciation and amortisation
expense (net) 5 (103.3) (99.3)
Other operating costs (92.1) (79.9)
Total operating expenses (246.9) (226.1)
Operating profit 5 183.3 259.4
Investment income 8 1.0 0.7
Finance expense (net) 9 (43.0) (179.1)
Profit before taxation 141.3 81.0
Taxation 10 (25.0) (10.0)
Profit for the year attributable
to equity shareholders 27 116.3 71.0
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 2018
Group and Group and
Company Company
2018 2017
Note GBPm GBPm
Profit for the year 116.3 71.0
-------------------------------------- ---- --------- ---------
Items that will not be reclassified
subsequently to profit or loss:
Re-measurement of defined benefit
pension schemes 21 27.1 (52.1)
Deferred tax on re-measurement
of defined benefit pension schemes
taken directly to equity 23 (4.6) 8.9
Adjustment due to change in future
tax rates of brought forward
deferred tax taken directly to
equity 23 - (1.0)
====================================== ==== ========= =========
Other comprehensive income/ (expense)
for the year 22.5 (44.2)
====================================== ==== ========= =========
Total comprehensive income/ (expense)
for the year attributable to
equity holders 138.8 26.8
-------------------------------------- ---- --------- ---------
Consolidated and Company Statement of Financial Position
as at 31 March 2018
Group Company Group Company
Note 2018 2018 2017 2017
ASSETS GBPm GBPm GBPm GBPm
Non-current assets
Intangible assets and goodwill 12 49.6 49.6 45.5 45.5
Property, plant and equipment 13 3,137.9 3,137.9 3,037.3 3,037.3
Investments 14 - 15.4 - 15.4
----------------------------------- ----- --------- --------- --------- ----------
3,187.5 3,202.9 3,082.8 3,098.2
----------------------------------- ----- --------- --------- --------- ----------
Current assets
Inventories 15 10.5 10.5 9.6 9.6
Trade and other receivables 16 63.4 63.4 60.5 60.5
Money market deposits 17,20 - - 10.0 10.0
Cash and cash equivalents 17,20 87.0 87.0 142.7 142.7
160.9 160.9 222.8 222.8
----------------------------------- ----- --------- --------- --------- ----------
Total assets 3,348.4 3,363.8 3,305.6 3,321.0
----------------------------------- ----- --------- --------- --------- ----------
LIABILITIES
Current liabilities
Trade and other payables 18 (142.6) (158.3) (142.7) (158.4)
Current income tax liabilities (13.5) (13.5) (8.2) (8.2)
Borrowings 19 (6.6) (6.6) (6.4) (6.4)
Provisions 22 (0.8) (0.8) (1.1) (1.1)
(163.5) (179.2) (158.4) (174.1)
----------------------------------- ----- --------- --------- --------- ----------
Net current (liabilities)/assets (2.6) (18.3) 64.4 48.7
----------------------------------- ----- --------- --------- --------- ----------
Non-current liabilities
Borrowings 19 (1,230.7) (1,230.7) (1,242.7) (1,242.7)
Derivative financial instruments 20 (357.3) (357.3) (363.5) (363.5)
Provisions 22 (2.3) (2.3) (2.9) (2.9)
Retirement benefit obligations 21 (18.2) (18.2) (58.0) (58.0)
Deferred tax 23 (136.0) (136.0) (126.7) (126.7)
Customer contributions 24 (612.6) (612.6) (588.8) (588.8)
(2,357.1) (2,357.1) (2,382.6) (2,382.6)
----------------------------------- ----- --------- --------- --------- ----------
Total liabilities (2,520.6) (2,536.3) (2,541.0) (2,556.7)
----------------------------------- ----- --------- --------- --------- ----------
Total net assets 827.8 827.5 764.6 764.3
----------------------------------- ----- --------- --------- --------- ----------
EQUITY
Called up share capital 26 238.4 238.4 238.4 238.4
Share premium account 27 4.4 4.4 4.4 4.4
Revaluation reserve 27 90.3 90.3 92.5 92.5
Capital redemption reserve 27 8.6 8.6 8.6 8.6
Retained earnings 27 486.1 485.8 420.7 420.4
----------------------------------- ----- --------- --------- --------- ----------
Total equity 827.8 827.5 764.6 764.3
----------------------------------- ----- --------- --------- --------- ----------
The financial statements of Electricity North West Limited
(registered number 2366949) were authorised for issue and approved
by the Board of Directors on 30 May 2018 and signed on its behalf
by:
D Brocksom
Director
Consolidated Statement of Changes in Equity
for the year ended 31 March 2018
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 2016 238.4 4.4 93.5 8.6 473.9 818.8
Profit for the year - - - - 71.0 71.0
Transfer from
revaluation reserve - - (1.0) - 1.0 -
Other comprehensive
income/ (expense)
for the year - - - - (44.2) (44.2)
Total comprehensive
income/ (expense)
for the year - - (1.0) - 27.8 26.8
Transactions with
owners recorded
directly in equity
Equity dividends
(note 11,27) - - - - (81.0) (81.0)
---------------------- ---------- --------- ------------ ------------ ---------- --------
At 31 March 2017 238.4 4.4 92.5 8.6 420.7 764.6
Profit for the year - - - - 116.3 116.3
Transfer from
revaluation reserve - - (2.2) - 2.2 -
Other comprehensive
income/ (expense)
for the year - - - - 22.5 22.5
Total comprehensive
income/ (expense)
for the year - - (2.2) - 141.0 138.8
---------------------- ---------- --------- ------------ ------------ ---------- --------
Transactions with
owners recorded
directly in equity
Equity dividends
(note 11,27) - - - - (75.6) (75.6)
---------------------- ---------- --------- ------------ ------------ ---------- --------
At 31 March 2018 238.4 4.4 90.3 8.6 486.1 827.8
---------------------- ---------- --------- ------------ ------------ ---------- --------
Company Statement of Changes in Equity
for the year ended 31 March 2018
Company
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 2016 238.4 4.4 93.5 8.6 473.6 818.5
Profit for the year - - - - 71.0 71.0
Transfer from
revaluation reserve - - (1.0) - 1.0 -
Other comprehensive
income/ (expense)
for the year - - - - (44.2) (44.2)
Total comprehensive
income/ (expense)
for the year - - (1.0) - 27.8 26.8
Transactions with
owners recorded
directly in equity
Equity dividends
(note 11,27) - - - - (81.0) (81.0)
---------------------- ---------- --------- ------------ ------------ ---------- --------
At 31 March 2017 238.4 4.4 92.5 8.6 420.4 764.3
Profit for the year - - - - 116.3 116.3
Transfer from
revaluation reserve - - (2.2) - 2.2 -
Other comprehensive
income/ (expense)
for the year - - - - 22.5 22.5
Total comprehensive
income/ (expense)
for the year - - (2.2) - 141.0 138.8
---------------------- ---------- --------- ------------ ------------ ---------- --------
Transactions with
owners recorded
directly in equity
Equity dividends
(note 11,27) - - - - (75.6) (75.6)
---------------------- ---------- --------- ------------ ------------ ---------- --------
At 31 March 2018 238.4 4.4 90.3 8.6 485.8 827.5
---------------------- ---------- --------- ------------ ------------ ---------- --------
Consolidated and Company Statement of Cash Flows
for the year ended 31 March 2018
Group Company Group Company
Note 2018 2018 2017 2017
GBPm GBPm GBPm GBPm
Operating activities
Cash generated from operations 31 239.0 239.0 348.1 348.1
Interest paid (47.2) (47.2) (46.3) (46.3)
Tax paid (15.1) (15.1) (32.3) (32.3)
---------------------------------- ---- ------- --------- ------- ---------
Net cash generated from operating
activities 176.7 176.7 269.5 269.5
---------------------------------- ---- ------- --------- ------- ---------
Investing activities
Interest received and similar
income 1.0 1.0 0.8 0.8
Purchase of property, plant
and equipment (200.3) (200.3) (194.3) (194.3)
Purchase of intangible assets (9.5) (9.5) (10.1) (10.1)
Customer contributions received 44.0 44.0 45.5 45.5
Proceeds from sale of
property, plant and equipment 0.2 0.2 0.1 0.1
---------------------------------- ---- ------- --------- ------- ---------
Net cash used in investing
activities (164.6) (164.6) (158.0) (158.0)
Net cash flow before financing
activities 12.1 12.1 111.5 111.5
Financing activities
Proceeds from borrowings 2.5 2.5 0.4 0.4
Repayment of borrowings (6.5) (6.5) (4.8) (4.8)
Accretion on index linked
swaps (8.8) (8.8) (16.2) (16.2)
Movement in cash collateral
held 10.6 10.6 - -
Transfer from money market
deposits 10.0 10.0 13.5 13.5
Dividends paid to equity
shareholders of the Company (75.6) (75.6) (81.0) (81.0)
---------------------------------- ---- ------- --------- ------- ---------
Net cash used in financing
activities (67.8) (67.8) (88.1) (88.1)
---------------------------------- ---- ------- --------- ------- ---------
Net increase/(decrease) in
cash and cash equivalents (55.7) (55.7) 23.4 23.4
---------------------------------- ---- ------- --------- ------- ---------
Cash and cash equivalents
at the beginning of the year 17 142.7 142.7 119.3 119.3
---------------------------------- ---- ------- --------- ------- ---------
Cash and cash equivalents
at the
end of the year 17 87.0 87.0 142.7 142.7
---------------------------------- ---- ------- --------- ------- ---------
Notes to the Financial Statements
Electricity North West Limited is a company incorporated in the
United Kingdom under the Companies Act 2006.
