Registration number: 02366942 (England and Wales)
Northern Electric plc
Annual Report and Consolidated Financial Statements
for the Year Ended 31 December 2022
Northern Electric plc
Contents
Company Information 1
Strategic Report 2 to 21
Directors' Report 22 to 27
Independent Auditor's Report 28 to 36
Consolidated Income Statement 37
Consolidated Statement of Comprehensive Income 38
Consolidated Statement of Financial Position 39 to 40
Statement of Financial Position 41 to 42
Consolidated Statement of Changes in Equity 43
Statement of Changes in Equity 44
Consolidated Statement of Cash Flows 45
Statement of Cash Flows 46
Notes to the Financial Statements 47 to 120
Northern Electric plc
Company Information
Directors
A P Jones
S J Lockwood
J N Reynolds
Company Secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
Tyne and Wear
NE1 6AF
Registration number
02366942 (England and Wales)
Auditor
Deloitte LLP
Statutory Auditor
London
United Kingdom
Page 1
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022
The directors present their annual report and audited financial statements for the year ended 31 December 2022 of
Northern Electric plc (the "Company"), which have been drawn up and are presented in accordance with the Companies
Act 2006 (the “CA06”).
Business model
The Company is part of the Northern Powergrid Holdings Company and its subsidiaries group of companies (the
“Northern Powergrid Group”) and acts as a holding company of Northern Powergrid (Northeast) plc (“NPg Northeast”),
Integrated Utility Services Limited (“IUS”) and Northern Powergrid Metering Limited (“NPg Metering”), collectively,
(the “Group”).
NPg Northeast is an authorised distributor under the Electricity Act 1989 and holds an Licence granted by the Secretary of
State. As a distribution network operator (“DNO”), NPg Northeast is regulated by the office of Gas and Electricity
Markets (“Ofgem”), which in turn, is governed by the Gas and Electricity Markets Authority (“GEMA”). The completion
of the 2021/22 Regulatory Year (on 31 March 2022), represented the end of year seven of the current RIIO-ED1 price
control, which became effective on 1 April 2015 and is due to end on 31 March 2023 (the “ED1 period”). NPg Northeast
distribution services area in the northeast of England. As NPg Northeast is the largest contributor to the Group in terms of
revenue, the Strategic Report predominantly concentrates on the performance and progress of that entity throughout the
reporting year.
Revenue generated by NPg Northeast is primarily controlled by a distribution price control formula which is set out in the
Licence. The price control formula does not directly constrain profits from year to year, but is a control on revenue that
operates independently of a significant portion of NPg Northeast’s costs. Allowed revenue is recovered from electricity
suppliers via the application of Distribution use of System charges. These charges account for approximately 15% of the
electricity end user’s overall electricity bill. NPg Northeast’s opening base allowed revenue (excluding the effects of
incentive schemes and any deferred revenues from the prior price control) has been set to remain constant for each
Regulatory Year from 1 April 2016 through to 31 March 2023. Nominal opening base allowed revenues will increase in
line with inflation (as measured by the United Kingdom’s Retail Prices Index “RPI”).
IUS provides engineering contracting services and NPg Metering rents meters to energy suppliers.
Strategy
In common with the Northern Powergrid Group, the Group operates a strategy based on six core principles (the “Core
Principles”), which comprise Financial Strength, Customer Service, Operational Excellence, Employee Commitment,
Environmental Respect and Regulatory Integrity. The Core Principles (which are applied by the Northern Powergrid
Group’s parent company, Berkshire Hathaway Energy Company (“Berkshire Hathaway Energy”)), set out the basis on
which the Company and Group generates shareholder value over the longer-term and defines the standards by which the
Northern Powergrid Group holds itself accountable. Each Core Principle is defined by a strategic objective which is
intrinsically linked to the commitments made in the NPg Northeast’s 2015 to 2023 regulatory well-justified business plan
(the “Business Plan”).
Page 2
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Submitted to Ofgem in March 2014, the Business Plan described the long-term strategy and commitments that NPg
Northeast would achieve during the ED1 period in order to deliver sustainable growth with regard to those with whom
NPg Northeast interacted and served. Developed after a period of consultation with stakeholders, the Business Plan
focused on a number of priorities (described throughout the Strategic Report) including minimising costs, improving flood
defences, enhancing customer service, prioritising employee safety, supporting vulnerable customers, protecting the
environment and transitioning to low carbon technologies. The directors refer to the values established by the Core
Principles and the commitments contained within the Business Plan when considering the consequence of decisions they
make. The 2022 financial year denotes the last full year in which NPg Northeast operated under the Business Plan.
Following the publication of RIIO-ED2 (“ED2”) Business Planning guidance by Ofgem in August 2020, the Company
commenced the development of its regulatory business plan for the ED2 period (1 April 2023 to 31 March 2028) (the
“ED2 Plan”), which was submitted to Ofgem on 1 December 2021 (a copy of which can be found on the Northern
Powergrid Group website). As part of the development of the ED2 Plan, the Company worked with the Customer
Engagement Group (“CEG”), which was established for the purpose of providing independent scrutiny and challenge to
ensure that customers’ interests are adequately reflected in the ED2 Plan. Ahead of the implementation of the ED2 Plan on
1 April 2023, the Company will participate in open hearings with Ofgem and interested stakeholders and consultations
before Ofgem publishes its final determination in December 2022 (for further detail, see Regulatory Integrity).
During the transition into the ED2 Period and beyond, the strategy set out in the ED2 Plan will support NPg Northeast’s
evolution from DNO to Distribution System Operator (“DSO”), in order to facilitate decarbonisation and take steps to
achieve a fully integrated energy system. See Environmental Sustainability for more detail.
Many of the conditions set out in the Licence, including the way in which base allowed revenue will be determined will be
revised as a result of the stipulations set out in the ED2 final determination. However, these will not come into effect until
1 April 2023 and will therefore not be reported on until the 31 December 2023 annual report and financial statements of
the Group.
The Strategic Report focuses on each Core Principle and the performance of each KPI throughout the year in order to
provide a summary of the success in achieving each strategic objective, progress made against certain Business Plan
commitments and performance in relation to the Annual Plan.
The delivery of the Business Plan is supported by an annual business plan (the “Annual Plan”) which is submitted to the
Northern Powergrid Group’s shareholder each financial year and is designed to phase progress towards the achievement of
each commitment over the duration of the ED1 period. The phasing ensures that the deliverables in both plans can be
measured effectively by using a mix of financial and non-financial Key Performance Indicators (“KPI”).
The Strategic Report focuses on each Core Principle and the performance of the associated KPIs throughout the
Regulatory Year in order to provide a summary of the success in achieving each strategic objective, progress made against
certain Business Plan commitments and performance in relation to the Annual Plan.
Page 3
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
FINANCIAL STRENGTH
Strategic objective:
Strong finances that enable improvement and growth.
KPI
Operating Profit
Cash from operating activities
Cash used in investing activities
Credit Rating (Standard & Poor's)
Business Plan commitment
: To build on the efficiencies achieved to date and in doing so, reduce base costs by 3.1% in
2015 to 2023 compared to the previous price control period.
Performance during the year:
The Group continued to maintain good control in respect of both its capital and operating
costs by effectively managing the financial risks that could have had an adverse impact on its business. Seven years
through the ED1 Period, NPg Northeast has implemented efficiencies equivalent to a 4% reduction in base costs relative to
the prior regulatory period.
Revenue:
The Group's revenue at £558.2 million was £64.4 million higher than the prior year due to increased distribution
use of system revenues as the result of higher tariffs including the recovery of payments made under the supplier of last
resort process.
Operating profit and position at the year-end:
The Group's operating profit of £181.2 million was £3.0 million lower
than the previous year, primarily reflecting higher depreciation (£5.6 million), impact of Storm Arwen costs (£4.6 million),
and higher pension costs (£21.2 million) offset by higher gross margin (£19.4 million) and lower bad debts (£5.4 million).
The statement of financial position shows that, as at 31 December 2022, the Group had total equity of £1,398.0 million
(2021: £1,466.3 million). The directors consider the Group to have a strong financial position which, when coupled with
the preference of Berkshire Hathaway Energy for operating with lower levels of debt than equivalent companies in the
sector, creates a stable base for continued strong performance during the ED1 period.
In April 2022, the Group issued a £350 million bond at 3.25% maturing in 2052, the funds will be used for general
corporate purposes including the repayment of Northern Powergrid Group maturities in 2022.
Finance costs and investments:
Finance costs net of investment income at £47.7 million were £7.4 million higher than
the prior year mainly reflecting increased borrowings.
Taxation
: The effective tax rate in the year was 21.7%. Tax charge for the year was £29.2 million which was £38.6
million lower than prior year of £67.8 million primarily due to the impact the tax rate change had on the deferred tax
balance in the prior year. Details of the income tax expense are provided in Note 10 to the financial statements.
Share capital:
The Company has one class of ordinary shares which carries no right to fixed income. Details of
cumulative non-equity preference shares are contained in the borrowings Note 20. There were no changes to the
Company's share capital during the year.
Cash flow:
The Group aims to collect from customers and pay suppliers within contracted terms. Any surplus cash held is
remitted to Yorkshire Electricity Group plc ("YEG"), a company in the Northern Powergrid Group, and invested
accordingly, generating a market rate of return for the Northern Powergrid Group. Movements in cash flows were as
follows:
• Operating activities:
Cash flow from operating activities at £288.3 million was £12.7 million higher than the previous
year due to higher profit before depreciation and amortisation offset by adverse working capital movements.
• Investing activities:
Cash flow used in investing activities at £170.2 million was £44.3 million lower than the previous
year reflecting lower purchases of plant, property and equipment and higher receipt of customer contributions.
• Financing activities:
Cash inflow from financing activities at £108.4 million was £149.3 million higher than the
previous year of £40.9 million outflow, mainly due to the increased borrowings as result of the new bond issued in
April 2022.
Page 4
2022 2021
£ 181.2 million £ 184.2 million
£ 288.3 million £ 275.6 million
£ 170.2 million £ 214.5 million
A A
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Pensions:
The Company is a participating employer in the Group of the Electricity Supply Pension Scheme (the "DB
Scheme"), a defined benefit scheme. Further details of the Group's commitments to the DB Scheme and the associated
deficit repair payments are provided in Note 25 to the financial statements. The Group also participates in the Northern
Powergrid Pension Scheme, which is a defined contribution scheme.
Insurance:
As part of its insurance and risk strategy, the Group has in place insurance policies, which cover risks
associated with employees, third party motor and public liability. The Group carries appropriate excesses on those policies
and is effectively self-insured up to the level of those excesses.
Page 5
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
CUSTOMER SERVICE
Strategic objective:
Delivering exceptional customer service.
KPI 2022 2021
Broad Measure of Customer Satisfaction ("BMCS") 88.3% 89.4%
BMCS Rank (out of 14)
12 11
BMCS Power Cuts 87.8% 88.9%
BMCS General Enquiries 94% 94.4%
BMCS Connections 86.2% 87.8%
Stakeholder Engagement and Customer Vulnerability ("SECV") rank (out of 6)
(combined with Northern Powergrid (Yorkshire) plc)
6 5
Business Plan commitment:
To provide a reliable, better communicated and faster customer service offering through a
range of channels to suit stakeholder needs.
Performance during the year:
In respect of BMCS performance, an independent market research company carried out
telephone surveys with NPg Northeast’s customers to find out how satisfied they were with services related to unplanned
or planned power cuts, quotations and subsequent connections, and general enquiries. NPg Northeast recorded a decline in
overall satisfaction scores at 88.3% compared to the prior year (89.4%) which had resulted in an overall BMCS rank of 12
out of 14.
To further enhance the service provided to customers a number of initiatives from NPg Northeast’s customer service
improvement plan were implemented. This included the continued development of the customer relationship management
(“CRM”) system, including the launch of an enduring connections solution (which equips customers with greater
self-serve capabilities), the roll-out of additional communication and greater call handling capability.
Activity scheduled to take place during 2023 includes the further development of the CRM system to support a self-serve
solution for low carbon technology additional load requests, the introduction of a proactive on-site response offering to
support customers impacted by long duration power cuts and to provide out of hours delivery for certain services.
Connections to the network
Business Plan commitment:
To further implement customer service improvements in support of the commitment to
reduce routine, small works end-to-end connections lead times by 30% during the ED1 period, actively facilitate the
development of competition from independent connections providers ("ICPs") and deliver the major works service
improvement plan as part of the Ofgem Incentive on Connections Engagement (“ICE”).
Performance during the year:
End-to-end lead time improvement continued to be challenging due to the significant
increase in connections volumes as a result of low carbon technology uptake and additional applications post the relaxation
of Pandemic restrictions. In response NPg Northeast implemented a new quotation system which allowed customers to
obtain a quote online and increased operational delivery capacity. This was in addition to the quote on site option, single
point of contact and AutoDesign tool that were implemented in ED1.
NPg Northeast continued to comply with the processes set out in Standard Licence Condition 52 and the Competition in
Connections Code of Practice. This included the provision of dual quotations, enabling ICPs to self-determine points of
connection to the existing network and self-approve designs, and by facilitating the self-connection of new assets to NPg
Northeast’s low and high voltage networks by suitably accredited ICP operatives as a contestable activity.
In relation to NPg Northeast’s ICE commitments for the 2022/23 regulatory period, the 11 actions included in the service
improvement work plan were delivered by 31 March 2023.