1. Adoption of new and revised Standards
Amendments to IFRSs that are mandatorily effective for the
current year
The Group has adopted the amendments to IFRSs included in the
Annual Improvements to IFRSs 2014-2016 Cycle for the first time in
the current year. The adoption of these amendments has had no
effect on the Group's consolidated financial statements.
Amendments to IAS The Group has adopted the amendments to IAS
7 Disclosure Initiative 7 for the first time in the current year. The
amendments require an entity to provide disclosures
that enable users of financial statements to
evaluate changes in liabilities arising from
financing activities, including both cash and
non-cash changes. The Group's liabilities arising
from financing activities consist of borrowings
(note 19) and certain derivatives (note 20).
A reconciliation between the opening and closing
balances of these items is provided in note
20. Apart from the additional disclosure in
note 20, the application of these amendments
has had no impact on the Group's consolidated
financial statements.
Amendments to IAS The Group has adopted the amendments to IAS
12 Recognition of 12 for the first time in the current year. The
Deferred Tax Assets amendments clarify how an entity should evaluate
for Unrealised Losses whether there will be sufficient future taxable
profits against which it can utilise a deductible
temporary difference. The application of these
amendments has had no impact on the Group's
consolidated financial statements as the Group
already assesses the sufficiency of future taxable
profits in a way that is consistent with these
amendments.
Annual Improvements The Group has adopted the amendments to IFRS
to IFRSs 2014-2016 12 included in the Annual Improvements to IFRSs
Cycle 2014-2016 Cycle for the first time in the current
year. The other amendments included in this
package are not yet mandatorily effective and
they have not been early adopted by the Group.
IFRS 12 states that an entity need not provide
summarised financial information for interests
in subsidiaries, associates or joint ventures
that are classified (or included in a disposal
group that is classified) as held for sale.
The amendments clarify that this is the only
concession from the disclosure requirements
of IFRS 12 for such interests.
Notes to the Financial Statements (continued)
1. Adoption of new and revised Standards (continued)
New and revised IFRSs in issue but 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, in some cases, had not yet been adopted by the
EU):
IFRS 16: Leases
IFRS 17: Insurance Contracts
IFRS 2 (amendments): Classification and Measurement of
Share-based Payment Transactions
IFRS 4 (amendments): Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts
IFRS 40 (amendments): Transfers of Investment Property
IAS 7 (amendments): Disclosure Initiative
IAS 12 (amendments): Recognition of Deferred Tax Assets for
Unrealised Losses
IFRS 10 and IAS 28 (amendments): Sale or Contribution of Assets
between an Investor and
its Associate or Joint Venture
Annual Improvements to IFRSs 2014-2016 Cycle: Amendments to IFRS
1 First-time Adoption
of International Financial Reporting Standards and IFRS 28
Investments in Associates
and Joint Ventures
IFRIC 22: Foreign Currency Transactions and Advanced
Consideration
IFRIC 23: Uncertainty over Income Tax Treatments
The Group intends to adopt these standards, as applicable, when
they become effective. It is not expected that they will have a
material impact on the financial statements of the Group. Detailed
considerations of the effect of adopting IFRS 9 and IFRS 15, in
particular, have been had by management and are summarised
below.
IFRS 9: Financial Instruments
The effective date of IFRS 9 is for accounting periods beginning
on or after 1 January 2018; the Group will, therefore, apply IFRS 9
in the year ending 31 March 2019. The Group will elect not to
restate comparatives on initial application of IFRS 9. The full
impact of adopting IFRS 9 on the Group's consolidated financial
statements will depend on the financial instruments that the Group
will have during the year ending 31 March 2019, as well as economic
conditions and judgements made at that year end. The Group has
performed a preliminary assessment of potential impact of adopting
IFRS 9 based on the financial instruments and hedging relationships
as at 31 March 2018. The Group does not anticipate that the
application of IFRS 9 will have a material impact on amounts
reported in respect of the Group's financial assets and financial
liabilities.
Notes to the Financial Statements (continued)
2. Significant accounting policies
New and revised IFRSs in issue but not yet effective
(continued)
IFRS 15: Revenue from Contracts with Customers
The effective date of IFRS 15 is for accounting periods
beginning on or after 1 January 2018; the Group will, therefore,
apply IFRS 15 in the year ending 31 March 2019. The Group intends
to adopt the modified retrospective approach without restatement of
comparatives.
IFRS 15 establishes a single comprehensive model for entities to
use in accounting for revenue arising from contracts with
customers. The core principle of IFRS 15 is that an entity should
recognise revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. Under IFRS 15, an entity recognises revenue when
(or as) a performance obligation is transferred to the
customer.
The main impact of IFRS 15 for the Group is with regards to the
customer contributions in respect of connections contracts which
are currently accounted for under IFRIC 18. We have reviewed the
main characteristics of the connections contracts that we have with
customers to evaluate the potential impact of IFRS 15. The impact
of adopting IFRS 15 is not expected to be material for the
Group.
Notes to the Financial Statements (continued)
2. Significant accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
been applied consistently in the current year and the prior
year.
Basis of accounting
The financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') adopted by the
European Union ('EU') and Article 4 of the IAS Regulation and have
chosen to prepare the financial statements of the Company under
IFRS as adopted by the EU.
The financial statements have been prepared on the historical
cost basis, except for financial instruments that are measured at
fair value, and certain property, plant and equipment that were
revalued in 1997. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and
services. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. More details on the fair value
measurements of financial instruments are given in note 20.
The financial statements are presented in sterling, which is the
functional currency of the Company and Group. All values are
rounded to the nearest million pounds (GBPm) unless otherwise
indicated.
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
date the Company gains control until the date the Company ceases to
control the subsidiary. There have been no such acquisitions or
disposals in the current or prior year.
Accounting policies are consistent in all Group companies.
All intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between Group members are
eliminated on consolidation.
Going concern
The Directors have, at the time of approving the financial
statements, 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. Further detail is contained in the Strategic
Report.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Business combinations and goodwill
Acquisitions of subsidiaries are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition-date fair values of assets transferred by
the Group, liabilities incurred by the Group to the former owners
of the acquiree and the equity interest issued by the Group in
exchange for control of the acquiree. Acquisition related costs are
recognised in profit or loss as incurred.
Goodwill is measured as the excess of the consideration
transferred over the net of the acquisition-date amounts of the
identifiable assets acquired and liabilities assumed, and is
recognised as an asset. If, after reassessment, the net of the
acquisition-date amounts of the identifiable assets acquired and
liabilities assumed exceeds the consideration transferred, the
excess is recognised immediately in profit or loss.
Goodwill is allocated to cash-generating units and is not
amortised but reviewed for impairment annually, or more frequently
when there is an indication that it may be impaired.
Investments (Company only)
Investments in subsidiary undertakings are stated at cost less
any provisions for permanent diminution in value. Dividends
received and receivable are credited to the Company's income
statement to the extent that they represent a realised profit for
the Company.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable primarily for the distribution of
electricity in the normal course of business, net of VAT.
The recognition of revenue from the distribution of electricity
includes an assessment of the volume of unbilled energy distributed
as at 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.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
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.
Dividend income
Dividend income is recognised when the Company's right to
receive payment is established.
Investment income
Interest income is recognised when it is probable that the
economic benefits will flow to the Group and the amount of the
revenue can be measured reliably. It is accrued on a time basis, by
reference to the principal outstanding and the effective interest
rate.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Operating lease rentals are charged to the Income Statement on a
straight-line basis over the period of the lease.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets are added to the
cost of those assets. 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.
All other borrowing costs are recognised in profit or loss in
the period in which they are incurred.
Operating profit
Operating profit is stated after charging operating expenses but
before investment income, net finance expense and other gains and
losses.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Retirement benefit costs
Payments to the defined contribution retirement benefit scheme
are recognised as an expense when employees have rendered service
entitling them to the contributions.
The defined benefit retirement benefit scheme is 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 2016; agreed actuarial
valuations are carried out thereafter at intervals of not more than
three years.
Results are affected by the actuarial assumptions used, which
are disclosed in note 21. 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 costs are split into three categories:
-- current service cost, past service cost and gains and losses
on curtailments and settlements, recognised in employee costs (see
note 6) in the Consolidated Income Statement;
-- net interest expense or income, recognised within finance costs (see note 9); and
-- re-measurement comprising actuarial gains and losses and the
return on scheme assets (excluding interest) are recognised
immediately in the balance sheet with a charge or credit to the
statement of comprehensive income in the period in which they
occur.
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.
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)
2. Significant accounting policies (continued)
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 is based on taxable profit for the year and is
calculated using tax rates and laws that have been enacted or
substantively enacted by the balance sheet 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 and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of 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 calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset is
realised based on tax rates and laws that have been enacted or
substantively enacted at the balance sheet date.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is charged
or credited in the Income Statement, except when it relates to
items charged or credited in other comprehensive income, in which
case the deferred tax is also dealt with in other comprehensive
income.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Intangible assets
Intangible assets with finite useful economic lives are measured
initially at cost and are amortised on a straight-line basis over
their estimated useful lives. The carrying amount is reduced by any
provision for impairment where necessary.
Amortisation periods for categories of intangible assets
are:
Computer software 1-12 years
Intangible assets under construction are not amortised.
Amortisation commences from the date the intangible asset is
available for use.
The Licence has an indefinite useful economic life and,
therefore, is tested annually for impairment.
Property, plant and equipment
Property, plant and equipment comprise operational structures,
non-operational land and buildings, fixtures and equipment,
vehicles and other 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, as
result of the revaluation, is transferred from the revaluation
reserve to retained earnings on an annual basis.
Assets other than operational structures
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 until the asset is available for use.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Property, plant and equipment (continued)
Assets other than operational structures (continued)
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 2-40 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.
Impairment of tangible and intangible fixed assets
Tangible and intangible assets are reviewed for impairment at
each balance sheet date to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated to determine the extent of the impairment loss, if any.
Where the asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
An intangible asset with an indefinite life is tested for
impairment at least annually and whenever there is an indication of
impairment.
The recoverable amount is the higher of fair value less costs of
disposal, and value in use. Value in use represents the net present
value of expected future cash flows, discounted on a pre-tax basis
using a 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.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in
profit or loss.
Where an impairment loss subsequently reverses, the reversal is
recognised immediately in profit or loss and the carrying amount of
the asset is increased to the revised estimate of its recoverable
amount, but not so as to exceed the carrying amount that would have
been determined had no impairment loss been recognised in prior
years.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Research and development
Research costs are recognised in the Income Statement as
incurred. Development expenditure on an individual project is
recognised as an intangible asset when the Group can demonstrate:
the technical feasibility of completing the intangible asset so
that it will be available for use, its intention to complete and
its ability to use the asset, how the asset will generate future
economic benefits, the availability of resources to complete the
asset and the ability to reliably measure the expenditure incurred
during development.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is based on weighted average cost and includes
expenditure incurred in acquiring the inventories, conversion costs
and other costs in bringing them to their present location and
condition. Net realisable value represents the estimated selling
price, net of estimated costs of selling.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs, directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss, are
recognised immediately in profit or loss.
If the transaction price differs from fair value at initial
recognition, the Group will account for such difference as
follows:
-- if fair value is evidenced by a quoted price in an active
market for an identical asset or liability or based on a valuation
technique that uses only data from observable markets, then the
difference is recognised as a gain or loss on initial recognition
(i.e. day 1 profit or loss);
-- in all other cases, the fair value will be adjusted to bring
it in line with the transaction price (i.e. day 1 profit or loss
will be deferred by including it in the initial carrying amount of
the asset or liability).
After initial recognition, the deferred gain or loss will be
released to profit or loss such that it reaches a value of zero at
the time when the contract can be valued using active market quotes
or verifiable objective market information. The Group policy for
the amortisation of day 1 gain or loss is to release it in a
reasonable fashion based on the facts and circumstances (e.g. using
a straight line amortisation).
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
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Financial assets (continued)
fair value through profit or loss when the transactions costs
are recognised immediately in profit or loss.
Financial assets are classified into the relevant categories, as
specified in IAS 39. The classification depends on the nature and
purpose of the financial assets and is determined at the time of
initial recognition. The financial assets held by the Group are
either financial assets 'at fair value through profit or loss'
(FVTPL) or 'loans and receivables'.
Financial assets at FVTPL
The financial assets held by the Group classified as at FVTPL
are derivatives and are stated at fair value, with any gains or
losses arising on re-measurement recognised in profit or loss. Fair
value is determined in the manner described in note 20.
Loans and receivables
Trade receivables, loans and other receivables that have fixed
or determinable payments that are not quoted in an active market
are classified as 'loans and receivables' and are measured at
amortised cost using the effective interest method, less any
impairment. Interest income is recognised by applying the effective
interest rate.
Trade receivables
Trade receivables are stated at nominal value with any
allowances made for any estimated irrecoverable amounts.
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.
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.
Effective interest method
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.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Financial assets (continued)
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for
indicators of impairment at each balance sheet date. Financial
assets are impaired where there is objective evidence that, as a
result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows
of the investment have been affected.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in
profit or loss.
Derecognition of financial assets
The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity.
On derecognition of a financial asset, the difference between
the asset's carrying amount and the sum of the consideration
received and receivable is recognised in profit or loss.
Financial liabilities and equity
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recognised
at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial
liabilities 'at FVTPL' or 'other financial liabilities'.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Financial liabilities and equity (continued)
Financial liabilities at FVTPL
The financial liabilities held by the Group classified as at
FVTPL are either derivatives or those designated as at FVTPL and
are stated at fair value, with any gains or losses arising on
re-measurement recognised in profit or loss. Fair value is
determined in the manner described in note 20.
The Group elects to designate a financial liability at inception
as at FVTPL on the basis that it meets the conditions specified in
IAS 39 'Financial Instruments: Recognition and Measurement'. The
GBP250m 8.875% 2026 bond was designated as at FVTPL upon initial
recognition as the complexity of the associated swaps at that time
meant that the criteria to allow hedge accounting was not met.
Other financial liabilities
Other financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective
interest method, with interest expense recognised on an effective
yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. 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, to the net carrying amount on
initial recognition.
Trade payables
Trade payables are stated at their nominal value.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or have
expired. The difference between the carrying amount of the
financial liability derecognised and the consideration paid and
payable is recognised in profit or loss.
When the Group exchanges with the existing lender one debt
instrument into another one with the substantially different terms,
such exchange is accounted for as an extinguishment of the original
financial liability and the recognition of a new financial
liability. Similarly, the Group accounts for substantial
modification of terms of an existing liability, or part of it, as
an extinguishment of the original financial liability and the
recognition of a new liability. It is assumed that the terms are
substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees
received and discounted using the original effective rate is at
least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Derivative financial instruments
The Group enters into a variety of derivative financial
instruments to manage its exposure to interest rate and inflation
risk. Further details of derivative financial instruments are
disclosed in note 20.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently
re-measured to their fair value at each balance sheet date. The
resulting gain or loss is recognised in profit or loss immediately;
the Group does not currently designate derivatives into hedging
relationships and apply hedge accounting.
A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a
non-current asset or a non-current liability if the remaining
maturity of the instrument is more than 12 months and it is not
expected to be realised or settled within 12 months. Other
derivatives are presented as current assets or current
liabilities.
Embedded derivatives
Derivatives embedded in other financial instruments or other
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. Other derivatives are presented as current assets or
current liabilities.
Hedge accounting
The Group considers hedge accounting when entering any new
derivative, however, there are currently no formal hedging
relationships in the Group.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation. The amount recognised as a provision, is the best
estimate of the consideration required to settle the present
obligation at the balance sheet date, taking into account the risks
and uncertainties surrounding the obligation. Where a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (when the effect of the time value of money is material).
Notes to the Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described in note 2, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period; or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements in applying the group's accounting
policies
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the directors have made in applying the Group's accounting policies
and that have the most significant effect on the amounts recognised
in the financial statements.
Revenue recognition
Under IFRS, the Group 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 Group recognises
revenue in accordance with its entitlement to receive revenue as
established by the periodic regulatory price review process.
The principal direct customers of the business are the
electricity supply companies that utilise the Group's distribution
network to distribute electricity from generators to the end
consumer. Revenue from such activity is known as 'use of system'.
The amount billed reflects the volume of electricity distributed,
including estimates of the units distributed to customers. Revenue
is gradually adjusted to reflect actual usage in the period over
which the meters are read. In addition, the revenue includes
estimates made for the number of units distributed over the period
for which industry data is not yet available, which on average is
between one and two months prior to the reporting date. The
estimated units are based on historical consumption data
profiles.
Property Plant and Equipment
The Group recognises infrastructure assets where the
expenditures incurred enhance or increase the capacity of the
network, whereas any expenditure classed as maintenance is expensed
in the period it is incurred. Capital projects often contain a
combination of enhancement and maintenance activity which are not
distinct and therefore the allocation of costs between capital and
operating expenditure is inherently judgemental. The costs
capitalised include an allocation of overhead costs, relating to
the proportion of time spent by support function staff, which is
also inherently judgemental.
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.
Notes to the Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation
uncertainty (continued)
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 judgements are
made by management after considering available 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. 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.
Impairment of tangible and intangible assets (including
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 present value for the asset and compare that to its
carrying value. This concluded that no impairment loss is required
against those assets. Details of the impairment loss calculation
are set out in note 13.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are outlined below.
Fair values of derivative financial instruments
In estimating the fair value of derivative financial
instruments, the Group uses market-observable data to the extent it
is available. Where such data is not available, certain estimates
regarding inputs to the valuation are required to be made.
Information about the valuation techniques and inputs used are
disclosed in note 20.
Retirement benefit schemes
The Group's defined benefit obligation is derived using various
assumptions, as disclosed in note 21. Results can be affected
significantly by the assumptions used, which management decide
based on advice by a firm of actuaries.
Notes to the Financial Statements (continued)
4. Revenue
2018 2017
Group GBPm GBPm
-------- ----- -----
Revenue 430.2 485.5
-------- ----- -----
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 from three customers
(2017: two), each of which represented more than 10% of the total
revenue. Revenue from these customers totalled GBP189.5m (2017:
GBP162.8m). No other customer represented more than 10% of revenues
either this year or in the prior year.