Page 6
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Corporate responsibility
Business Plan commitment:
To build effective relationships with stakeholders whilst maximising the value of contact
with customers, especially those who are vulnerable and hard to reach.
Performance during the year
: In May 2022, NPg Northeast (together with Northern Powergrid (Yorkshire) plc) put
forward its SECV submission to Ofgem in respect of work undertaken during the 2021/22 Regulatory Year. The material
provided an overview of activities and case studies in areas such as support for vulnerable customers, decarbonisation,
safety, environment, customer service, reliability and availability.
Following the review by Ofgem's panel, NPg Northeast achieved sixth place (of six) in the context of the DNOs (2020/21:
fifth place (of five)). In response, an external assessment of the approach to engagement, fuel poverty provision and the
support provided to vulnerable customers was undertaken and improvement plans were established.
During the year, NPg Northeast continued to develop its routine engagement activity with a focus on decarbonisation and
resilience. This included enhancing existing relationships with local councils, Local Enterprise Partnerships and civic
leaders, particularly during periods of severe weather and when providing support to vulnerable customers. In addition,
engagement sessions were held (and attended by the CEG) to understand stakeholders’ opinions on the commitments and
proposed level of investment in the ED2 Plan.
The ongoing energy crisis and economic uncertainty exacerbated the challenges facing vulnerable customers. As a result,
additional resource was allocated to assist those facing fuel poverty and work continued with partners who provide support
services. NPg Northeast’s fuel poverty partners resumed face to face advice where possible but also maintained online and
telephone services. In addition, NPg Northeast’s Community Partnering Fund financed nine grassroots organisations
across the region to deliver fuel poverty support to vulnerable households. Alongside, the Company and all funded
partners routinely promoted Priority Services Membership and shared energy efficiency materials and winter preparedness
information to customers.
OPERATIONAL EXCELLENCE
Strategic objective:
High-quality, efficient operators running a smart reliable energy system.
2021/22 2020/21
KPI Actual Target Actual Target
Customer minutes lost ("CML") 46.3 <52.8 36.8 <55.2
Customer interruptions ("CI") 49.8 <59.2 45.3 <60.0
KPI 2022 2021
High voltage restoration time (minutes) 61.1 51.8
Network investment (million) £156.1 £187.6
Business Plan commitment:
To enhance the reliability of the network in support of the commitment to achieve 8% fewer
unplanned power cuts and reduce the average length of unplanned power cuts by 20% during the ED1 period.
Performance during the year:
CML and CI are the KPIs set by Ofgem and used by the Company to measure the quality
of supply and system performance. Both CML and CI are measured on a regulatory year basis. CML measures the average
number of supply minutes lost for every connected customer due to both planned and unplanned power cuts that last for
three minutes or longer. CI measures the average number of supply interruptions per every 100 connected customers due
to planned and unplanned power cuts that last for three minutes or longer. Performance during the year was better than
Ofgem's target for both CML and CI.
In relation to high voltage restoration, NPg Northeast’s high-voltage restoration performance during the year averaged
61.1 minutes (2021: 51.8 minutes), after allowing for severe weather incidents and other exemptions.
In respect of the Business Plan commitments, NPg Northeast together with Northern Powergrid (Yorkshire) plc achieved
26% fewer unplanned power cuts and a reduction of the average length of unplanned power cuts by 32% (relative to the
prior regulatory period). Progress remains on track to outperform the original targets of 8% fewer unplanned power cuts
and a 20% reduction in the number of unplanned customer minutes lost per customer.
Page 7
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
NPg Northeast invested £156.1 million during the year through its approved Network investment strategy (2021: £187.6
million), which has been designed to deliver improvements in Network performance and increase resilience. Various
major projects were undertaken to reinforce the primary Network, refurbish transformers, rebuild overhead lines, remove
and replace oil-filled cables, change deteriorated poles, replace switchgear and install and commission new remote-control
points.
Further Network enhancements included the continued roll-out of the automatic power restoration system on the high
voltage Network. At low voltage the implementation of next generation innovative low voltage technology devices
continued with the addition of low-cost Network monitoring sensors which detect developing faults so that they can be
proactively managed. Initiatives were also implemented as a result of the Reliability Improvement Plan including
increasing the use of mobile generation to restore supplies.
CLIMATE CHANGE ADAPTATION
Strategic objective:
Operate a highly reliable and resilient Network
Page 8
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Business Plan commitment:
To adapt to the effects of climate change by establishing and maintaining flood defences at
all high-risk substations to national standards, delivering a programme of vegetation management and working
collaboratively with regional infrastructure providers and local resilience forums.
Performance during the year:
In respect of routine activity, NPg Northeast and its affiliate invested £5.0 million on flood
mitigation works and £8.6 million on the continuation of the vegetation management programme.
In parallel, activity to understand the risks and opportunities presented by climate change, as well as the development of
initiatives in response, continued to evolve.
Using the latest climate projections (UKCP18), alongside work with the Met Office and the Energy Networks Association,
the Company carried out a risk assessment to identify and prioritise key climate related risks and their impact on the
Network.
Focus was directed on two pathways. The first, in line with the 2°C global warming considered in the Paris agreement and
the second, representing an increase in global mean surface temperature of 4.3°C by 2081-2100. The risk assessment was
carried out across three timescales (current, medium term: 2050’s and long term: 2080’s) for each scenario, which resulted
in the following key risks:
• Precipitation (extreme prolonged rainfall) - leading to flooding and erosion, and creating access issues, asset damage and
reduced performance.
• Temperature (extreme heat) - high temperatures, which may reduce the performance and efficiency of assets.
• Precipitation (storms) - strong winds in conjunction with heavy rain, causing operational failure of above ground assets
and increased faults.
• Temperature / Precipitation (gradual increase in temperature and rainfall) - warmer and wetter conditions extending
vegetation growing seasons, resulting in accelerated growth and increasing management needs.
In terms of impact, sixteen asset related risks and four non-asset related risks were identified, all of which were included in
NPg Northeast’s Climate Change Adaptation report submitted to Department for Environment, Food and Rural Affairs
(“Defra”) in December 2021 and the Climate Resilience Strategy for 2023 to 2028 (both available on the Northern
Powergrid Group website).
NPg Northeast’s climate resilience framework (part of the aforementioned strategy) has been developed in line with
guidance from Defra and the National Infrastructure Commission’s approach to Climate Resilience and incorporates the
recommended aspects of resilience: Anticipate, Assess, Adapt, Recover and Transform.
Statement pursuant to Listing Rule 14.3.27R Task Force on Climate-related Financial Disclosures (“TCFD”)
Disclosures consistent with the TCFD Recommendations and Recommended Disclosures have been included in the
‘Climate Change Adaptation’ section of the Strategic Report and the two documents outlined above. It should be noted
that the Company has a negligible impact on the environment and climate given its principal accountability is that of a
Holdings Company.
Page 9
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
EMPLOYEE COMMITMENT
Strategic objective:
High-performing people doing rewarding jobs in a safe and secure workplace
2022 2021
KPI Actual Target Actual Target
Northern Powergrid Group occupational safety and
health administration ("OSHA") rate 0.26 0.09 0.29 0.09
Preventable vehicle accidents 10 14 23 14
Lost time accidents 0 0 1 0
Medical treatment accidents 0 1 2 1
Operational incidents 5 3 6 4
Absence rate 3.3% 3.3%
Health and safety
Business Plan commitment
: To deliver world class safety performance and halve the accident rate during the ED1 period.
Performance during the year
: In common with the Berkshire Hathaway Energy group, the Northern Powergrid Group
measures its safety performance using the OSHA rate, which is a measure used to capture safety incidents down to minor
levels of medical treatment. The Northern Powergrid Group failed to meet its target of 0.09 having achieved an OSHA rate
of 0.26 (2021: 0.29), which equated to six recordable incidents against a goal of two or fewer. Three incidents involved
minor burn injuries, and as such, an intervention plan was implemented. NPg Northeast had a positive year in terms of
PVAs, with ten recorded against a target of 14 or fewer.
In respect of the Business Plan commitment, at 31 December 2022, NPg Northeast’s accident rate had been reduced by
42%, which is on target to achieve a 50% reduction by 31 March 2023.
Improving safety performance remains a key priority and the way in which this is achieved is set out in the Group’s safety
and health improvement plan (“SHIP”). During the year, the SHIP focused on 45 initiatives in the areas of enhanced
engagement, operational performance, risk management, road risk, occupational health and public safety. This included an
upgrade of the telematics system in all fleet vehicles, continuation of driver training, weekly driving performance analysis
for fleet vehicle drivers and the introduction of a new system for display screen equipment assessments.
The mental health and wellbeing of staff continues to form an integral part of the SHIP. Existing support includes an
independent employee assistance service, which is a confidential, self-referral counselling and information service to assist
with personal or work-related problems and access to services including counselling and physiotherapy referrals.
In terms of the Pandemic, safe working practices and procedures remained under review by members of the safety team,
senior management team, Health and Safety Committee and the Board, in conjunction with trade union representatives
until measures were relaxed.
During the year, NPg Northeast successfully retained its ISO 45001 accreditation scheme for its health and safety
management system.
Page 10
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Employees
Business Plan commitment:
To emphasise the importance of leadership and high standards of performance by engaging,
collaborating and working with employees and their trade union representatives.
Performance during the year
: As Pandemic restrictions eased, an enduring approach to agile working was launched,
allowing eligible colleagues to adopt flexible ways of working. This enhanced The Group’s ability to attract new talent
whilst fostering teamwork and collaboration. Alongside, the Group continued to develop its health and wellbeing offering
and in support, appointed a new occupational health partner.
In relation to development, training sessions on topics which formed part of the Diversity, Equality and Inclusion plan
were provided to further promote a more inclusive culture. Routine training also continued in key areas such as customer
service, cyber security and management development. In 2023, the Group’s leadership offering will be refreshed in line
with the Berkshire Hathaway Energy Performance Management Framework.
During the year, 41 new recruits (2021: 38) joined the NPg Northeast’s and Northern Powergrid (Yorkshire) plc’s
workforce renewal programme. At 31 December 2022, the Company had 1,281 employees (2021: 1,228).
Further information concerning how the Northern Powergrid group is supporting gender diversity in the energy industry
can be found in the Northern Powergrid Group’s gender pay gap report via the Northern Powergrid Group’s corporate
website.
Employee engagement
The board and senior management team keep employees and trade union representatives informed of and involved as
appropriate in developments that may impact them now or in the future. This approach has been chosen as the most
effective way of interacting with employees due to the combination of collectively bargained and personal contract
holders. In support of this process, the Director of People and Change routinely reports to the board and the Health and
Safety Committee to ensure that the views of employees are considered and to facilitate the discussion of and any
subsequent decision making in respect of employee related concerns or issues.
Consultation for collectively bargained employees is agreed with trade union representatives in the form of a constitutional
framework. In addition, all employees are consulted to establish their views and identify key priorities using employee
engagement surveys.
During the year, the President and Chief Executive Officer, members of the board and senior management team provided
regular updates on financial, organisational, safety and customer service performance. As social distancing measures
eased, the executive directors engaged directly with employees during operational and office-based site visits, and
induction and graduation events. Communication with employees was delivered via various channels including group wide
text messages to quickly disseminate key information concerning safety, the Pandemic and Major Incident Management
Plans, regular briefings, line manager conversations, meetings with trade union representatives and utilising the Northern
Powergrid Group's intranet.
The Berkshire Hathaway Energy code of business conduct ("Code of Conduct")
The Northern Powergrid Group has adopted the Code of Conduct, which details the commitment to ethics and compliance
with the law, provides reporting mechanisms for known or suspected ethical or legal violations, and establishes minimum
standards of behaviour expected of all employees. In support of this, a "speaking up" process is in place enabling all
employees to raise concerns of unethical acts, malpractice or impropriety (including bribery or corruption), and an
anonymous help line operated by an independent company is also available. All colleagues complete an annual online
training programme covering the requirements of the Code of Conduct.
Employment of disabled persons
NPg Northeast’s policy is to provide all protected groups, including disabled people, with equality at work in respect of
employment, training, career development and promotion, having regard to their aptitudes and abilities. Should any
member of staff become disabled during their employment, the Company will make reasonable adjustments, wherever
possible.
Page 11
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
ENVIRONMENTAL RESPECT
Strategic objective:
Leaders in environmental respect and low carbon technologies.
2022 2021
KPI Actual Target Actual Target
Total oil/fluid lost (litres) 10,164 <11,406 8,986 <11,583
SF6 gas discharges (kg) 22.08 <12.75 19.20 <13.50
Environmental incidents 3 <2 0 <2
KPI 2022 2021
Carbon footprint (tonnes) 14,375 14,496
KWh Energy Consumed 20,867,214 21,241,374
Business carbon footprint Tonnes Per km² Tonnes Per km²
Scope 1 2,728 0.19 2,737 0.19
Scope 2 2,439 0.17 2,679 0.19
Scope 3 9,208 0.64 9,080 0.62
Total carbon footprint (tonnes) 14,375 1.00 14,496 1.00
Note: KWh energy consumed relates to depot energy and fleet fuel usage.
The chosen business carbon footprint intensity ratio is based on the Company’s licence area which equals 14.394 km.
The methodology adopted to calculate energy and business carbon footprint data is aligned with international standards, those required by Defra and
BEIS and is compliant with ISO 14064-1:2006.