5. Operating profit
The following items have been included in arriving at the
Group's operating profit:
2018 2017
Group GBPm GBPm
----------------------------------------------- ------ ------
Employee costs (see note 6) 51.5 46.9
Depreciation and amortisation expense (net)
Depreciation of property, plant and equipment
Owned assets (see note 13) 108.3 105.8
Amortisation of intangible assets and customer
contributions
Software (see note 12) 5.5 4.1
Customer contributions1 (see note 24) (10.5) (10.6)
Depreciation and amortisation expense (net) 103.3 99.3
----------------------------------------------- ------ ------
Other income
Profit on disposal of property, plant and
equipment (0.2) (0.1)
----------------------------------------------- ------ ------
Provision (credit)/charge (see note 22) (0.2) 1.9
----------------------------------------------- ------ ------
Other operating costs include:
Research and development 3.4 3.9
Write down of inventories to net realisable
value 0.1 0.3
Operating leases:
- land and buildings 0.5 0.7
- hire of plant and machinery 1.7 1.9
----------------------------------------------- ------ ------
1 In the current year GBP6.4m (2017: GBP5.5m) of customer
contributions amortisation has been amortised through revenue in
line with IFRIC 18.
Notes to the Financial Statements (continued)
5. Operating profit (continued)
Analysis of the auditor's remuneration is as follows:
2018 2017
Group 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 - 0.1
Total non-audit fees 0.1 0.2
--------------------------------------- ----- -----
Total fees 0.2 0.3
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.
6. Employee costs
2018 2017
Group GBPm GBPm
-------------------------------------- ------ ------
Wages and salaries 86.4 80.6
Social security costs 9.5 8.8
Pension costs (see note 21) 19.7 15.6
-------------------------------------- ------ ------
Employee costs (including Directors'
remuneration) 115.6 105.0
Costs transferred directly to fixed
assets (64.1) (58.1)
-------------------------------------- ------ ------
Charged to operating expenses 51.5 46.9
The average monthly number of employees during the year
(including Executive Directors):
2018 2017
Group Number Number
-------------------------- ------- -------
Electricity distribution 1,795 1,666
Notes to the Financial Statements (continued)
7. Directors' remuneration
2018 2017
Group GBPm GBPm
---------------------------------------------- ----- -----
Salaries and other short-term employee
benefits 1.1 1.0
Accrued bonus 0.4 0.5
Amounts receivable under long-term incentive
schemes 0.4 0.5
1.9 2.0
The aggregate emoluments of the Directors in 2018 amounted to
GBP1,934,000 (2017: GBP1,979,000). 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 2018 in respect of
services to the Group amounted to GBP894,000 (2017: GBP865,000).
Under the Executive Incentive Plan bonuses are awarded and either
paid in the following financial year (accrued bonus) or paid in
subsequent years (amounts receivable under long-term incentive
schemes). There were no amounts payable for compensation for loss
of office in the year (2017: GBPnil). Not included in the amounts
shown above are further payments made in respect of Directors'
services, as detailed in note 30.
As at 31 March 2018 the Directors have no interests in the
ordinary shares of the Company (2017: same).
8. Investment income
2018 2017
Group GBPm GBPm
---------------------------------------- ----- -----
Interest receivable on short-term bank
deposits held at amortised cost 1.0 0.7
Total investment income 1.0 0.7
Notes to the Financial Statements (continued)
9. Finance expense (net)
2018 2017
Group GBPm GBPm
----------------------------------------------- ------ ------
Interest payable
Interest payable on Group borrowings 14.7 14.7
Interest payable on borrowings held at
amortised cost 23.0 23.0
Interest payable on borrowings designated
at fair value through profit or loss 22.2 22.2
Net receipts on derivatives held for trading (11.0) (12.0)
Other finance charges related to index-linked
debt 15.3 9.5
Accretion on index-linked swaps 8.8 16.2
Interest cost on pension plan obligations
(see note 21) 1.1 0.1
Capitalisation of borrowing costs under
IAS 23 (1.0) (0.8)
=============================================== ====== ======
Total interest expense 73.1 72.9
Movements on financial instruments
Fair value movement on borrowings designated
at fair value through profit or loss (23.8) 10.3
Fair value movement on derivatives held
for trading (6.3) 95.9
Total fair value movements (30.1) 106.2
Total finance expense (net) 43.0 179.1
Borrowing costs capitalised in the year under IAS 23 were
GBP1.0m (2017: GBP0.8m), using an average annual capitalisation
rate of 4.8% (2017: 4.9%).
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 20 provides more detail on this.
There have been GBP8.8m (2017: GBP16.2m) in 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 2019. No swaps have been closed out in the year (2017:
same).
Notes to the Financial Statements (continued)
10. Taxation
2018 2017
Group GBPm GBPm
-------------------------------------- ----- ------
Current tax
Current year 21.1 34.4
Prior year (0.8) (1.1)
20.3 33.3
Deferred tax
Current year 5.6 (14.7)
Prior year (0.9) 1.2
Impact of change in future tax rates - (9.8)
====================================== ===== ======
4.7 (23.3)
===================================== ===== ======
Tax charge for the year 25.0 10.0
Corporation tax is calculated at 19% (2017: 20%) of the
estimated assessable profit for the year. The Government announced
that it intends to reduce the rate of corporation tax to 17% with
effect from 1 April 2020. The legislation has been given effect by
Finance Bill 2016 which was substantively enacted on 6 September
2016. Accordingly, the deferred tax has been calculated on the
basis that it will reverse in future at the 17% rate. Deferred tax
is calculated using the rate at which it is expected to
reverse.
The table below reconciles the notional tax charge at the UK
corporation tax rate to the effective tax rate for the year:
2018 2017
Group GBPm GBPm
=========================================== ===== =====
Profit before tax 141.3 81.0
=========================================== ===== =====
Tax at the UK corporation tax rate of 19%
(2017: 20%) 26.9 16.2
Prior year tax adjustments (1.7) 0.1
Reduction in current year deferred tax
due to rate change (0.7) 2.6
Non-taxable expense 0.5 0.9
Impact of change in future tax rates - (9.8)
=========================================== ===== =====
Tax charge for the year 25.0 10.0
Notes to the Financial Statements (continued)
11. Dividends
Amounts recognised as distributions to equity holders in the
year comprise:
2018 2017
Group and Company GBPm GBPm
------------------------------------------ ----- -----
Final dividends for the year ended 31
March 2017 of 2.52 pence per share (31
March 2016 of 3.77 pence per share) 12.0 18.0
Interim dividends for the year ended 31
March 2018 of 13.34 pence per share (31
March 2017: 13.21 pence) 63.6 63.0
75.6 81.0
In the year ended 31 March 2018, the Company declared interim
dividends of GBP63.6m, which were paid in December 2017 (31 March
2017: GBP63.0m). The final dividend for the year ended 31 March
2017 of GBP12.0m was paid in June 2017.
At the Board meeting in May 2018 the Directors proposed a final
dividend of GBP16m for the year ended 31 March 2018, subject to
approval by equity holders of the Company; that is not a liability
in the financial statements at 31 March 2018.
Notes to the Financial Statements (continued)
12. Intangible assets and goodwill
Assets under
the course
Group and Company Goodwill Software of construction Total
GBPm GBPm GBPm GBPm
-------------------- -------- -------- ---------------- -----
Cost
At 1 April 2016 10.1 68.4 13.4 91.9
Additions - 2.9 7.2 10.1
Transfers - 3.4 (3.4) -
Disposals - - - -
At 31 March 2017 10.1 74.7 17.2 102.0
Additions - 1.9 7.7 9.6
Transfers - 1.4 (1.4) -
-------------------- -------- -------- ---------------- -----
At 31 March 2018 10.1 78.0 23.5 111.6
-------------------- -------- -------- ---------------- -----
Amortisation
At 1 April 2016 - 52.4 - 52.4
Charge for the year - 4.1 - 4.1
Disposals - - - -
At 31 March 2017 - 56.5 - 56.5
Charge for the year - 5.5 - 5.5
Disposals - - - -
At 31 March 2018 - 62.0 - 62.0
-------------------- -------- -------- ---------------- -----
Net book value
At 31 March 2018 10.1 16.0 23.5 49.6
-------------------- -------- -------- ---------------- -----
At 31 March 2017 10.1 18.2 17.2 45.5
-------------------- -------- -------- ---------------- -----
In the Company, goodwill arose on the acquisition of assets and
liabilities of Electricity North West Number 1 Company Ltd
(previously Electricity North West Services Ltd, having changed its
name on 21 October 2016) 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 2018, the Group and Company had entered into
contractual commitments for the acquisition of software amounting
to GBP5.6m (2017: GBP6.3m).
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 13).
Notes to the Financial Statements (continued)
13. Property, plant and equipment
Fixtures Assets under
Non- operational and equipment, the course
Operational land and vehicles of construction
Group and Company Structures buildings and other Total
GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ---------------- --------------- ---------------- -------
Cost or valuation
At 1 April 2016 4,146.1 31.1 92.2 121.5 4,390.9
Additions 147.4 0.6 7.9 44.5 200.4
Transfers 42.2 0.4 4.1 (46.7) -
Disposals (4.9) - (0.8) - (5.7)
At 31 March 2017 4,330.8 32.1 103.4 119.3 4,585.6
Additions 146.2 0.9 12.5 49.3 208.9
Transfers 35.2 0.5 1.5 (37.2) -
Disposals (5.4) - (0.9) - (6.3)
------------------------- ----------- ---------------- --------------- ---------------- -------
At 31 March 2018 4,506.8 33.5 116.5 131.4 4,788.2
------------------------- ----------- ---------------- --------------- ---------------- -------
Accumulated depreciation
and impairment
At 1 April 2016 1,381.5 7.2 59.5 - 1,448.2
Charge for the
year 92.5 1.0 12.3 - 105.8
Disposals (4.9) - (0.8) - (5.7)
At 31 March 2017 1,469.1 8.2 71.0 - 1,548.3
Charge for the
year 95.0 1.1 12.2 - 108.3
Disposals (5.4) - (0.9) - (6.3)
At 31 March 2018 1,558.7 9.3 82.3 - 1,650.3
------------------------- ----------- ---------------- --------------- ---------------- -------
Net book value
At 31 March 2018 2,948.1 24.2 34.2 131.4 3,137.9
------------------------- ----------- ---------------- --------------- ---------------- -------
At 31 March 2017 2,861.7 23.9 32.4 119.3 3,037.3
------------------------- ----------- ---------------- --------------- ---------------- -------
At 31 March 2018, the Group and Company had entered into
contractual commitments for the acquisition of property, plant and
equipment amounting to GBP87.8m (2017: GBP69.7m).
At 31 March 2018, 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 GBP3,028.9m (2017: GBP2,925.7m). The revaluation reserve is
disclosed in note 27, net of deferred tax. The revaluation reserve
arose following North West Water's acquisition of Norweb, in
1997.
Notes to the Financial Statements (continued)
13. 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 cash generating unit (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 29 year period,
including a terminal value, which represents the planning horizon
used for management purposes being aligned to the end of an eight
year RIIO regulatory period. The rate used to discount cash flows
was 6.37% (2017: 7.11%) reflecting an assumed level of risk
associated with the cash flows generated from the licence. Cash
flow projections for the five year period to 2023 are based on the
Ofgem final determination and the Company's latest approved
business plan (2017: same) 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 that no impairment
would be required.
Based on the impairment testing performed, management believe
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)
14. Investments
Group Company
GBPm GBPm
------------------------------------ ----- -------
Cost and carrying value
At 31 March 2017 and 31 March 2018 - 15.4
Details of the investments as at 31 March 2018, all of which
were incorporated in the UK, and the principal place of business of
each is in the UK, are as follows.
Proportion Nature of
Company Description of holding held business
------------------------ ----------------------- ----------- ----------
Subsidiary undertakings
Electricity North Ordinary shares of 100% Dormant
West Number 1 Company GBP1 each
Ltd*
ENW (ESPS) Pensions Ordinary shares of 100% Dormant
Trustees Limited GBP1 each
Joint venture
Nor.Web DPL Limited Ordinary shares of 50% Dormant
GBP1 each
* Electricity North West Number 1 Company Ltd was previously
known as Electricity North West Services Ltd having changed its
name on 21 October 2016.
There have been no changes to these shareholdings during the
year and the address of the registered office for all of the
investments noted above is: 304 Bridgewater Place, Birchwood Park,
Warrington, WA3 6XG.
15. Inventories
Group and Company 2018 2017
GBPm GBPm
============================== ==== =====
Raw materials and consumables 10.5 9.6
Notes to the Financial Statements (continued)
16. Trade and other receivables
Group and Company 2018 2017
GBPm GBPm
======================================== ==== =====
Trade receivables 10.6 6.1
Amounts owed by affiliated undertakings 5.3 5.4
Prepayments and accrued income 47.5 49.0
========================================= ==== =====
Balance at 31 March 63.4 60.5
The average credit period taken on sales is 14 days (2017: 14
days). Trade receivables do not carry interest and are stated net
of allowances for doubtful receivables of GBP0.9m (2017: GBP0.8m)
estimated by management based on known specific circumstances, past
default experience and their assessment of the current economic
environment.
31% (2017: 16%) are past due but not impaired. A balance of
GBP2.8m (2017: GBP0.7m) is less than 30 days past due; a balance of
GBP1.5m is greater than 30 days past due at 31 March 2018 (2017:
GBP1.0m), against which an allowance for doubtful debt of GBP0.9m
(2017: GBP0.8m) has been made.
The movement on the provision for impairment of trade
receivables is as follows:
Group and Company 2018 2017
GBPm GBPm
================================ ==== =====
Balance at 1 April 0.8 0.7
Charged to the Income Statement 0.1 0.1
Balance at 31 March 0.9 0.8
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 2018 GBP1.7m (2017: GBP1.0m)
of cash had been received as security.
The RAV is calculated using the methodology set by Ofgem for
each year of ED1 (1 April 2016 to 31 March 2023) and is GBP1,758m
(2017: GBP1,696m) for the year ended 31 March 2018 based on the
actual retail price index (RPI) for March.
Notes to the Financial Statements (continued)
16. Trade and other receivables (continued)
At 31 March 2018 GBP138.6m (2017: GBP129.0m) of unsecured credit
limits had been granted to customers and the highest unsecured
credit limit given to any single customer was GBP13.9m (2017:
GBP13.3m). 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.
17. Cash and cash equivalents and money market deposits
Group and Company 2018 2017
GBPm GBPm
=========================================== ==== =====
Cash and cash equivalents 87.0 142.7
Short-term money market deposits (maturity
over 3 months) - 10.0
Balance at 31 March 87.0 152.7
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 cash and cash equivalents amount is disclosed gross of any
collateral held on derivatives. At 31 March 2018, the group held
GBP10.6m (2017: GBPnil) as collateral in relation to derivative
financial instruments (see notes 18 & 20).
The effective interest rate on all short-term deposits was a
weighted average of 0.65% (2017: 0.4%) and these deposits had an
average maturity of 1 day (2017: 15 days).
Notes to the Financial Statements (continued)
18. Trade and other payables
Group Company Group Company
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
======================================== ===== ======= ===== ========
Trade payables 10.9 10.9 14.7 14.7
Refundable customer deposits
(note 25) 1.7 1.7 1.0 1.0
Other taxation and social security 10.5 10.5 15.1 15.1
Amounts owed to affiliated undertakings 3.4 3.4 3.6 3.6
Amounts owed to subsidiary undertakings - 15.4 - 15.4
Customer contributions (note
24) 28.7 28.7 25.4 25.4
Obligation to return cash collateral
(note 20) 10.6 10.6 - -
Accruals and deferred income 76.8 77.1 82.9 83.2
Balance at 31 March 142.6 158.3 142.7 158.4
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
(2017: 15 days).
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
19. 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 20.
2018 2017
Group and Company GBPm GBPm
---------------------------------------- ------- -------
Current liabilities
Bank and other term borrowings 6.6 6.4
Non-current liabilities
Bonds 705.6 724.4
Bank and other term borrowings 253.2 249.4
Amounts owed to parent undertaking 73.7 71.2
Amounts owed to affiliated undertaking 198.2 197.7
1,230.7 1,242.7
Total borrowings 1,237.3 1,249.1
Notes to the Financial Statements (continued)
19. Borrowings (continued)
Carrying value by category
The carrying values by category of financial instruments were as
follows:
Group and Company 2018 2017
Nominal Interest Maturity Carrying Carrying
value rate value value
GBPm % year GBPm GBPm
----------------------------------- ------- ----------- -------- -------- --------
Borrowings designated at
fair value through profit
or loss statement
Bond 250.0 8.875% 2026 367.2 391.0
----------------------------------- ------- ----------- -------- -------- --------
Borrowings measured at amortised
cost
Bond 200.0 8.875% 2026 196.8 196.6
Index-linked bond 100.0 1.4746%+RPI 2046 141.6 136.8
Index-linked loan 135.0 1.5911%+RPI 2024 164.4 157.9
Index-linked loan 50.0 0.38% +RPI 2032 46.3 47.7
Index-linked loan 50.0 0%+RPI 2033 49.1 50.3
Amortising costs re: long-term
loan Libor+0.55% 2020 - (0.1)
Amounts owed to parent undertaking 2023 73.7 71.2
Amounts owed to affiliated
undertaking 200.0 6.125% 2021 198.2 197.7
870.1 858.1
Total borrowings 1,237.3 1,249.1
Affiliated companies are those owned by Companies under common
ownership with Electricity North West Limited in the North West
Electricity Networks (Jersey) Limited consolidation group.
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)
19. Borrowings (continued)
The following table provides a reconciliation of the opening and
closing debt amounts.
Group and Company 2018 2017
GBPm GBPm
------------------------------------------------ ------- -------
At 1 April 1,249.1 1,233.0
Fair value movement on borrowings designated
at fair value through profit or loss statement (23.8) 10.3
Repayments (6.5) (4.8)
Increased inter-company borrowings 2.5 0.4
Indexation 15.3 9.5
Amortisation of transaction costs and bond
discounts 0.7 0.7
At 31 March 1,237.3 1,249.1
As at 31 March 2017 and at 31 March 2018 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 2018. The fair values of the Group's financial
instruments are shown in note 20.
The loan from parent undertaking accrues interest at 2.70%
(2017:2.74%). The loan from the affiliated undertaking accrues
interest at 6.125% (2017: 6.125%).
Borrowing facilities
The Group and Company had GBP25m (2017: GBP25m) in unutilised
committed bank facilities at 31 March 2018 of GBPnil (2017: GBPnil)
expires within one year, GBPnil (2017: GBPnil) expires after one
year but less than two years and GBP25m (2017: GBP25m) expires in
more than two years.