Business Plan commitment:
Deliver Environmental “RESPECT” (Responsibility, Efficiency, Stewardship, Performance,
Evaluation, Communication and Training) and in doing so reduce oil and fluid loss by 15% and our business carbon
footprint by 10% during the ED1 period.
Performance during the year:
NPg Northeast operates a United Kingdom Accreditation Service scheme for
environmental management and is certified to the environmental management systems standard ISO 14001:2015. This is
designed to enhance environmental performance, fulfil compliance obligations and achieve environmental objectives, all
of which contribute to the attainment of the KPIs. A full recertification assessment was carried out in March 2020 with
continued certification confirmed following the last surveillance audit in October 2022.
NPg Northeast’s carbon footprint reporting framework is certified under the Certified Emissions Measurement and
Reduction Scheme for compliance with ISO 14064-1:2006. Certification was reconfirmed in August 2022.
Remote working and less travel has led to a further reduction in NPg Northeast’s carbon footprint to 14,375 tonnes (2021:
14,496 tonnes). This improvement (combined with Northern Powergrid (Yorkshire) plc) demonstrated a carbon footprint
reduction of 39% at 31 December 2022, well ahead of the original 10% ED1 commitment.
In support of the target to further reduce oil and fluid loss, the 2022 annual environmental improvement plan included
replacing fluid-filled cables and locating cable fluid leaks more quickly resulting in a total fluid loss of 10,164 litres (2021:
8,986). In relation to the Business Plan commitment, at 31 December 2022, NPg Northeast and its affiliate had achieved a
51% reduction in oil and fluid loss (15% commitment).
To maintain its strict policy of environmental protection and legal compliance, NPg Northeast continued to assess
environmental risks and mitigate threats through programmes of work such as fluid-filled cable replacement,
undergrounding overhead lines in areas of outstanding natural beauty, installing flood defences, implementing secondary
containment in high-risk substations and removing equipment containing polychlorinated biphenyl from the Network.
Whilst prevention is paramount, in the event NPg Northeast’s activity does result in a leak or spill, the services of an
appointed 24-hour a day environmental response consultancy is used to minimise the effects of any incident.
Page 12
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
NPg Northeast takes its environmental responsibilities very seriously and has a proven track record of lowering emissions
and minimising the wider environmental impact of Network activity. Reducing the level of internal carbon footprint is a
key priority and consequently, plans have been developed to become carbon net neutral by 2040. This includes initiatives
such as increasing ultra-low emission or zero emission vehicles to 40% of NPg Northeast’s fleet of vehicles by 2028 and
the adoption of science-based targets.
Science-based targets are a set of goals developed to provide a clear route to reducing greenhouse gas emissions.
Emissions reduction targets are considered science based if they are consistent with keeping global warming below 1.5°C
above pre-industrial levels. NPg Northeast’s science-based targets were verified by the Science-based Targets Initiative in
December 2021.
In respect of NPg Northeast’s wider environmental impact, plans have been developed to achieve zero waste to landfill by
2035 and to divert 90% of waste from all of NPg Northeast’s operations by 2028. In addition to safeguarding the
environment from its direct activity, NPg Northeast also operates a programme which is aimed at protecting natural
habitats and increasing the variety and variability of species and ecosystems at 200 major sites.
To date, NPg Northeast’s performance against a number of stretching KPIs to reduce carbon usage and minimise the
effects on stakeholders and the environment has been positive. However, it is acknowledged that becoming carbon neutral
by 2040 and working with suppliers and partners in order to accomplish this, is not without its challenges and risks.
Accordingly, NPg Northeast will continue to evolve its ambitions and enhance the implementation of environmental plans
throughout the ED2 period.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Environmental Sustainability
Strategic focus:
Enable significant growth in customers connecting low carbon technologies, support all pathways to net
zero emissions and significantly reduce NPg Northeast’s carbon footprint.
Performance during the year:
As the country takes action to reduce carbon emissions in line with the net zero target by
2050, the way in which electricity is produced and used is expected to have a substantial impact on the Network over time.
Accordingly, in the year, NPg Northeast engaged with Ofgem to secure the funding to support its DSO strategy and
therefore, act as a key facilitator in the country’s net zero transition by placing decarbonisation at the heart of its
investment and actions for the ED2 period.
As the volume and total capacity of decentralised energy generation grows and given the greater range of load and
generation technologies now connected to the Network, NPg Northeast continued to develop and action innovative
solutions that will reduce the need for traditional and potentially expensive reinforcement.
In the past year, NPg Northeast engaged with the market for flexibility by consulting on investment solutions where there
was an option for customers to change their energy consumption and generation patterns, thereby facilitating a more
efficient and greener Network. And to better understand how to prepare the Network for the future needs of its customers
and the potential pathways to net zero, NPg Northeast published further Distribution Future Energy Scenarios in February
2022 (available via the Northern Powergrid group corporate website).
From an innovation perspective, NPg Northeast runs a portfolio of projects in the priority areas of customer vulnerability,
resilience and decarbonisation. One ongoing energy efficiency project has the potential to deliver a 4% reduction in
domestic energy use, giving rise to an average £40 annual saving. Meanwhile, the scope of the Silent Power generators for
temporary restorations was expanded to support larger and high voltage faults. Ongoing innovation projects aim to provide
support to rural communities.
Whilst NPg Northeast transitions into the ED2 period and the role of the DSO becomes better defined, decarbonisation
will continue to become central not only to NPg Northeast’s strategy, but the way in which the Company contributes more
broadly to the evolution of the energy industry and the stakeholders with whom it interacts. NPg Northeast has been
progressive in its ambition to reduce its own business carbon footprint. However, more is required and it is acknowledged
that NPg Northeast has a key role to play in facilitating regional decarbonisation by fulfilling the functions of DSO. This
means investing in people, processes and systems in order to actively manage the Network and to optimise the use of
assets and generated energy in the region.
As part of NPg Northeast’s ED2 Plan submission, a number of strategic objectives shaped the development of the
accompanying DSO strategy. This included ‘flexibility first’, involving deploying flexible solutions as an alternative to
Network reinforcement, ‘whole system collaboration’ in order to engage with the wider market on whole system energy
solutions, ‘data and digitalisation’, to facilitate solutions in areas such as open data, ‘openness and transparency’ to
collaborate in joint planning with our stakeholders and, finally, fostering a ‘workplace and workforce fit for the future', to
build regional and national skills.
Collectively, these objectives have been developed to achieve a number of outcomes and benefits. Consequently, during
ED2, NPg Northeast will proceed with its plans for DSO to enable open energy data sharing, transform the way decisions
and plans are made throughout the Company, support the development of new flexible energy markets, increase customer
and Network flexibility and facilitate a whole system energy system. In support, the new DSO business unit was launched
in 2022, and is led by the Director of Policy & Markets.
Page 14
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
REGULATORY INTEGRITY
Strategic objective:
Trustworthy, fair and balanced.
KPI:
Completion of a quarterly regulatory compliance affirmation process.
Business Plan commitment:
To manage the Group's business to the highest behavioural standards and adhere to a policy
of strict compliance with all relevant standards, legislation and regulatory conditions.
Performance during the year:
In order to assure compliance with distribution licence and other regulatory obligations,
NPg Northeast operates a regulatory compliance affirmation process, under which ownership of approximately 1,900
regulatory obligations is assigned to 71 responsible managers. Those responsible managers are required to review
compliance with the relevant obligations on a quarterly basis and report on any identified non-compliances or perceived
risks which are then addressed by members of the senior management team. To minimise the risk of NPg Northeast
breaching its licence conditions and other statutory requirements (which could lead to financial penalties), the board
reviews the outcomes of each exercise. Each quarterly regulatory compliance affirmation process was completed
satisfactorily during the year.
NPg Northeast submitted its annual Data Assurance Report to Ofgem in February 2022, which included risk assessments
of the regulatory returns to be submitted for the Regulatory Year ahead (April 2022 to March 2023), together with a report
detailing the assurance work actually carried out in the year ended 28 February 2022 and the findings of that work.
Ofgem completed its review process to determine the network charges that DNOs will be able to levy over the ED2 period
and issued a consultation on its draft determinations for the ED2 period on 29 June 2022, to which the Company submitted
a comprehensive response. Ofgem issued its final determinations on 30 November 2022.
The main focus in the ED2 period will be on investing in supporting the move away from dependence on fossil fuels
towards cleaner, cheaper and more secure sources of energy, such as wind and solar power, to connect those sources of
generation to the network and to facilitate the anticipated significant increase in the use of low carbon technologies such as
heat pumps and electric vehicles.
On 2 March 2023, NPg Northeast and its affiliate sought permission from the Competition and Markets Authority (the
"CMA") to appeal against the licence modifications that give effect to the ED2 price control. The appeal relates to two
specific areas:
1. the misallocation of allowances that is inconsistent with efficient costs; and
2. the approach to determining rewards for the Business Plan Incentive.
The permission for the appeal was granted by the CMA, the appeal is expected to conclude in the fourth quarter of 2023 in
accordance with the timetable required of the CMA. The outcome of these appeals may increase or reduce the revenue
available to NPg Northeast if the CMA amends the price control determination.
Page 15
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
PRINCIPAL RISKS AND UNCERTAINTIES
The Northern Powergrid Group operates a structured and disciplined approach to the management of risk as part of its
overall risk management policy and in support of its financial reporting practices. A system is in place to facilitate the
identification of new and emerging opportunities and risks, including those associated with the achievement of the
Northern Powergrid Group’s strategic objectives and Core Principles. This includes regular reviews of the macro
environment as well as risks that arise from within functional business areas. Once identified, key risks and their respective
controls and mitigation plans are continually assessed and formally reviewed on a quarterly basis by the Risk Advisory
Board ("RAB") in order that they are managed to an acceptable level in accordance with the Northern Powergrid Group’s
risk appetite. The RAB routinely reports its findings to the board to ensure the directors are sufficiently appraised of the
risk exposure associated with the pursuit of the Company’s and Group’s long-term strategy.
The risk management programme includes regular reviews of the crisis management, disaster recovery and major incident
plans. To determine the level of disaster preparedness and responsiveness against threats to business continuity, risk
management plans and processes are periodically tested. This self-evaluation approach is reinforced by that of the
Berkshire Hathaway Energy group, which benchmarks risk management activities across its business units and shares
significant lessons learned. The business continuity and disaster recovery plans were fully tested as a result of the
Pandemic, and whilst adaptation and flexibility was required, operational performance remained resilient and employees
continued to perform their duties safely.
Principal Risks
During the year, the risk posed by leaving the European Union was removed. In addition, following the relaxation of rules,
the Pandemic no longer remains as a principal risk. No other notable changes have taken place. The Northern Powergrid
Group’s principal risks are not ranked or prioritised in any particular order.
Cyber and Information Security
Unauthorised access or compromise of the Information Technology or Operational Technology networks, resulting in loss
of network control and availability. Unauthorised access or loss of large volumes of data or sensitive data.
Mitigations:
•
Robust cyber security risk mitigation programme is in place.
• Accreditation under the ISO 27001 Information Security standard for operational, customer, employee and financial
information.
• Compliant to the Network Information Security Directive and the Basic Cyber Assessment Frameworks.
•
Compliance with the Centre for Internet Security Critical Security Controls.
•
Monitored by the Information Security Executive Committee and the board.
Regulatory and policy positioning
Decisions taken resulting in negative impacts to our business model.
Mitigations:
•
NPg Northeast policy position supporting the expanded role of DSO was published in December 2021.
•
Innovation projects in place to develop and demonstrate future technologies and commercial practices.
• NPg Northeast engages in a robust regulatory and stakeholder engagement programme the latter of which is scrutinised
by the CEG.
• NPg Northeast is actively involved in consultations on the ED2 price controls.
Page 16
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Network resilience
Loss of the operational network due to significant weather events, targeted physical attack or catastrophic asset failure
resulting in sustained or widespread loss of essential supply.
Mitigations:
•
Major incident and crisis management policies, plans and governance arrangements are in place.
•
An industry mutual aid agreement exists.
•
Network investment ensures grid resilience.
•
Grid resilience programme and audits.
• Vulnerable site protocols.
• Climate resilience strategy and framework.
Page 17
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Safety
Fatality or serious harm caused to an employee or a third party.
Mitigations:
•
Overseen by the Health and Safety Committee.
•
Clear policies and procedures exist that comply with legislation to ensure the safety of the employees and customers.
• Safety Health and Improvement Plan.
•
Health and safety training is provided to employees on a continuous basis.
•
Enhanced audit programme and inspection regimes are in place.
•
ISO45001 safety management system in place.
Environment and climate protection
Failure to prevent network assets from having a significant negative impact on the environment.
Mitigations:
•
Incident response process and robust policies and procedures in place
• Programme to reduce fluid loss and the Company’s business carbon footprint and remove assets containing
polychlorinated biphenyl from the network.
•
Investment in technology to minimise environmental incidents and ‘self-heal’ the network.
•
Asset inspection and maintenance programme.
• Environment improvement plan and Environment Action Plan.
• Path to carbon neutrality by 2040.
• Waste management and habitat protection programmes.
• Science-based targets approved by the Science-based Targets Initiative.
•
ISO14001 environmental management system in place.
Resource availability
Access to and availability of skilled resource resulting in an inability to deliver work programmes.
Mitigations:
•
Mix of direct labour and contracted resource is used.
•
Workforce renewal programmes in place to recruit and retain employees.
•
Ongoing training and development builds internal capability.