20. 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 2.
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.
Notes to the Financial Statements (continued)
20. Financial instruments (continued)
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, that 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.
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 three (2017:
two) principal customers, see note 4. 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.
Notes to the Financial Statements (continued)
20. Financial instruments (continued)
At 31 March 2018 there was GBP4.3m receivables past due (2017:
GBP1.7m) against which an allowance for doubtful debts of GBP0.9m
has been made (2017: GBP0.8m).
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 2018, none (2017: 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.
The table below provides details of the ratings of the Group's
treasury portfolio:
Group and Company 2018 2018 2017 2017
GBPm % GBPm %
=============================== ===== ===== ===== ====
Credit Rating for cash and
cash equivalents, including
money market deposits, but
excluding unpresented cheques
================================ ===== ===== ===== =====
AAA 32.7 26.4 73.2 48.2
AA - - --
AA- 5.9 4.8 --
A+ 26.4 21.2 29.3 19.3
A 59.0 47.6 49.3 32.5
124.0 100.0 151.8 100.0
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 16 for further
details).
Group and Company 2018 2017
GBPm GBPm
=========================================== ===== =====
Credit risk by category
Trade receivables 10.7 6.1
Amounts owed by Group undertakings 5.2 5.4
Money market deposits (maturity over three
months) - 10.0
Cash and cash equivalents 87.0 142.7
============================================ ===== =====
Balance at 31 March 102.9 164.2
Notes to the Financial Statements (continued)
20. 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 29 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:
Group and Company 2018 2017
GBPm GBPm
=========================================== ===== =====
Cash and cash equivalents 87.0 142.7
Short-term money market deposits (maturity
over 3 months) - 10.0
Committed undrawn bank facilities 25.0 25.0
Balance at 31 March 112.0 177.7
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
(2017: none).
The Group and Company had committed undrawn bank facilities
including GBPnil (2017: GBPnil) of facilities that expire within
one year, GBP25.0m (2017: GBP nil) that expires after one year but
less than two years and GBPnil (2017: GBP25m) 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)
20. Financial instruments (continued)
Group and Company On demand <1 year 1 - 2 years 2 - 3 years 3 - 4 years >4 years Total
At 31 March 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ======== ============ ============ ============ ========== ==========
Trade payables (10.9) - - - - - (10.9)
Refundable customer deposits (1.7) - - - - - (1.7)
Amounts owed to parent
undertaking - (2.0) (2.0) (2.0) (2.0) (76.3) (84.3)
Amounts owed to affiliated
companies - (12.3) (12.3) (12.3) (206.1) - (243.0)
Bonds - (42.1) (42.1) (42.1) (42.1) (806.3) (974.7)
Borrowings and overdrafts - (9.4) (9.4) (9.4) (9.4) (239.9) (277.5)
Derivative financial
instruments - net (10.6) 10.1 10.1 10.1 4.8 (134.6) (110.1)
============================== ========== ======== ============ ============ ============ ========== ==========
(23.2) (55.7) (55.7) (55.7) (254.8) (1,257.1) (1,702.2)
Group and Company On demand <1 year 1 - 2 years 2 - 3 years 3 - 4 years >4 years Total
At 31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ======== ============ ============ ============ ========== ==========
Trade payables (14.7) - - - - - (14.7)
Refundable customer deposits (1.0) - - - - - (1.0)
Amounts owed to parent
undertaking - (1.9) (1.9) (1.9) (1.9) (75.7) (83.3)
Amounts owed to affiliated
companies - (12.2) (12.2) (12.2) (12.2) (206.1) (254.9)
Bonds - (41.9) (41.9) (41.9) (41.9) (841.4) (1,009.0)
Borrowings and overdrafts - (10.9) (10.9) (10.9) (10.8) (357.3) (400.8)
Derivative financial
instruments - net - 6.5 11.8 11.8 11.8 (290.6) (248.7)
============================== ========== ======== ============ ============ ============ ========== ==========
(15.7) (60.4) (55.1) (55.1) (55.0) (1,771.1) (2,012.4)
Notes to the Financial Statements (continued)
20. 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)
20. Financial instruments (continued)
Group and Company 2018 2017
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 (11.9) 11.4 22.4 (14.1) 13.5 26.4
Inflation-linked swaps (58.1) 51.9 98.6 (64.3) 56.9 92.4
Total finance expense impact (70.0) 63.3 121.0 (78.4) 70.4 118.8
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 2018, the Group had no floating rate borrowings (2017:
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.
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.
Notes to the Financial Statements (continued)
20. Financial instruments (continued)
Group and Company 2018 2017
Change in inflation rates -0.5% +0.5% +1% -0.5% +0.5% +1%
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ====== ======= ======== ====== ======= ========
Inflation-linked swaps 70.5 (77.7) (163.6) 75.4 (83.7) (176.7)
Total finance expense impact 70.5 (77.7) (163.6) 75.4 (83.7) (176.7)
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.
Group and Company 2018 2017
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) (4.1) 2.0 (2.0) (4.0)
Inflation-linked swaps 0.1 (0.1) (0.1) - - (0.1)
Total finance expense impact 2.1 (2.1) (4.2) 2.0 (2.0) (4.1)
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 2018, the Group's
derivatives are not designated in formal hedging relationships
(2017: none), and instead are measured at fair value through the
Income Statement.
Notes to the Financial Statements (continued)
20. Financial instruments (continued)
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.
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 2018, is
GBP93.1m (2017: GBP74.4m), of which GBP91.6m (2017: GBP73.3m) 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.
Group and Company 2018 2018 2017 2017
-10bps +10bps -10bps -10bps
GBPm GBPm GBPm GBPm
----------------------- ------ ------ ------ ------
Inflation-linked swaps (2.0) 1.9 (2.2) 2.0
Notes to the Financial Statements (continued)
20. 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:
Group and Company 2018 2018 2017 2017
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
--------------------------------- -------- ------ -------- ------
Current assets
Trade receivables 10.7 10.7 6.1 6.1
Cash and cash equivalents 87.0 87.0 142.7 142.7
Short-term money market deposits
(maturity over 3 months) - - 10.0 10.0
97.7 97.7 158.8 158.8
Group and Company 2018 2018 2017 2017
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- --------- ---------
Non-current liabilities
Borrowings designated at fair
value through profit and loss
(FVTPL) (367.2) (367.2) (391.0) (391.0)
Borrowings measured at amortised
cost (591.6) (766.0) (582.8) (777.6)
Amounts due to parent undertaking (73.7) (73.7) (71.2) (71.2)
Amounts due to affiliated companies (198.2) (229.2) (197.7) (240.0)
Derivative financial instruments (357.3) (357.3) (363.5) (363.5)
(1,588.0) (1,793.4) (1,606.2) (1,843.3)
Current liabilities
Trade and other payables (10.9) (10.9) (14.7) (14.7)
Refundable customer deposits (1.7) (1.7) (1.0) (1.0)
Borrowings measured at amortised
cost (6.6) (6.6) (6.4) (6.4)
(1,607.2) (1,812.6) (1,628.3) (1,865.4)
The value of derivatives is disclosed gross of any collateral
held. At 31 March 2018, the group held GBP10.6m (2017: GBPnil) as
collateral in relation to derivative financial instruments,
included within current liabilities (see Note 18). The cash
collateral does not meet the offsetting criteria in IAS 32:42, but
it can be set off against the net amount of the derivatives in the
case of default and insolvency or bankruptcy, in accordance with
associated collateral arrangements.
Notes to the Financial Statements (continued)
20. 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).
Group and Company Level Level Level Total
1 2 3
At 31 March 2018 GBPm GBPm GBPm GBPm
----------------------------------------------------- -------- ------- -------- --------
Financial liabilities at FVTPL
Derivative financial liabilities
* GBP300m notional inflation-linked swaps - (34.6) (322.7) (357.3)
Financial liabilities designated
at FVTPL (367.2) - - (367.2)
----------------------------------------------------- -------- ------- -------- --------
(367.2) (34.6) (322.7) (724.5)
Group and Company Level Level Level Total
1 2 3
At 31 March 2017 GBPm GBPm GBPm GBPm
----------------------------------------------------- -------- -------- -------- --------
Financial liabilities at FVTPL
Derivative financial liabilities
* GBP300m notional inflation-linked swaps - (119.3) (244.3) (363.6)
Financial liabilities designated
at FVTPL (391.0) - - (391.0)
----------------------------------------------------- -------- -------- -------- --------
(391.0) (119.3) (244.3) (754.6)
In November, inflation-linked swaps with fair values of
GBP105.7m were restructured. Prior to restructure, all GBP105.7m
was classified as Level 2; upon restructure GBP95.5m was
transferred from Level 2 to Level 3 (2017: GBP8.7m), 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)
20. Financial instruments (continued)
On restructure, there was no change in the fair values of the
swaps, as evidenced by GBPnil cash exchange. The decrease in the
fair values of the derivative portfolio was solely due to fair
value movements; there were no additional swaps entered, nor any
swaps closed out, during the year.
The following table provides a reconciliation of the fair value
amounts disclosed as Level 3.