•
Employee engagement and health and well-being initiatives are in place.
•
Diversity, equality and inclusion plan.
Efficiency and output performance
Failure to maintain cost and output performance competitiveness in the industry.
Mitigations:
•
Robust business planning process.
• Financial controls in place including detailed review of actuals against budget, competitive tendering process, and
capital expenditure approvals process.
•
Monthly executive business performance review.
•
Comprehensive “Efficient Output Delivery” programme.
Page 18
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Financial risks
The exposure to interest rate, tax, liquidity and treasury risks.
Mitigations:
•
Monitored by the Treasury department.
• The Group is financed by long-term borrowings at fixed rates has access to short-term borrowing facilities at floating
rates of interest.
• As at 31 December 2022, 97% of the Group's long-term borrowings were at fixed rates and the average maturity for the
long-term borrowings was 23 years.
•
Financial covenant monitoring is in place.
•
Regulatory adjustments control the effect of taxation changes.
Internal control
A strong internal control environment exists to support the financial reporting process, including regular reporting, a series
of operational and financial policies, investigations undertaken by internal audit and a stringent process for ensuring the
implementation of internal audit recommendations. In addition, the Group utilises comprehensive business planning
procedures, regularly reviews KPIs to assess progress towards its goals, and has a strong internal audit function to provide
independent scrutiny. Financial controls include centralised treasury operations and established procedures for the
planning, approving and monitoring of major capital expenditure.
The RAB monitors the effectiveness of internal controls and reports on its findings to the board and Berkshire Hathaway
Energy. As part of the statutory reporting process, the Group’s external auditor reviews and tests a number of internal
controls and reports their findings and recommendations for improvements to the board.
Controls which are applicable to financial decisions are governed via a schedule of delegations of authority which are
approved by the board (and applies to the Northern Powergrid Group) for the purpose of enabling the senior management
team to make decisions up to certain financial limits, above which point the decision making reverts to the directors. These
limits reflect the board’s level of risk appetite and are reviewed on an annual basis.
In accordance with Berkshire Hathaway Energy’s requirements to comply with the Sarbanes-Oxley Act, the Group
undertakes a quarterly risk control assessment confirming that the effectiveness of the system of internal controls have
been reviewed during the year. A self-certification process is in place, in support of this review, whereby certain senior
managers are required to confirm that the system of internal control in their area of the business is operating effectively.
Consequently, the directors believe that a robust system of risk assessment and management is in place.
The Northern Powergrid Group does not have a specific human rights policy. However, in accordance with the Core
Principles, it remains fully committed to operating ethically and responsibly and with fairness and integrity. This is
implemented through its policies and procedures, which are applicable to all stakeholder groups and encompasses
employees’ health, safety and welfare, dealings with customers (particularly those who are vulnerable), the impact of the
Northern Powergrid Group on the environment and the contribution to sustainability.
To ensure that the Northern Powergrid Group maintains the highest level of ethical standards in the conduct of its business,
Berkshire Hathaway Energy's Code of Conduct has been adopted (See ‘Employees’). The Northern Powergrid Group has
robust procedures in place to meet the requirements of the Bribery Act 2010. Every employee must undertake training in
respect of the Northern Powergrid Group’s anti-corruption and anti-bribery policy each year.
Page 19
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Section 172(1) statement
Decision-making at the Board
All matters which under the Company’s governance arrangements are reserved for decision by the Directors are presented
at Board meetings. Directors are briefed on any potential impacts and risks for customers, and other stakeholders and how
they are to be managed. The Directors take these factors into account before making decisions, which together they believe
are in the best interests of the Company and its member.
Long-term sustainability
As referenced throughout the Strategic Report, NPg Northeast’s business model is to make sufficient profit in order to
invest in the Network thereby, ensuring the integrity of the electricity supply for its customers. To achieve this objective,
the Company and Group delivers its service to fulfil the needs of the stakeholders with whom it interacts and in doing so,
ensures all business relationships are conducted in an open and transparent manner. Consequently, fostering business
relationships is a prerequisite of the activity performed by the Group in the pursuit of its goals and the long-term
sustainability of the Group is at the forefront of decision-making.
The Group’s policy in respect of engaging with stakeholders is governed by the Core Principles and the Code of Conduct.
The Core Principle of ‘Regulatory Integrity’ defines the Northern Powergrid Group’s commitment to comply with all laws
wherever it does business and the expectation that all employees (including directors) manage their activities in a manner
that is compliant with all standards, regulations and corporate policies. In addition, the Code of Conduct requires
adherence to the highest level of ethical conduct and fair dealings with all customers, suppliers and competitors.
Employees
As detailed in the ‘Employee Commitment’ section, the Group works hard to ensure the health and safety of employees
and to provide them with opportunities for advancement alongside fair terms whilst remunerating appropriately. Activities
undertaken by the board in the year included reviewing health and safety performance, monitoring key appointment
changes, receiving regular updates on the Northern Powergrid Group’s Diversity, Equity and Inclusion plan, reviewing the
Northern Powergrid Group’s gender pay gap report and approving the delegations of authority.
Customers
Customers, whether they are domestic or commercial, are the primary stakeholder group served by the Gourp and
therefore the services offered are all tailored to provide a benefit or enhance an experience. During the year, the board of
NPg Northeast regularly reviewed performance levels, closely monitored the response in respect of Storm Arwen,
including compensation arrangements and engaged with the Chair of the CEG. Further detail of the Group’s relationship
with customers and the support programmes provided is discussed in ‘Customer Service’.
Producers and suppliers
The Group works closely with its supply chain and has measures in place to ensure the treatment of all supplies is fair and
equitable. Relations with suppliers is managed using a supplier registration system which supports a robust and transparent
procurement process and ensures strict compliance with the prevention of slavery and human trafficking. As a
consequence, the system allows the Group to make informed decisions which align with its values when awarding
contracts. When considering suppliers, the board advocates prompt payment practices, which are reviewed regularly by the
internal audit function, and the implementation of procedures to reduce the risk of modern slavery in supply chains - as set
out in the Northern Powergrid Group’s annual modern slavery statement.
Financial stakeholders
Financial information is routinely made available to financial stakeholders, including relationship banks and bondholders.
Directors participate directly with stakeholders when entering into new financial arrangements. During the year, the board
approved an interim dividend, the annual and interim accounts and the tax strategy.
Community and environment
Each Director is required to take all reasonable steps to minimise any detrimental impact the Group’s operations may have
on the environment (see ‘Environmental Respect’). NPg Northeast also supports a range of charitable and community
activities to help customers with fuel poverty and safety around electricity (‘Community’ section). During the year, NPg
Northeast donated £6,954,879.52 to the Northern Powergrid Foundation and the directors routinely reviewed
environmental performance and made decisions pursuant to Environmental Respect.
Regulator
NPg Northeast is in regular dialogue with Ofgem concerning new policy development and emerging risks or opportunities
within the sector. As outlined in ‘Regulatory Integrity’, to meet its licence conditions, NPg Northeast and the directors
provide regular reporting to Ofgem (including the annual regulatory certificates and Regulatory Accounts), contribute to
various regulatory consultations and monitor regulatory compliance. Given the implications on NPg Northeast’s long-term
strategy, the relationship with Ofgem, the evolving ED2 framework, the transition to DSO were regular items on the board
agenda throughout the year.
Page 20
Northern Electric plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Acting fairly as between the Company’s owners
The Company has one class of ordinary shares which are all held by Northern Powergrid Limited, a company owned by
Northern Powergrid UK Holdings. The Company also has one class of preference shares, further details of which can be
found in Note 20.
Non-financial information statement
In accordance with Section 414CA(7) of the CA06, the directors have elected to set out the information required by
Section 414CB (1) to (6) in the group annual report and audited consolidated financial statements of Northern Powergrid
Holdings Company, a copy of which, will be published on the Northern Powergrid Group's corporate website.
Approved by the Board on 28 April 2023 and signed on its behalf by:
A P Jones
Director
Page 21
Northern Electric plc
Directors' Report for the Year Ended 31 December 2022
The directors present their annual report and the audited consolidated financial statements for the year ended 31 December
2022.
Dividends
During the year, an interim dividend of £114.9 million was paid (2021: £26.0 million). The directors recommend that no
final dividend be paid in respect of the year (2021: £nil).
The Group's dividend policy is that dividends will be paid only after having due regard to available distributable reserves,
available liquid funds and the financial resources and facilities needed to enable the Company and Group to carry on its
business for at least the next year. In addition, the level of dividends is set to maintain sufficient equity so as not to
jeopardise the Company’s and NPg Northeast’s investment grade issuer credit ratings. These strict parameters align with
the conditions set out in NPg Northeast’s distribution licence and are considered carefully by the board so as to ensure that
the payment of any dividend does not cause NPg Northeast to breach any licence obligations in the future.
Directors of the Company
The directors who held office during the year under review and to the date of signing this report were:
T H France (resigned 14 April 2022)
C D Haack (resigned 14 April 2022)
A P Jones (appointed 14 April 2022)
P A Jones (resigned 14 April 2022)
S J Lockwood (appointed 14 April 2022)
J N Reynolds
During the year, none of the directors had an interest in any contract which was material to the business of the Company or
Group. During the year and up to the date of approval of the Directors' Report, an indemnity contained in the Company's
(and each company within the Northern Powergrid Group’s) Articles of Association was in force for the benefit of the
directors of the Company and as directors of associated companies, which was a qualifying indemnity provision for the
purposes of the Companies Act 2006.
Future developments and future outlook
The financial position of the Group, as at 31 December 2022, is shown in the consolidated statement of financial position.
There have been no significant events since the year end and the directors intend that:
• NPg Northeast will continue to implement the Business Plan during the remainder of the ED1 period, before it
transitions into the ED2 period, and by delivering the strategic objectives linked to the Core Principles, will develop its
business by efficiently investing in the Network and improving the quality of supply and service provided to
customers. IUS will develop its business by concentrating on its core skills of engineering contracting thereby
delivering a high standard of service to its existing clients and pursuing opportunities to increase its portfolio of clients.
• NPg Metering will retain its focus on pursuing opportunities in the market for meter asset provision as the smart meter
roll-out programme develops.
There are no plans to change the existing business model of the Company, or any of the companies within the Group.
Research and development
The Group supports a programme of research that is expected to contribute to higher standards of performance and a more
cost-effective operation of its business. During the year, the Group invested £1.6 million (2021: £0.8 million) (Note 5 to
the financial statements) in its research and development activities.
Page 22
Northern Electric plc
Directors' Report for the Year Ended 31 December 2022 (continued)
Political donations
During the year, no contributions were made to political organisations (2021: £nil).
Financial instruments
Financial risk management
Details of financial risks are included in the Principal Risks and Uncertainties, found in the Strategic Report and in Note
29 to the financial statements.
Financial derivatives
As at 31 December 2022 the Group held one derivative financial instrument (2021: one) to mitigate the interest rate risk on
a floating interest rate loan. More details on derivative financial instruments are available in Note 30 to the financial
statements.
Stakeholder engagement and environmental disclosures
In accordance with Paragraphs 11 and 15 of Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008, details concerning the relationship and engagement with employees and those with whom
the Company and Group does business, in addition to information concerning greenhouse gas emissions can be found in
the Section 172 Statement and the Strategic Report (Environmental Respect and Employee Commitment).
Vote holder and issuer notification
There have been no disclosures to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer
Notification Rules).
Vote holder and issuer notificatio
n
There have been no disclosures to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer
Notification Rules).
Directors' biographies
Alex P Jones
Mr Jones joined the Northern Powergrid Group in January 2015 and became Finance Director in March 2022. He is a
Chartered Accountant having completed his training with KPMG, spending seven years in their Restructuring practice.
Prior to becoming Finance Director, Mr Jones was the Director of Performance and Planning, leading on the development
of the Northern Powergrid Group’s Business Plan. He has also spent time leading the Northern Powergrid Group’s
engineering and major projects operations teams.
Stephen J Lockwood
Appointed in April 2022, Mr Lockwood joined the Northern Powergrid Group in 1983 and became Group Financial
Controller in 2016. Prior to this he held a number of finance roles in the Northern Powergrid Group. Mr Lockwood is a
qualified Chartered Management Accountant and Chartered Tax Advisor.
John N Reynolds OBE
Mr. Reynolds was appointed in January 2011 as a director of Northern Powergrid Holdings Company and in October 2017
as Chairman of the audit committee and a director of the Company. Mr Reynolds is the Chief Executive Officer of Castle
Water. He is a Fellow of the Institution of Engineering & Technology, a Fellow of the Energy Institute and is a former
commission member of the Water Industry Commission for Scotland. Mr Reynolds chaired the Church of England Ethical
Investment Advisory Group, and is a former council member of the Central Finance Board of the Methodist Church. He is
the author of a number of books and articles on business ethics. Mr. Reynolds previously held senior management roles at
HSBC and Houlihan Lokey.
Page 23
Northern Electric plc
Directors' Report for the Year Ended 31 December 2022 (continued)
CORPORATE GOVERNANCE STATEMENT
In accordance with Disclosure and Transparency Rule (DTR) 7.2.9, the directors have elected to set out the information
required by DTR 7.2.1 to DTR 7.2.7 R in a separate statement, a copy of which can be found on the Northern Powergrid
Group's corporate website.
Audit committee
The board of Northern Powergrid Holdings Company has established an audit committee for the Northern Powergrid
Group under delegated terms of reference which carries out the functions required by DTR 7.1.3 R.