Group and Company 2018 2017
GBPm GBPm
------------------------------------------------------- ------- -------
At 1 April (244.3) (167.8)
Transfers into Level 3 from Level 2 (95.5) (8.7)
Total gains or losses in profit or loss;
* On transfers into Level 3 from Level 2 1.5 4.4
- -
* On new derivatives in the year
* On instruments carried forward in Level 3 15.6 (72.2)
At 31 March (322.7) (244.3)
Fair value measurements disclosed but not recognised in the
Statement of Financial Position
Group and Company Level Level Level Total
1 2 3
At 31 March 2018 GBPm GBPm GBPm GBPm
---------------------------------- -------- ------ ------ --------
Financial liabilities with fair
value disclosed
Borrowings measured at amortised
cost (766.0) - - (766.0)
---------------------------------- -------- ------ ------ --------
(766.0) - - (766.0)
Group and Company Level Level Level Total
1 2 3
At 31 March 2017 GBPm GBPm GBPm GBPm
---------------------------------- -------- ------ ------ --------
Financial liabilities with fair
value disclosed
Borrowings measured at amortised
cost (777.6) - - (777.6)
---------------------------------- -------- ------ ------ --------
(777.6) - - (777.6)
Notes to the Financial Statements (continued)
21. 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
Number 1 Company Ltd (previously Electricity North West Services
Limited, having changed its name on 21 October 2016) to the Company
and the termination of the Asset Services Agreement between the two
companies 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 GBP30.3m (2017:
GBP23.6m) to the defined benefit section of the Scheme. This
includes GBP17.3m of deficit contributions. The Group estimates
that contributions for the year ending 31 March 2018 will amount to
around GBP30.8m which includes GBP17.8m of expected deficit
contribution payments. The total defined benefit pension expense
for the year was GBP17.6m (2017: GBP13.3m). No Executive Directors
were part of the defined benefit scheme.
As at 31 March 2018 contributions of GBP2.7m (2017: GBP2.1m) 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 2016 and
identified a shortfall of GBP142.6m 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 2016 Actuarial valuation the
Group agreed to remove the shortfall by paying annual contributions
to 2023.
Notes to the Financial Statements (continued)
21. Retirement benefit schemes (continued)
The results of the 2016 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 2018 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 GBP18.2m is included
in the Statement of Financial Position at 31 March 2018 (2017:
deficit of GBP58.0m).
The weighted average duration of the defined benefit obligation
is approximately 18 years (2017: 17 years).
Investment strategy
The Scheme has an investment strategy to aim to match pensioner
and other liabilities with lower risk cash flow investments and to
invest liabilities in respect of active members into return seeking
assets. As active members retire, then a switch of investments
would be carried out.
The Company recognises that the interests of customers, who
ultimately fund pension costs, should be given full recognition in
determining the investment 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.
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)
21. 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 2018
was GBP4.0m (2017: GBP3.2m) and represents contributions payable to
the Scheme at rates specified in the rules of the Scheme. As at 31
March 2018 contributions of GBPnil (2017: 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:
Group and Company 2018 2017
GBPm GBPm
------------------------------------------- ------ ------
At 1 April (58.0) (16.2)
Expense recognised in the Income Statement (17.6) (13.3)
Contributions paid 30.3 23.6
Total re-measurement included in Other
Comprehensive Income 27.1 (52.1)
At 31 March (18.2) (58.0)
Movements in the fair value of the Group defined benefit
obligations are as follows:
Group and Company 2018 2017
GBPm GBPm
---------------------------------------------- --------- ---------
At 1 April (1,430.4) (1,219.9)
Current service cost (15.3) (12.0)
Interest expense (34.9) (41.6)
Member contributions (1.7) (1.9)
Augmentation (0.4) (0.4)
Re-measurement:
Effect of changes in demographic assumptions - (24.6)
Effect of changes in financial assumptions 25.0 (221.8)
Effect of experience adjustments - 33.1
Benefits paid 69.5 58.7
At 31 March (1,388.2) (1,430.4)
Notes to the Financial Statements (continued)
21. Retirement benefit schemes (continued)
The liability value as at 31 March is made up of the following
approximate splits:
Group and Company 2018 2017
GBPm GBPm
--------------------------------------- ------- -------
Liabilities owing to active members 453.8 439.7
Liabilities owing to deferred members 70.5 89.0
Liabilities owing to pensioner members 863.9 901.7
Total liability at 31 March 1,388.2 1,430.4
Movements in the fair value of the Group Pension Scheme assets
were as follows:
Group and Company 2018 2017
GBPm GBPm
--------------------------------------- ------- -------
At 1 April 1,372.4 1,203.7
Interest income 33.8 41.5
Return on plan assets (net of interest
income) 2.0 161.4
Company contributions 30.3 23.6
Member contributions 1.7 1.9
Benefits paid (69.5) (58.7)
Administration expenses (0.7) (1.0)
At 31 March 1,370.0 1,372.4
Notes to the financial statements (continued)
21. 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:
Group and Company 2018 2017
GBPm GBPm
----------------------------------------- ------ ------
Current service cost (15.3) (12.0)
Past service cost (0.4) (0.4)
Interest income on plan assets 33.8 41.5
Interest (expense) on Scheme obligations (34.9) (41.6)
Administration expenses and taxes (0.8) (0.8)
Net pension expense before taxation (17.6) (13.3)
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 2018 the past service cost includes
GBP0.4m in respect of augmentations (2017: GBP0.4m).
The main financial assumptions used by the actuary (in
determining the deficit) were as follows:
Group and Company 2018 2017
% %
----------------------------- ---- ----
Discount rate 2.60 2.50
Pensionable salary increases 3.10 3.10
Pension increases 3.05 3.05
Price inflation 3.10 3.10
The mortality rates utilised in the valuation are based on the
standard actuarial tables S2PMA/S2PFA (birth year) tables with a
loading of 95% for male pensioners, 90% for female pensioners, 105%
for male non-pensioners and 100% for female non-pensioners. These
loading factors allow for differences in expected mortality between
the Scheme population and the population used in the standard
tables. A long-term improvement rate of 1.5% p.a. is assumed within
the underlying CMI 2015 model.
Notes to the Financial Statements (continued)
21. Retirement benefit schemes (continued)
The current life expectancies underlying the value of the
accrued liabilities for the Scheme are:
Group and Company 2018 2017
Male life expectancy at age 60 Years Years
------------------------------------ ----- -----
Retired member 28.0 27.9
Non-retired member (current age 45) 28.8 28.7
In valuing the liabilities of the Scheme at 31 March 2018
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.
Group and Company 2018 2017
Increase in Defined Benefit Obligation GBPm GBPm
------------------------------------------- ---- ----
Discount rate: decrease by 25 basis points 66 61
Price inflation: increase by 25 basis
points 62 49
Life expectancy: increase longevity by
1 year 46 48
Notes to the Financial Statements (continued)
21. Retirement benefit schemes (continued)
As at 31 March 2018, the fair value of the Scheme's assets and
liabilities recognised in the Statement of Financial Position were
as follows:
Group and Company Scheme assets Value Scheme assets Value
2018 2018 2017 2017
At 31 March % GBPm % GBPm
----------------------------------- -------------- ---------- -------------- ----------
Cash and Cash equivalents 3.7 51.3 6.7 92.6
Equity instruments 10.0 137.0 9.4 128.4
Debt instruments 74.0 1,013.2 68.6 942.1
Real estate 10.6 145.0 11.0 150.6
Distressed debt 1.6 21.9 2.5 34.7
Hedge funds 0.1 1.6 1.8 24.0
=================================== ============== ========== ============== ==========
Total fair value of assets 100.0 1,370.0 100.0 1,372.4
Present value of liabilities (1,388.2) (1,430.4)
Net retirement benefit obligation (18.2) (58.0)
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)
22. Provisions
Group and Company 2018 2017
GBPm GBPm
-------------------------------------------- ----- -----
At 1 April 4.0 2.5
Charged /(credited) to the income statement (0.2) 1.9
Utilisation of provision (0.7) (0.4)
At 31 March 3.1 4.0
Group and Company 2018 2017
GBPm GBPm
------------------ ---- ----
Current 0.8 1.1
Non-current 2.3 2.9
At 31 March 3.1 4.0
During the year ended 31 March 2013 a provision was created in
connection with a portfolio of retail properties for which the
Company was liable under privity of contract. The combined closing
provision of GBP1.5m at 31 March 2018 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.
The Company is part of a Covenanter Group ('CG') which is party
to a Deed of Covenant with EA Technology 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 having been 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. On the 31 March 2017 EATL entered into a Company Voluntary
Arrangement ("CVA") to ring-fence the pension and historical
employment liabilities, with the agreement of the Pension
Regulator. As the Company represents 6.7% of the liabilities, a
provision of GBP1.6m on a discounted basis was recognised within
the Company during the year ended 31 March 2018.
Notes to the Financial Statements (continued)
23. 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.
Group and Company Accelerated Retirement Other Total
tax depreciation benefit
obligations
GBPm GBPm GBPm GBPm
-------------------------------- ------------------ ------------- ------- -------
At 1 April 2016 203.4 (3.0) (42.4) 158.0
Charged/(credited) to the
Income Statement (9.5) 0.9 (14.8) (23.4)
Deferred tax on re-measurement
of defined benefit pension
schemes - (8.9) - (8.9)
Adjustment due to change
in future tax rates of
brought forward deferred
tax OCI - 1.0 - 1.0
================================ ================== ============= ======= =======
At 1 April 2017 193.9 (10.0) (57.2) 126.7
Charged/(credited) to the
Income Statement 0.4 2.2 2.1 4.7
Deferred tax on re-measurement
of defined benefit pension
schemes - 4.6 - 4.6
Adjustment due to change
in future tax rates of
brought forward deferred
tax OCI - - - -
At 31 March 2018 194.3 (3.2) (55.1) 136.0
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)
24. 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 2018 2017
GBPm GBPm
------------------------------------- ------ ------
At 1 April 614.2 584.9
Additions during the year 44.0 45.4
Amortisation (10.5) (10.6)
Amortised through revenue (IFRIC 18) (6.4) (5.5)
At 31 March 641.3 614.2
Group and Company 2018 2017
GBPm GBPm
--------------------------------------- ----- -----
Amounts due in less than one year (see
note 18) 28.7 25.4
Amounts due after more than one year 612.6 588.8
At 31 March 641.3 614.2
25. Refundable customer deposits
Refundable customer deposits are those customer contributions
which may be partly refundable, dependent on contractual
obligations.
Group and Company 2018 2017
GBPm GBPm
--------------------------------------- ---- ----
Amounts due in less than one year (see
note 18) 1.7 1.0
Amounts due after more than one year - -
At 31 March 1.7 1.0
Notes to the Financial Statements (continued)
26. Called up share capital
Company 2018 2017
GBP GBP
------------------------------------------- ----------- -----------
Authorised:
569,999,996 (2017: same) 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
At 31 March 285,000,001 285,000,001
Company 2018 2017
GBP GBP
----------------------------------------- ----------- -----------
Allotted, called up and fully paid:
476,821,341 (2017: same) ordinary shares
of 50 pence each 238,410,671 238,410,671
4 'A' ordinary shares of 50 pence each 2 2
At 31 March 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)
27. Shareholders' Equity
Called Share Revaluation Capital Retained Total
up share premium reserve redemption earnings Equity
capital account GBPm reserve GBPm GBPm
Group GBPm GBPm GBPm
--------------------- ---------- --------- ------------ ------------ ---------- --------
At 1 April 2017 238.4 4.4 92.5 8.6 420.6 764.5
Profit for the
year - - - - 116.3 116.3
Transfer from
revaluation
reserve - - (2.2) - 2.2 -
Re-measurement
of defined benefit
schemes - - - - 27.1 27.1
Tax on components
of comprehensive
expense - - - - (4.6) (4.6)
--------------------- ---------- --------- ------------ ------------ ---------- --------
Total comprehensive
income for the
year - - (2.2) - 141.0 138.8
Transactions
with owners
recorded directly
in equity
Equity dividends - - - - (75.6) (75.6)
At 31 March
2018 238.4 4.4 90.3 8.6 486.1 827.8
--------------------- ---------- --------- ------------ ------------ ---------- --------
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)
27. Shareholders' equity (continued)
Called Share Revaluation Capital Retained Total
up share premium reserve redemption earnings Equity
capital account GBPm reserve GBPm GBPm
Company GBPm GBPm GBPm
--------------------- ---------- --------- ------------ ------------ ---------- ----------
At 1 April 2017 238.4 4.4 92.5 8.6 420.4 764.3
Profit for the
year - - - - 116.3 116.3
Transfer from
revaluation
reserve - - (2.2) - 2.2 -
Re-measurement
of defined benefit
schemes - - - - 27.1 27.1
Tax on components
of comprehensive
expense - - - - (4.6) (4.6)
--------------------- ---------- --------- ------------ ------------ ---------- --------
Total comprehensive
income for the
year - - (2.2) - 141.0 138.8
Transactions
with owners
recorded directly
in equity
Equity dividends - - - - (75.6) (75.6)
At 31 March
2018 238.4 4.4 90.3 8.6 485.8 827.5
--------------------- ---------- --------- ------------ ------------ ---------- --------
The profit after tax for the Company for the year ended 31 March
2018 was GBP116.3m (2017: GBP71.0m) and the revenue for the year
was GBP430.2m (2017: GBP485.5m). As permitted by s408 of the
Companies Act 2006, the Company has not presented its own Income
Statement.
Notes to the Financial Statements (continued)
28. 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 26. 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 in the Corporate Governance Report on
pages 28 to 39.
29. 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 address of the immediate parent undertaking is 304
Bridgewater Place, Birchwood Park, Warrington, England WA3 6XG. 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: 44 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)
30. Related party transactions
During the year the following transactions with related parties
were entered into:
Group Company Group Company
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
===================================== ====== ======= ====== ========
Transactions with related parties
Recharges to Electricity North
West (Construction and Maintenance)
Ltd 0.6 0.6 1.0 1.0
Recharges from Electricity
North West (Construction and
Maintenance) Ltd (0.1) (0.1) (0.1) (0.1)
Recharges to Electricity North
West Services Ltd 1.6 1.6 1.2 1.2
Recharges from Electricity
North West Services Ltd (4.8) (4.8) (0.6) (0.6)
Directors' remuneration (note
7) (1.9) (1.9) (2.0) (2.0)
Directors' services (0.2) (0.2) (0.2) (0.2)
Interest payable to North West
Electricity Networks plc (2.0) (2.0) (1.9) (1.9)
Interest payable to ENW Finance
plc (12.4) (12.4) (12.8) (12.8)
Dividends paid to North West
Electricity Networks plc (75.6) (75.6) (81.0) (81.0)
For disclosure relating to executive directors remuneration see
note 7. The Company's key management personnel comprise solely of
its directors.
Notes to the Financial Statements (continued)
30. Related party transactions (continued)
Amounts outstanding with related parties are as follows:
Group Company Group Company
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
================================= ======= ======= ======= ========
Amounts owed to related parties
Group tax relief to North West
Electricity Networks plc (5.6) (5.6) (23.6) (23.6)
Group tax relief to Electricity
North West Services Ltd (0.1) (0.1) - -
Interest payable to North West
Electricity Networks plc (0.5) (0.5) (0.5) (0.5)
Interest payable to ENW Finance
plc (2.5) (2.5) (2.5) (2.5)
Amounts owed to Electricity
North West Number 1 Company
Ltd - (15.4) - (15.4)
Amounts owed to Electricity
North West Services Ltd (0.3) (0.3) (0.6) (0.6)
Borrowings from North West
Electricity Networks plc (73.7) (73.7) (71.2) (71.2)
Borrowings from ENW Finance
plc (198.2) (198.2) (197.7) (197.7)
Amounts owed by related parties
Amounts owed by North West
Electricity Networks plc 3.3 3.3 3.3 3.3
Amounts owed by Electricity
North West (Construction and
Maintenance) Ltd 0.2 0.2 0.4 0.4
Amounts owed by Electricity
North West Services Ltd 1.3 1.3 1.4 1.4
Amounts owed by Electricity
North West Property Ltd 0.1 0.1 - -
Amounts owed by North West
Electricity Networks (Jersey)
Ltd 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
The loan from North West Electricity Networks plc accrues
weighted average interest at 2.70% (2017: 2.74%) and is repayable
in March 2023. The loan from ENW Finance plc accrues interest at
6.125% (2017: 6.125%) and is repayable in July 2021.
Fees of GBP0.1m (2017: 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 29.
Fees of GBP0.1m (2017: 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 29.
Notes to the Financial Statements (continued)
31. Cash generated from operations
Group and Company Group Company Group Company
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
======================================= ====== ======= ====== ========
Operating profit 183.3 183.3 259.4 259.4
Adjustments for:
Depreciation of property, plant
and equipment 108.3 108.3 105.8 105.8
Amortisation of intangible
assets 5.5 5.5 4.1 4.1
Amortisation of customer contributions (16.9) (16.9) (16.1) (16.1)
Profit on disposal of property,
plant and equipment (0.2) (0.2) (0.1) (0.1)
Cash contributions in excess
of pension charge to operating
profit (22.4) 22.4) (16.5) (16.5)
======================================== ====== ======= ====== ========
Operating cash flows before
movements in working capital 257.6 257.6 336.6 336.6
Changes in working capital
(Increase)/decrease in inventories (0.9) (0.9) (1.1) (1.1)
Increase in trade and other
receivables (2.9) (2.9) 6.3 6.3
(Decrease)/increase in payables
and provisions (14.8) (14.8) 6.3 6.3
======================================== ====== ======= ====== ========
Cash generated from operations 239.0 239.0 348.1 348.1
Notes to the Financial Statements (continued)
32. Operating leases
Future minimum rental payments under non-cancellable operating
leases are as follows:
Group and Company Land and Plant and Land and Plant and
buildings machinery buildings machinery
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
================================== ========== ========== ========== ==========
Not later than one year 0.7 0.1 0.7 -
Later than one year and not later
than five years 1.2 0.3 1.3 -
Later than five years 1.9 2.5 1.7 2.9
========== ========== ========== ==========
3.8 2.9 3.7 2.9
Glossary
CI Customer Interruptions
CLASS Customer Load Active System Services
CML Customer Minutes Lost
DNO Distribution Network Operator
DUoS Distribution Use Of System
ENWL Electricity North West Limited
ESPS Electricity Supply Pension Scheme
FVTPL Fair Value Through Profit or Loss
IFRS International Financial Reporting Standard
KPI Key Performance Indicators
Ofgem Office of Gas and Electricity Markets
PPE Property, Plant and Equipment
RAV Regulatory Asset Value
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
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FKDDPBBKDPPN
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May 31, 2018 09:51 ET (13:51 GMT)
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