Composition:
• J N Reynolds, non-executive Director (Chair)
• A P Jones, Finance Director (appointed 14 April 2022)
• M Knowles, independent member - Northern Powergrid Holdings Company
• S J Lockwood - Group Financial Controller (resigned 14 April 2022)
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable
law and regulations.
. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors
are required to prepare the group financial statements in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements also comply with
International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board
(“IASB”). Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group and
Company for that period.
In preparing these financial statements, International Accounting Standard 1 requires the directors to:
•
Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the Company's and the Group's
financial position and financial performance; and
• Make an assessment of the Company's and the Group's ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company's and the Group's transactions and disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' responsibility statement pursuant to DTR 4
Each of the directors as at the date of the annual reports and financial statements, whose names and functions are set out in
the Directors Report confirms that, to the best of their knowledge:
• The financial statements, prepared in accordance with applicable UK law and in conformity with IFRS, give a true and
fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the
consolidation taken as a whole;
• The Strategic Report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties it faces; and
Page 24
Northern Electric plc
Directors' Report for the Year Ended 31 December 2022 (continued)
• 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 and Group’s position and performance, business model
and strategy.
Page 25
Northern Electric plc
Directors' Report for the Year Ended 31 December 2022 (continued)
Going Concern
A review of the Group's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Report of the Directors and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Group, and
companies may lend within the Group. For that reason, financial health is considered with reference to the Northern
Powergrid Group.
When considering if to continue to adopt the going concern basis in preparing the annual report and financial statements,
the directors have taken into account a number of factors, including the following:
• The Northern Powergrid Group's main subsidiaries, NPg Northeast and NPg Yorkshire are stable electricity
distribution businesses operating an essential public service and are regulated by the Gas and Electricity Markets
Authority (“GEMA”). In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to have
regard to the need to secure that licence holders are able to finance the activities, which are the subject of obligations
under Part 1 of the Electricity Act 1989 (including the obligations imposed by the electricity distribution licence) or by
the Utilities Act 2000;
• The Northern Powergrid Group is profitable with strong underlying cash flows. The Northern Powergrid Group, NPg
Northeast and NPg Yorkshire hold investment grade credit ratings;
• The Northern Powergrid Group is financed by long-term borrowings with an average maturity of 18 years and has
access to short-term committed borrowing facilities of £242 million provided by Barclays Bank plc, Lloyds Bank plc,
HSBC UK Bank plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings which allow access to a range of
financing options including the capital markets. A successful bond issue by the Northern Powergrid Group in April
2022, demonstrates that the Northern Powergrid Group’s bonds remain attractive to investors and there is an active
market with strong appetite to invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in
trading performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall
due for at least the 12 months from the date of these accounts. The directors have had discussions with the bank who
have indicated that they would continue to provide the short term facilities to the Northern Powergrid Group for the
foreseeable future on acceptable terms; and
• Consideration was also given to the obligations contained in NPg Northeast's and Northern Powergrid (Yorkshire)
plc’s licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation
that the Group will have sufficient financial and operational resources available for the continuation of business for a
period of at least 12 months. The board determined any material variations to the assumptions used when providing
those certificates were unlikely within the eight-year period or beyond.
Consequently, after making enquiries, the directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. In addition, a letter of support was
received from Northern Powergrid Holdings Company. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and financial statements.
Page 26
Northern Electric plc
Directors' Report for the Year Ended 31 December 2022 (continued)
Disclosure of information to the auditor
Each director has taken steps that they ought to have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the group's auditor is aware of that information. The directors confirm that there is
no relevant information that they know of and of which they know the auditor is unaware.
Reappointment of auditor
A resolution to re-appoint Deloitte LLP as the Company’s auditor and authorise the directors to determine their
remuneration will be proposed at the annual general meeting.
Approved by the Board on 28 April 2023 and signed on its behalf by:
A P Jones
Director
Page 27
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Northern Electric plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true
and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group's
profit for the year then ended;
• the group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted
international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent statement of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated and parent company statement of cash flows; and
• the related notes 1 to 34.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable
law, United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial
reporting framework that has been applied in the preparation of the parent company financial statements is applicable law
and United Kingdom adopted international accounting standards and as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the group and parent company for the year are disclosed in note 9 to the
financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical
Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Page 28
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
- Accounting for capital spend - overhead allocation model and Storm Arwen costs; and
- Valuation of defined benefit obligations.
Within this report, key audit matters are identified as follows:
- Newly identified
- Increased level of risk
- Similar level of risk
- Decreased level of risk
Materiality
The materiality that we used for the group financial statements was £8.0m which was determined on the basis of income
before tax.
Scoping
Our scope provides full scope audit coverage of 100% of the group’s revenue, 99% of profit before tax as well as 100% of
net assets. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement
team.
Significant changes in our approach
There was no significant change in our approach except for adopting a controls reliance approach for the testing of revenue
for the first time in the current year.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going
concern basis of accounting included:
• assessing financing facilities including nature of facilities, repayment terms and covenants;
• evaluating the linkage to business model and medium-term risks;
• assessing assumptions used in the forecasts, including forecasted information relating to next price control review
RIIO-ED2;
• calculating the amount of headroom in the forecasts, specifically relating to cash and covenants on borrowings;
• performing sensitivity analysis; and
• evaluating sophistication of the model used to prepare the forecasts, testing of clerical accuracy of those forecasts and our
assessment of the historical accuracy of forecasts prepared by management.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Page 29
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Accounting for capital spend - overhead allocation model and Storm Arwen costs
Key audit matter description
Total additions to property, plant and equipment in the year in, within the main trading subsidiary of the group, Northern
Powergrid (Northeast) plc were £163m (2021: £191m) with the majority of the additions to the Company’s electricity
distribution system, as disclosed in Note 11 to the financial statements. These additions include £45m capitalised
overheads (2021: £38m). A portion of overheads are capitalised to the extent that it is probable that future economic
benefits associated with the asset will flow to the Company and the cost of the item can be measured reliably in
accordance with IAS 16 and the Company’s policies. The allocation of overheads to capital results from analysis of the
costs incurred and their relevant cost drivers, this is reviewed annually.
The judgements around amounts capitalised associated with Storm Arwen, and the calculation of capitalised overheads
remains an area at risk of potential bias due to the level of subjectivity in the percentage of overheads capitalised, both
create a potential fraud risk. In particular, the key risk that management’s judgement in the percentage amounts capitalised
are not reflective of the capital spend and as such PPE could be material misstated as a consequence. This is as disclosed in
Note 2, including the note relating to critical judgements in applying accounting policies.
How the scope of our audit responded to the key audit matter
• We have obtained an understanding of relevant controls surrounding accounting for capital spend;
• We have analysed the capital spend and the overhead allocation percentages in the year and compared these to prior
years to identify any unusual and relevant fluctuations. We have also analysed current policies in place and assessed their
suitability in line with IAS 16, along with reviewing the approach management takes towards assessing capitalised
overheads and any change introduced in the current year; and
• We have performed testing of the total overheads including within the allocation model which are subsequently
capitalised based on management’s assessment of percentage allocation.
Key observations
Based on the work performed, and the evidence obtained, we have concluded that management’s overhead capitalisation
judgement is reasonable, with policies applied being appropriate and consistent with the requirements of IAS 16.
Valuation of defined benefit obligations
Key audit matter description
The group operates a defined pension scheme, for which key judgement relate to the determination of the present value of
the defined benefit obligation. Within this, we also consider consistency with International Accounting Standard 19:
Employee benefits (IAS 19). In accordance with management’s actuary, the present value of the funding surplus is
£151.5m (2021: £262.2m), with an underlying obligation of £965.5m (2021: £1,480.4m). The present value of the defined
benefit obligation is derived and is subject to judgement in the assumption setting. Due to the continued settlements in the
year for the scheme, there continues to be an additional risk around the valuation modelling of each settlement and the
impact to the actuarial assumptions due to the change in the profile of the membership of the scheme. The accounting
policy and disclosure is found in note 25 to the financial statement.
How the scope of our audit responded to the key audit matter
• We have obtained an understanding of the relevant controls involved in the review of the actuary report at the year-end;
• We have obtained and tested the underlying data and assumptions utilised by management’s actuary in the calculation of
the pension obligations;
• We challenged the settlement model utilised and tested the underlying fata used in the model to derecognise the
obligations; and
• We considered the estimates of management’s actuary and challenged management’s assumptions and judgements by
comparing the assumptions and results to benchmarked figures. We involved our internal specialists in performing this
work.
Key observations
Based on the work performed above, and the evidence obtained, we conclude that each of the relevant assumptions used
by management to estimate the defined benefit obligation are consistent with the requirement of IAS 19. We have also
concluded that these assumptions are within a reasonable range when compared to comparable schemes and our internal
benchmarks.
Page 30
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Our application of materiality
Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Materiality
£8.0m (2021: £7.9m)
Basis for determining materiality
5% of income before tax (2021: 5% of income before tax)
Rationale for the benchmark applied
The group contains large trading entities. The industry revenue is highly regulated, therefore, there is a focus on income
before tax.
Parent company financial statements
Materiality
£3.8m (2021: £4.2m)
Basis for determining materiality
Parent company materiality equates to 3% of net assets (2021: 3%), which is capped at 55.1% of group materiality (2021:
53.3%).
Rationale for the benchmark applied
Total equity shows how much of the value of shareholdings are in the company and as such investor value. The company
is not trading and as such incurs no revenue.
Page 31
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements
Performance materiality
60% (2021: 60%) of group materiality
Parent company financial statements
Performance materiality
60% (2021: 60%) of parent company materiality
Basis and rationale for determining
In determining performance materiality, we have considered the following:
• our risk assessment, including our assessment of the group’s overall control environment and we considered it
appropriate to rely on controls on the revenue cycle; and
• the volume of uncorrected misstatements in the prior period and control deficiencies identified
Error reporting threshold
We agreed with the Board of Directors that we would report all audit differences in excess of £0.4m (2021: £0.4m), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Board of Directors on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its environment, including internal controls,
and assessing the risks of material misstatement at the group level. The operations of the group are mainly focused on the
United Kingdom in the electricity distribution business, with some overseas assets in the oil and gas industry.
Page 32
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
The focus of our audit work was on the main regulated business, Northern Powergrid (Northeast) plc, with work
performed at a combination of the group’s offices in the North East and Yorkshire regions, and we have audited the
significant sub consolidations in the group. Other sizeable companies within the group include Integrated Utility Services
Limited, which provides contracting and maintenance services to the electricity, rail and water industries, and Northern
Powergrid Metering Limited which leases smart meters to energy providers. Our audit scope provides full scope audit
coverage 94% of the group’s revenue (2021: 100%), 94% of profit before tax (2021: 99%) as well as 99% of net assets
(2021: 100%).
A component materiality was used to perform the audit work for all component entities for FY22 this ranged from £0.3m
to £6.4m (2021: £0.3m to £6.3m). Component materiality is used to reduce to an appropriately low level of probability that
the aggregate of uncorrected and undetected misstatements in the group financial statements exceeds materiality for the
group financial statements as a whole.
At the group level, we have tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there was no risk of material misstatement of the aggregated financial information of the remaining
components bot subject to audit or audit of specific balances.
Audit work to respond to the risks of material misstatement was performed directly by the group audit engagement team.
There have been material changes in scope from prior year except for adopting a no reliance on controls approach for the
testing of revenue.
Our consideration of the control environment
We have involved our IT specialists to assess relevant controls over the Company’s IT landscape which contains a number
of IT systems and tools used to support business processes. These include controls within the Oracle and Durabill systems
integral to relevant business cycles. However, we identified control deficiencies and reported these to the Board of
Directors. We evaluated the impact of these deficiencies on our audit and revised our risk assessment as appropriate. The
Directors discuss their assessment of the control environment on p. 16-19 of the Annual Report.
We have evaluated the design and implementation of key manual controls of key business cycles through a combination of
tests of inquiry, inspection, observation and re-performance.
Our consideration of climate related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial
statements.
The Group continues to develop its assessment of the potential impacts of environmental, social and governance (“ESG”)
related risks, including climate change, as outlined on page 11.
As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions with the
Group ESG Manager to understand the process of identifying climate-related risks, the determination of mitigating actions
and the impact on the Group’s financial statements
We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account
balances and classes of transactions and have read the annual report to consider whether they are materially consistent with
the financial statements and our knowledge obtained in the audit.
Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
Page 33
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Page 34
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Board of Directors about their own identification and
assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures
relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged
fraud; and
o the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations,
pensions, IT, actuarial and industry specialists regarding how and where fraud might occur in the financial statements and
any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for
fraud and identified the greatest potential for fraud in the following areas: Accounting for capital spend - overhead
allocation model and Storm Arwen costs (given that this involves key and complex judgement by management) and
valuation of defined benefit obligations. In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures
in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act,
Listing Rules, pensions legislation, tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty.
These included the group’s operating licence regulated by the Gas and Electricity Markets Authority (GEMA).
Audit response to risks identified
As a result of performing the above, we identified accounting for capital spend - overhead allocation model and Storm
Arwen costs,and valuation of defined benefit obligations as key audit matters related to the potential risk of fraud. The key
audit matters section of our report explains the matters in more detail and also describes the specific procedures we
performed in response to those key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Board of Directors and legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC and Ofgem; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of
business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team
members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Page 35
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made.
We have nothing to report in respect of this matter.
Other matters which we are required to address
Auditor tenure
Following the recommendation of the Board of Directors, we were appointed by the Board of Northern Powergrid
Holdings Company in 1998 to audit the financial statements for the year ending 31 December 1998 and subsequent
financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the
firm is 24 years, covering the years ending 31 December 1998 to 31 December 2021.
Consistency of the audit report with the additional report to the Board of Directors
Our audit opinion is consistent with the additional report to the Board of Directors we are required to provide in
accordance with ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Anthony Matthews FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP, Statutory Auditor
London
United Kingdom
28 April 2023
Page 36
Northern Electric plc
Consolidated Income Statement for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Revenue
3 558,190 493,744
Cost of sales (81,809 ) (36,700 )
Gross profit
Distribution costs
(145,511 ) (134,169 )
Administrative expenses
(149,635 ) (138,685 )
Operating profit
5 181,235 184,190
Other gains
4 1,078 1,675
Finance income
6 5,450 1,337
Finance costs
6
(53,161 ) (41,657 )
Profit before tax
Income tax expense
10
(29,161 ) (67,816 )
Profit for the year
Profit attributable to:
Owners of the Company
The above results were derived from continuing operations.
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 37
Northern Electric plc
Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Profit for the year
Items that will not be reclassified subsequently to profit or loss
Remeasurements of post employment benefit obligations (net)
25 (74,175 ) 130,374
Items that may be reclassified subsequently to profit or loss
Gain on cash flow hedges (net)
10
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 38
Northern Electric plc
(Registration number: 02366942)
Consolidated Statement of Financial Position as at 31 December 2022
Note
31 December
2022
£ 000
31 December
2021
£ 000
Assets
Non-current assets
Property, plant and equipment
11 3,059,199 2,993,240
Right of use assets
12 12,787 14,411
Intangible assets
13 47,357 48,888
Equity accounted investments
14 3,982 3,898
Retirement benefit obligations
25 151,500 262,200
Trade and other receivables
16 4,087 2,702
Other non-current financial assets
30
Current assets
Inventories
15 25,740 20,382
Trade and other receivables
16 94,320 89,290
Tax receivable
Cash and cash equivalents
17 268,661 42,140
Contract assets
Other current financial assets
30
Total assets
Equity and liabilities
Equity
Share capital
18 (72,173 ) (72,173 )
Share premium
(158,748 ) (158,748 )
Capital redemption reserve
(6,185 ) (6,185 )
Cash flow hedging reserve
19 (16,280 ) (861 )
Retained earnings (1,144,610 ) (1,228,290 )
Equity attributable to owners of the Company (1,397,996 ) (1,466,257 )
Non-current liabilities
Lease liabilities
21 (9,791 ) (11,359 )
Loans and borrowings
20 (1,193,131 ) (985,988 )
Provisions
22 (1,921 ) (2,341 )
Deferred revenue
24 (652,476 ) (649,013 )
Deferred tax liabilities
10
(163,218 ) (182,852 )
(2,020,537 ) (1,831,553 )
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 39
Northern Electric plc
(Registration number: 02366942)
Consolidated Statement of Financial Position as at 31 December 2022 (continued)
Note
31 December
2022
£ 000
31 December
2021
£ 000
21 (3,402 ) (3,431 )
23 (117,404 ) (103,412 )
20 (125,040 ) (51,379 )
24 (29,326 ) (28,645 )
22
(2,513 ) (3,509 )
(277,685 ) (190,376 )
(2,298,222 ) (2,021,929 )
(3,696,218 ) (3,488,186 )
Current liabilities
Lease liabilities
Trade and other payables
Loans and borrowings
Deferred revenue
Provisions
Total liabilities
Total equity and liabilities
Approved by the board on 28 April 2023 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 40
Northern Electric plc
(Registration number: 02366942)
Company Statement of Financial Position as at 31 December 2022
Note
31 December
2022
£ 000
31 December
2021
£ 000
Assets
Non-current assets
Property, plant and equipment
11 1,548 1,555
Right of use assets
12 1,016 1,153
Investments in subsidiaries, joint ventures and associates
14 242,902 242,902
Deferred tax asset
10
522 553
245,988 246,163
Current assets
Trade and other receivables
16 1,035 3,866
Income tax asset
10 1,400 158
Cash and cash equivalents
17
18,090 29,036
20,525 33,060
Total assets
266,513 279,223
Equity and liabilities
Equity
Share capital
18 (72,173) (72,173)
Share premium
(158,748) (158,748)
Capital redemption reserve
(6,185) (6,185)
Retained earnings (13,272) (19,319)
Total equity (250,378) (256,425)
Non-current liabilities
Long-term lease liabilities
21 (914) (1,062)
Loans and borrowings
20 (1,117) (1,117)
Provisions
22
(1,610) (1,850)
(3,641) (4,029)
Current liabilities
Current portion of long-term lease liabilities
21 (148) (144)
Trade and other payables
23 (4,252) (4,515)
Loans and borrowings
20 (7,831) (13,861)
Provisions
22
(263) (249)
(12,494) (18,769)
Total liabilities (16,135) (22,798)
Total equity and liabilities
(266,513) (279,223)
Approved by the Board on 28 April 2023 and signed on its behalf by:
A P Jones
Director
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 41
Northern Electric plc
(Registration number: 02366942)
Company Statement of Financial Position as at 31 December 2022 (continued)
The Directors have taken the exemption offered under section 408 of the Act from publishing a separate statement of profit
or loss. The Company reported a profit for the financial year ended 31 December 2022 of £108.9 million (2021: £19.5
million).
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 42
Northern Electric plc
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2022
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022
Profit for the year
- - - - 105,441 105,441
Other comprehensive expense - - - 15,419 (74,175 ) (58,756 )
Total comprehensive income
- - - 15,419 31,266 46,685
Dividends (note 26) - - - - (114,946 ) (114,946 )
At 31 December 2022
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2021
Profit for the year
- - - - 77,729 77,729
Other comprehensive expense - - - 3,950 130,374 134,324
Total comprehensive income
- - - 3,950 208,103 212,053
Dividends (note 26) - - - - (26,000 ) (26,000 )
At 31 December 2021
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 43
Northern Electric plc
Company Statement of Changes in Equity for the Year Ended 31 December 2022
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022 72,173 158,748 6,185 19,319 256,425
Profit for the year - - - 108,899 108,899
Total comprehensive income
- - - 108,899 108,899
Dividends - - - (114,946) (114,946)
At 31 December 2022
72,173 158,748 6,185 13,272 250,378
Share capital
£ 000
Share
premium
£ 000
Capital
redemption
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2021 72,173 158,748 6,185 25,836 262,942
Profit for the year - - - 19,483 19,483
Total comprehensive income
- - - 19,483 19,483
Dividends - - - (26,000) (26,000)
At 31 December 2021
72,173 158,748 6,185 19,319 256,425
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 44
Northern Electric plc
Consolidated Statement of Cash Flows for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Cash flows from/(used in) operating activities
Profit for the year
Depreciation and amortisation
5 158,265 152,815
Depreciation on right of use assets
Amortisation of deferred revenue
5 (29,253 ) (27,945 )
Profit on disposal of property plant and equipment
4 (1,078 ) (1,675 )
Retirement benefit obligation
Finance income
6 (5,450 ) (1,337 )
Finance costs
6 53,161 41,657
Income tax expense
10
Increase in inventories
15 (5,358 ) (1,683 )
Increase in trade and other receivables
16 (6,415 ) (4,902 )
Increase in trade and other payables
23 542 9,491
Decrease/(increase) in contract assets
(Decrease)/increase in provisions
22
(1,416 ) 1,615
Cash generated from operations
Income taxes paid (27,970 ) (31,108 )
Net cash flow from operating activities 288,324 275,647
Cash flows from/(used in) in investing activities
Acquisitions of property plant and equipment
(219,444 ) (245,135 )
Proceeds from sale of property plant and equipment
Acquisition of intangible assets
13 (9,956 ) (9,544 )
Receipt of customer contributions
Interest received
Dividend income
6
Net cash flows used in investing activities (170,235 ) (214,465 )
Cash flows from/(used in) in financing activities
Proceeds from long-term borrowing draw downs
Transaction costs relating to loans and borrowings
(2,105 ) (4,235 )
Repayment of long-term borrowing
(138,758 ) (166,035 )
Payments to finance lease creditors
(3,660 ) (3,474 )
Movement in intercompany treasury account
Movement in restricted cash
Interest expense on leases
(372 ) (417 )
Interest paid
(43,162 ) (40,612 )
Dividends paid
26
(114,946 ) (26,000 )
Net cash flows from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January 42,140 21,874
Cash and cash equivalents at 31 December
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 45
Northern Electric plc
Company Statement of Cash Flows for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Cash flows from/(used in) operating activities
Profit for the year
108,899 19,483
Adjustments to cash flows from non-cash items
Depreciation and amortisation
5 7 7
Depreciation on right of use assets
137 137
Finance income
(116,243) (26,853)
Finance costs
9,034 8,985
Income tax expense 459 239
2,293 1,998
Working capital adjustments
Decrease/(increase) in trade and other receivables
16 2,831 (2,575)
(Decrease)/increase in trade and other payables
23 (263) 1,176
Decrease in provisions
22
(226) (220)
Cash generated from operations
4,635 379
Income taxes paid (1,670) (4,649)
Net cash flow from /(used in) operating activities 2,965 (4,270)
Cash flows from/(used in) investing activities
Interest received
370 853
Dividend income
115,873 26,000
Net cash flows from investing activities 116,243 26,853
Cash flows from/(used in) financing activities
Movement in intercompany treasury account
(6,030) 4,120
Interest expense on leases
(28) (31)
Interest paid
(2) (650)
Payments to finance lease creditors
(143) (140)
Interest on preference shares
(9,001) (9,001)
Dividends paid
26 (114,946) (26,000)
Foreign exchange gains/(losses) (4) 7
Net cash flows used in financing activities (130,154) (31,695)
Net decrease in cash and cash equivalents
(10,946) (9,112)
Cash and cash equivalents at 1 January 29,036 38,148
Cash and cash equivalents at 31 December
18,090 29,036
Consolidated / Company Statement of Cash Flows
Yorkshire Electricity Group plc, a Northern Powergrid Group company, acting on behalf of other group companies was
authorised to settle various liabilities against the relevant intercompany accounts. The Group / Company has disclosed the
underlying cash flows as operating, investing or financing according to their nature on the basis that, as a principal, the
entity has the right to the cash inflows and/or the obligation to settle the liability and ensure clarity of disclosure of the
cash costs of the business.
The notes on pages 47 to 120 form an integral part of these financial statements.
Page 46
Notes to the Financial Statements for the Year Ended 31 December 2022
1 General information
The company is a public company limited by share capital, incorporated in England and Wales and domiciled in the
"Northern Powergrid Group").
The address of its registered office is:
2 Accounting policies
Statement of compliance
The Group financial statements have been prepared in accordance with International Financial Reporting Standards and its
interpretations adopted by the IASB ("adopted IFRS's").
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with adopted IFRSs and under the historical cost convention as
modified by financial instruments recognised at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Group's accounting policies.
The nature of the Company's business model, strategic objectives, operations and activities are set out in the Strategic
Report.
Page 47
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Going Concern
A review of the Group's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Directors' Report and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Group, and
companies may lend within the Group. For that reason, financial health is considered with reference to the Northern
Powergrid Group.
When considering if to continue to adopt the going concern basis in preparing the annual report and financial statements,
the directors have taken into account a number of factors, including the following:
• The Northern Powergrid Group's main subsidiaries, NPg Northeast and NPg Yorkshire, are stable electricity
distribution businesses operating an essential public service and are regulated by the Gas and Electricity Markets
Authority (“GEMA”). In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to have
regard to the need to secure that licence holders are able to finance the activities, which are the subject of obligations
under Part 1 of the Electricity Act 1989 (including the obligations imposed by the electricity distribution licence) or by
the Utilities Act 2000;
• The Northern Powergrid Group is profitable with strong underlying cash flows. The Northern Powergrid Group, NPg
Northeast and NPg Yorkshire hold investment grade credit ratings;
• The Northern Powergrid Group is financed by long-term borrowings with an average maturity of 18 years and has
access to short-term committed borrowing facilities of £242 million provided by Barclays Banks plc, Lloyds Bank plc,
HSBC UK Banks plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings which allow access to a range of
financing options including the capital markets. A successful bond issue by the Northern Powergrid Group in April
2022, demonstrates that the Northern Powergrid Group’s bonds remain attractive to investors and there is an active
market with strong appetite to invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in
trading performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall
due for at least the 12 months from the date of these accounts. The directors have had discussions with the bank who
have indicated that they would continue to provide the short-term facilities to the Northern Powergrid Group for the
foreseeable future on acceptable terms; and
• Consideration was also given to the obligations contained in NPg Northeast's and NPG Yorkshire’s licences to provide
Ofgem with annual certificates, confirming that the directors have a reasonable expectation that the Group will have
sufficient financial and operational resources available for the continuation of business for a period of at least 12
months. The board determined any material variations to the assumptions used when providing those certificates were
unlikely within the eight-year period or beyond.
Consequently, after making enquiries, the directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. In addition, a letter of support was
received from Northern Powergrid Holdings Company. Accordingly, they continue to adopt the going concern basis in
preparing the annual report and financial statements.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that the directors have made in the
process of applying the Group's accounting policies and that have the most significant effect on amounts recognised in the
consolidated financial statements:
• The split of operating and capital expenditure and the allocation of overheads to property, plant and equipment: The
allocation of overheads to capital is derived from a detailed analysis of the costs and their cost drivers which is
reviewed on annual basis. The percentage allocation of overheads across the workstream categories are obtained from
section managers who are asked to provide reasoning and supporting evidence for the allocation. Finance then
undertake a financial impact assessment review and the rationale to ensure it complies with IFRS. The amount of
overheads capitalised in the year was £45.0 million (2021: £38.3 million), this was an increase from 53.2% to 54.3%.
Page 48
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Key sources of estimation uncertainty
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of
the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year:
• Assumptions used when evaluation long-term pension plans - these assumptions and their possible impacts are
disclosed in Note 25.
Changes in accounting policy
New standards and amendments
Effective for periods beginning on or after 1 January 2022
- Amendments to IFRS 3: Reference to the Conceptual Framework
- Amendments to IAS 16: Property, Plant & Equipment - Proceeds before Intended Use
- Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract
- Annual Improvments to IFRS Standards 2018-2020
These amendments did not have a material impact on the financial statements.
The other amendments have had no material impact on the financial statements including the comparatives.
The Directors have considered new accounting standards issued that are not yet applicable and have noted no material
changes are likely to arise.
Leases
The Group applies IFRS 16 to all leases (except as noted below) which include buildings, Land and fleet vehicles. The
right-of-use assets are initially measured at the amount of the lease liability plus any initial direct costs incurred by the
lessee. Subsequently, the assets are measured under the fair value method. The corresponding lease liability is initially
measured at present value of all lease payments over the lease term and can be restated if the terms or other criteria of the
contract change. These values can be found in the Statement of Financial Position.
The Group has taken practical expedients as per below:
- For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes personal
computers, small items of office furniture and telephones), the Company has opted to recognise a lease expense on a
straight-line basis as permitted by IFRS 16. This expense is presented within ‘administrative expenses’ in the Statement of
Profit or Loss.
- Applies single discount rate to a portfolio of leases;
- Uses hindsight to determine the lease term when contract contains options to extend or terminate the lease; and
- Adjusts right of use asset by provision for onerous leases as an alternative to performing an impairment review.
The weighted average lessee’s incremental borrowing rate applied to determine the present value of the lease liabilities
during the current period was 2.33% (2021: 1.753%).
The Group recognises deprecation of right-of-use assets (within administration expenses) and interest on lease liabilities
(within finance costs) in the Statement of Profit and Loss. Within the Statement of cash flow, the Company separates the
total amount of cash paid between the principal portion and the interest, both of which are presented within financing
activities.
Right-of-use assets are depreciated over the shorter of the useful life of the asset or the lease term. For information
regarding the depreciation charge per class of asset and carrying value, please refer to Note 12 Right of use assets.
Page 49
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Revenue recognition
Recognition
The Group earns revenue from the provision of services relating to revenue from a contract to provide services is
recognised by the following means:
- Distribution use of system income is recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and fixed (per
'customer' per day) basis;
- Customer contributions for connections are amortised over the life of the corresponding asset;
- Contracting revenue is recognised in line with expenditure;
- Meter asset provision income is accounted for under lease accounting;
- Intercompany recharges for services provided are based on costs incurred; and
- Other revenue includes assessment and design fees and disconnections from the network and are recognised by reference
to the proportion of total costs of providing the service.
This revenue is recognised in the accounting period when the services are rendered at an amount that reflects the
consideration to which the entity expects to be entitled in exchange for fulfilling its performance obligations to customers.
The principles in IFRS are applied to revenue recognition criteria using the following 5 step model:
1. Identify the contracts with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when or as the entity satisfies its performance obligations
Fee arrangements
Below are details of fee arrangements and how these are measured and recognised, for revenue from the provision of
services:
• For regulated use of system income the revenue for the service is recognised on the basis of agreed charging
methodologies which is recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and fixed (per 'customer' per
day) basis.
• For fixed price for contracted service revenue is recognised based on the stage of completion and performance
obligations met for actual services provided as a proportion of the total fixed fee agreed in the contract.
• For stage payment on long-term contracts revenue is recognised by reference to stage of manufacture at the year end date
using contractual rates specified in the contract. Revenue on materials is measured at the actual amount of the material
used on the contract at the price specified in the contract.
The performance obligations involved in engineering contracting work are accounted for as follows:
• Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage
of completion of the contract activity at the end of the reporting period, based on the proportion of contract costs
incurred for work performed to date relative to the estimated total contract costs, except where this would not be
representative of the stage of completion.
• Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with
the customer.
• Where the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of the costs
incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period in which
they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is
recognised as an expense immediately.
Page 50
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
• When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus
is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs
incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for
contract work. Amounts received before the related work is performed are included in the consolidated statement of
financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the
customer are included in the consolidated statement of financial position under trade and other receivables.
Other performance obligations include but are not limited to:
- Provision of vehicles over a specified period accounted for under lease accounting; and
- Passage of milestones and completion of installation of equipment for engineering contracting.
Contract modifications
The Group’s contracts are often amended for changes in contract specifications and requirements. Contract modification
exists when the amendment either creates new or changes the existing enforceable rights and obligations. The effect of a
contract modification on the transaction price and the Group’s measure of progress for the performance obligation to
which it relates, is recognised as an adjustment to revenue in one of the following ways:
a. Prospectively as an additional separate contract:
b. Prospectively as a termination of the existing contract and creation of a new contract;
c. As part of the original contract using a cumulative catch up; or
d. As a combination of b) and c).
The facts and circumstances of any contract modification are considered individually as the types of modifications will
vary contract by contract and may result in different accounting outcomes. Judgement is applied in relation to the
accounting for such modifications where the final terms or legal contracts have not been agreed prior to the period end as
management need to determine if a modification has been approved and if it either creates new or changes existing
enforceable rights and obligations of the parties. Depending upon the outcome of such negotiations, the timing and amount
of revenue recognised may be different in the relevant accounting periods. Modification and amendments to contracts are
undertaken via an agreed formal process. For example, if a change in scope has been approved but the corresponding
change in price is still being negotiated, management use their judgement to estimate the change to the total transaction
price.
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control over those policies. A joint
venture is a joint arrangement whereby the parties that have joint control of the arrangement have the rights to the net
assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial
statements using the equity method of accounting except when classified as held for sale. Investments in associates or joint
venture entities are initially recognised at cost and adjusted thereafter to recognise the Group's share of profit or loss and
other comprehensive income of the associate or joint venture. When the Group's share of losses of an associate or a joint
venture exceeds the Group's interest in that associate or joint venture, the Group discontinues recognising its share of
future losses.
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the
investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any
excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of
the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the
Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after
reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control.
Fixed asset investments are stated at cost less provision or amounts written off for impairment in value.
Page 51
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Investments in subsidiaries
Investments in subsidiaries are account for at cost less impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Trade receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of
business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using
the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is
established when there is objective evidence that the Group will not be able to collect all amounts due according to the
original terms of the receivables.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the average cost method.
The cost of finished goods and work in progress comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their present location and condition. At each
reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its
selling price less costs to complete and sell; the impairment loss is recognised immediately in profit or loss.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the
effective interest method.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are
subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount
due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting
date and are discounted to present value where the effect is material.
Page 52
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Impairment of non-financial assets
At the balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an
indication that the asset may be impaired.
Where the recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources
received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of
money is material, the initial measurement is on a present value basis.
Dividends
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in
the period in which the dividends are approved by the Company’s shareholders.
Tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a change
attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other
comprehensive income.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively
enacted by the reporting date in the countries where the Group operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements and on unused tax losses or tax credits in the Group. Deferred
income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up against
deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered
based on current or future taxable profit.
Amortisation
Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their
expected useful economic life as follows:
Asset class Amortisation method and rate
Software development up to 10 years
Amortisation of intangible assets is performed on a straight-line basis over the asset's expected economic useful life.
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings drawn
up to 31 December 2022.
Page 53
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.
The purchase method of accounting is used to account for business combinations that result in the acquisition of
subsidiaries by the Group. The cost of a business combination is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. Any excess of the cost of the business
combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities
recognised is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between the Company and its subsidiaries,
which are related parties, are eliminated in full.
Intra-group losses are also eliminated but may indicate an impairment that requires recognition in the consolidated
financial statements.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by
the Group. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the
Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original
business combination and the non-controlling shareholder’s share of changes in equity since the date of the combination.
Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests
having a deficit balance.
Financial instruments
Initial recognition
Financial assets and financial liabilities comprise all assets and liabilities reflected in the statement of financial position,
although excluding property, plant and equipment, investment properties, intangible assets, deferred tax assets,
prepayments, deferred tax liabilities and employee benefits plan.
The Group recognises financial assets and financial liabilities in the statement of financial position when, and only when,
the Group becomes party to the contractual provisions of the financial instrument.
Financial assets are initially recognised at fair value. Financial liabilities are initially recognised at fair value, representing
the proceeds received net of premiums, discounts and transaction costs that are directly attributable to the financial
liability.
All regular way purchases and sales of financial assets and financial liabilities classified as fair value through profit or loss
(“FVTPL”) are recognised on the trade date, i.e. the date on which the Group commits to purchase or sell the financial
assets or financial liabilities. All regular way purchases and sales of other financial assets and financial liabilities are
recognised on the settlement date, i.e. the date on which the asset or liability is received from or delivered to the
counterparty. Regular way purchases or sales are purchases or sales of financial assets that require delivery within the
timeframe generally established by regulation or convention in the marketplace.
Subsequent to initial measurement, financial assets and financial liabilities are measured at either amortised cost or fair
value.
Page 54
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Classification and measurement
Financial instruments are classified at inception into one of the following categories, which then determine the subsequent
measurement methodology:
Financial assets are classified into one of the following three categories:
· financial assets at amortised cost;
· financial assets at fair value through other comprehensive income (FVTOCI); or
· financial assets at fair value through the profit or loss (FVTPL).
Financial liabilities are classified into one of the following two categories:
· financial liabilities at amortised cost; or
· financial liabilities at fair value through the profit or loss (FVTPL).
The classification and the basis for measurement are subject to the Group’s business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets, as detailed below:
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at
FVTPL:
· the assets are held within a business model whose objective is to hold assets in order to collect contractual cash flows;
and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
If either of the above two criteria is not met, the financial assets are classified and measured at fair value through the profit
or loss (FVTPL).
If a financial asset meets the amortised cost criteria, the Group may choose to designate the financial asset at FVTPL. Such
an election is irrevocable and applicable only if the FVTPL classification significantly reduces a measurement or
recognition inconsistency.
Financial assets at fair value through other comprehensive income
A financial asset is measured at FVTOCI only if it meets both of the following conditions and is not designated as at
FVTPL:
· the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets; and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investments that is not held for trading, the Group may irrevocably elect to present
subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.
If an equity investment is designated as FVTOCI, all gains and losses, except for dividend income, are recognised in other
comprehensive income and are not subsequently included in the statement of income.
Financial assets at fair value through the profit or loss
Financial assets not otherwise classified above are classified and measured as FVTPL.
Financial liabilities at amortised cost
All financial liabilities, other than those classified as financial liabilities at FVTPL, are measured at amortised cost using
the effective interest rate method.
Financial liabilities at fair value through the profit or loss
Financial liabilities not measured at amortised cost are classified and measured at FVTPL. This classification includes
derivative liabilities.
Page 55
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Derecognition
Financial assets
The Group derecognises a financial asset when:
- the contractual rights to the cash flows from the financial asset expire;
- it transfers the right to receive the contractual cash flows in a transaction in which substantially all of the risks and
rewards of ownership of the financial asset are transferred; or
- the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain
control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of the
consideration received is recognised as a gain or loss in the profit or loss.
Any cumulative gain or loss recognised in OCI in respect of equity investment securities designated as FVTOCI is not
recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for
derecognition that is created or retained by the Group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains
either all or substantially all of risks and rewards of the transferred assets or a portion of them. In such cases, the
transferred assets are not derecognised.
When the Group derecognises transferred financial assets in their entirety, but has continuing involvement in them then the
entity should disclose for each type of continuing involvement at the reporting date:
(a) The carrying amount of the assets and liabilities that are recognised in the entity’s statement of financial position and
represent the entity’s continuing involvement in the derecognised financial assets, and the line items in which those assets
and liabilities are recognised;
(b) The fair value of the assets and liabilities that represent the entity’s continuing involvement in the derecognised
financial assets;
(c) The amount that best represents the entity’s maximum exposure to loss from its continuing involvement in the
derecognised financial assets, and how the maximum exposure to loss is determined; and
(d) The undiscounted cash outflows that would or may be required to repurchase the derecognised financial assets or other
amounts payable to the transferee for the transferred assets.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.
Modification of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual rights to the cash flows from the
original financial asset are deemed to expire. In this case the original financial asset is derecognised and a new financial
asset is recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial asset.
In this case, the Group recalculates the gross carrying amount of the financial asset and recognises the amount arising from
adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Page 56
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Financial liabilities
If the terms of a financial liabilities are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual obligations from the cash flows
from the original financial liabilities are deemed to expire. In this case the original financial liabilities are derecognised
and new financial liabilities are recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial
liabilities. In this case, the Group recalculates the gross carrying amount of the financial liabilities and recognises the
amount arising from adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Impairment of financial assets
Measurement of Expected Credit Losses
The Group recognises loss allowances for expected credit losses (ECL) on financial instruments that are not measured at
FVTPL, namely:
- Financial assets that are debt instruments;
- Accounts and other receivables;
- Financial guarantee contracts issued; and
- Loan commitments issued.
The Group classifies its financial instruments into stage 1, stage 2 and stage 3, based on the applied impairment
methodology, as described below:
Stage 1: for financial instruments where there has not been a significant increase in credit risk since initial recognition and
that are not credit-impaired on origination, the Group recognises an allowance based on the 12-month ECL.
Stage 2: for financial instruments where there has been a significant increase in credit risk since initial recognition but they
are not credit-impaired, the Group recognises an allowance for the lifetime ECL.
Stage 3: for credit-impaired financial instruments, the Group recognises the lifetime ECL.
The Group measures loss allowances at an amount equal to the lifetime ECL, except for the following, for which they are
measured as a 12-month ECL:
- debt securities that are determined to have a low credit risk (equivalent to investment grade rating) at the reporting date;
and
- other financial instruments on which the credit risk has not increased significantly since their initial recognition.
The Group considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally
understood definition of ‘investment grade’.
A 12-month ECL is the portion of the ECL that results from default events on a financial instrument that are probable
within 12 months from the reporting date.
Provisions for credit-impairment are recognised in the statement of income and are reflected in accumulated provision
balances against each relevant financial instruments balance.
Evidence that the financial asset is credit-impaired include the following;
- Significant financial difficulties of the borrower or issuer;
- A breach of contract such as default or past due event;
- The restructuring of the loan or advance by the Group on terms that the Group would not consider otherwise;
- It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
- The disappearance of an active market for the security because of financial difficulties;
- There is other observable data relating to a Group of assets such as adverse changes in the payment status of borrowers or
issuers in the Group, or economic conditions that correlate with defaults in the Group.
Page 57
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
For trade receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised
from initial recognition of the receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk
characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the
same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that
the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2021
and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect
current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the
receivables. The Group has identified the GDP and the unemployment rate of the countries in which it sells its goods and
services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these
factors.
Derivative financial instruments
Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial
instruments or indices, and include futures, forwards, swaps and options in the interest rate, foreign exchange, equity and
credit markets.
Derivative financial instruments are recognised in the statement of financial position at fair value. Fair values are derived
from prevailing market prices, discounted cash flow models or option pricing models as appropriate.
In statement of financial position, derivative financial instruments with positive fair values (unrealised gains) are included
as assets and derivative financial instruments with negative fair values (unrealised losses) are included as liabilities.
The changes in the fair values of derivative financial instruments entered into for trading purposes are included in trading
income.
Hedge accounting
Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading
assets and liabilities.
The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments
as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Group formally
documents the relationship between the hedging instruments and hedge items, including the risk management objective
and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging
relationship. The Group makes an assessment, both at inception of the hedge relationship and on an ongoing basis, of
whether the hedging instruments are expected to be highly effective in offsetting that changes in the fair value or cash
flows of the respective hedged items during the period for which the hedge is designated.
These hedging relationships are discussed below.
Page 58
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Cash flow hedges
The Group makes an assessment for a cash flow hedge of a forecast transaction, of whether the forecast transaction is
highly probable to occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognised asset or liability that could affect profit or loss, then the effective portion of
changes in the fair value of the derivative is recognised in OCI and presented in the hedging reserve within equity. Any
ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The amount
recognised in OCI is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash
flows affect profit or loss, and in the same line item in the statement of profit or loss and OCI.
If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for cash flow
hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. However, if
the derivative is novated to a central clearing counterparty by both parties as a consequence of laws or regulations without
changes in its terms except for those that are necessary for the novation, then the derivative is not considered expired or
terminated.
Accounting estimates and assumptions
The preparation of the financial statements requires management to make estimates and assumptions that affect the
reported amounts of certain financial assets, liabilities, income and expenses.
The use of estimates and assumptions is principally limited to the determination of provisions for impairment and the
valuation of financial instruments as explained in more detail below.
Provisions for impairment
In determining impairment of financial assets, judgement is required in the estimation of the amount and timing of future
cash flows as well as an assessment of whether the credit risk on the financial asset has increased significantly since initial
recognition and incorporation of forward-looking information in the measurement of ECL.
Fair value of financial assets and liabilities
Where the fair value of financial assets and liabilities cannot be derived from active markets, they are determined using a
variety of valuation techniques that include the use of mathematical models. The input to these models is derived from
observable markets where available, but where this is not feasible, a degree of judgement is required in determining
assumptions used in the models. Changes in assumptions used in the models could affect the reported fair value of
financial assets and liabilities.
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and
installation.
Page 59
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Depreciation
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their
estimated useful lives, as follows:
Asset class Depreciation method and rate
Distribution system:
- Generation assets 15 years
- Conventional metering equipment up to 5 years
- Information technology equipment up to 10 years
- Land not depreciated
- Other system assets 45 years
Land and buildings:
- Freehold buildings up to 60 years
- Leasehold buildings lower of lease period or 60 years
- Non-operational land not depreciated
Furniture, fittings and equipment up to 10 years
Metering equipment up to 15 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with
the effect of any material changes in those estimates accounted for on a prospective basis. Due to the significance of the
Group's investment in property, plant and equipment, variations in estimates could impact operating results both positively
and negatively although, historically, few changes have been required.
Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional
fees, and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Such assets
are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.
Depreciation on these assets, on the same basis as other assets, commences when the assets are commissioned. Assets are
derecognised when they are disposed of profit or loss on disposal is recognised in other gains on the statement of profit or
loss.
Intangible assets
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in
the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of
acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses. Goodwill is held in the currency of the acquired entity and revalued to the closing rate at each reporting
period date.
Goodwill is not subject to amortisation but is tested for impairment.
Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a
jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss
recognised in the income statement on disposal.
Finance income and costs policy
Finance income from a financial asset is recognised when it is probable that the economic benefits will flow to the
Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use.
Page 60
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
3 Revenue
The analysis of the Group's revenue for the year from continuing operations is as follows:
2022
£ 000
2021
£ 000
Distribution revenue
412,147 356,842
Amortisation of deferred revenue
29,253 27,945
Contracting revenue
22,609 20,198
Meter asset rental
86,334 81,106
Other revenue 7,847 7,653
558,190 493,744
The tables below represent the internal information provided to the President and Chief Executive Officer of the Group for
the purposes of resource allocation and segmental performance appraisal. The Northern Powergrid Group operates in four
principal areas of activity, those of the distribution of electricity, engineering contracting, gas exploration and smart meter
rental in the United Kingdom.
Reportable segments are those that meet two or more of the following criteria under IFRS 8:
- Its reported revenue is 10% or more of the combined revenue of all segments;
- The absolute measure of its profit or loss is 10% or more of the combined reported profit; and
- Its assets are 10% or more of the combined assets of all segments.
The Group is separated into the following segments:
Distribution: Northern Powergrid (Northeast) plc
Contracting: Integrated Utility Services Limited
Metering: Northern Powergrid Metering Services Limited
Other: Includes support activities
Page 61
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
3 Revenue (continued)
2022
Distribution
£ 000
Contracting
£ 000
Metering
£ 000
Other
£ 000
Total
£ 000
Revenue
441,400 22,609 86,334 7,847 558,190
Inter-segment sales 412 11,535 - (11,947) -
Total revenue
441,812 34,144 86,334 (4,100) 558,190
Operating profit
158,227 771 29,097 (6,861) 181,235
Other gains
1,078
Finance costs
(53,161)
Finance income 5,450
Profit before tax
134,602
Capital additions
167,486 495 53,266 3,744 224,991
Depreciation and amortisation
111,695 245 54,648 (4,635) 161,952
Amortisation of deferred revenue
29,253 - - - 29,253
Segment assets
2,708,141 14,699 318,528 375,910 3,417,278
Unallocated corporate assets
278,940
Total assets
3,696,218
Segment liabilities
(540,677) (10,418) (208,745) (265,223) (1,025,063)
Unallocated corporate liabilities (1,273,159)
Total liabilities
(2,298,222)
Segment net assets
2,167,464 4,281 109,783 110,687 2,392,215
Unallocated net corporate liabilities
(994,219)
Total net assets
1,397,996
Page 62
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
3 Revenue (continued)
2021
Distribution
£ 000
Contracting
£ 000
Metering
£ 000
Other
£ 000
Total
£ 000
Revenue
384,787 20,198 81,106 7,653 493,744
Inter-segment sales 420 12,147 - (12,567) -
Total revenue
385,207 32,345 81,106 (4,914) 493,744
Operating profit
146,230 227 25,793 11,940 184,190
Other gains
1,675
Finance costs
(41,657)
Finance income 1,337
Profit before tax
145,545
Capital additions
198,149 226 56,998 1,364 256,737
Depreciation and amortisation
107,824 123 51,149 (2,727) 156,368
Amortisation of deferred revenue
27,945 - - - 27,945
Segment assets
2,918,459 12,438 320,642 220,726 3,472,265
Unallocated corporate assets
15,921
Total assets
3,488,186
Segment liabilities
(869,562) (8,064) (223,879) (1,735) (1,103,240)
Unallocated corporate liabilities (918,689)
Total liabilities
(2,021,929)
Segment net assets
2,048,897 4,374 96,763 218,991 2,369,025
Unallocated net corporate liabilities
(902,768)
Total net assets
1,466,257
Sales to the E.ON group in 2022 of £75.7 million (2021: £69.6 million) and to British Gas plc in 2022 of £48.6 million
(2021: £37.0 million) are included within the Distribution segment.
Contract assets arise where goods or services are transferred to the customer before the customer pays consideration, or
before payment is due. All contract assets relate to engineering contracting work within Integrated Utility Services.
Contracts in progress at statement of financial position date:
Page 63
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
3 Revenue (continued)
Assets recognised from costs to fulfil a contract with customers
31 December
2022
£ 000
31 December
2021
£ 000
Contract costs incurred plus recognised profit less recognised losses to date
50,918 37,952
Less: progress billings (45,094) (30,359)
5,824 7,593
At 31 December 2022, no retentions are held by customers for contract work (2021: £nil).
Advances received from customers for contract work amounted to £nil (2021: £nil).
The Company had no contract assets at 31 December 2022 (2021: £nil).
4 Other gains and losses
The analysis of the Group's other gains and losses for the year is as follows:
2022
£ 000
2021
£ 000
Gain on disposal of property, plant and equipment
1,078 1,675
5 Operating profit
Arrived at after charging/(crediting)
2022
£ 000
2021
£ 000
Depreciation expense
146,778 140,940
Depreciation of right-of-use assets
3,687 3,553
Amortisation expense
11,487 11,875
Research and development
1,598 826
Trade and other receivables loss allowance
966 6,394
Amortisation of deferred revenue
(29,253) (27,945)
Amortisation expense is included in administration costs within the consolidated income statement on page 37.
Page 64
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
6 Finance income and costs
2022
£ 000
2021
£ 000
Finance income
Other finance income
5,450 1,337
Finance costs
Interest on borrowings at amortised cost
(53,395) (41,906)
Interest expense on leases
(372) (417)
Borrowing costs included in cost of qualifying asset 606 666
Total finance costs (53,161) (41,657)
Net finance costs
(47,711) (40,320)
Borrowing costs included in the costs of qualifying assets during the year arose on the general borrowing pool and are
calculated by applying a capitalisation rate of 3.14% (2021: 3.28%) to expenditure on such assets.
7 Staff costs
2022
£ 000
2021
£ 000
Salaries
70,853 68,713
Social security costs
8,775 8,147
Defined benefit pension cost
20,857 5,106
Defined contribution pension cost 5,102 4,503
105,587 86,469
Less charged to property plant and equipment (46,318) (43,804)
59,269 42,665
A large proportion of the Group's employees are members of the DB Scheme, details of which are given in the Employee
Benefit Obligations Note 25.
The average monthly number of persons employed by the Group (including directors) during the year, analysed by
category was as follows:
2022
No.
2021
No.
Distribution
1,248 1,247
Engineering contracting
155 155
Other 14 14
1,417 1,416
The Company had an average monthly number of 11 employees during the year ended 31 December 2022 (2021:12).
Page 65
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
8 Directors' remuneration
The directors' remuneration for the year was as follows:
2022
£
2021
£
Highest paid
Short-term employee benefits
94,578 396,843
Other long-term benefits 100,193 435,990
194,771 832,833
Total
Short-term employee benefits
244,542 492,069
Post retirement benefits - defined benefit
21,582 -
Post retirement benefits - defined contribution
6,001 9,180
Other long-term benefits 159,137 493,661
431,262 994,910
Post retirement benefits
No. of Directors who were members of a defined contribution scheme in the year
4 2
No. of Directors who were members of a defined benefit scheme in the year
1 -
2022
£
2021
£
Key personnel remuneration
Short-term employee benefits
1,070,859 648,896
Post retirement benefits - defined benefit
33,482 24,529
Post retirement benefits - defined contribution
81,910 87,751
Other long-term benefits 515,380 257,160
1,701,631 1,018,336
Other key personnel includes a number of senior functional managers who, whilst not board directors, have authority and
responsibility for planning, directing and controlling activities of the Group.
Page 66
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
9 Auditor's remuneration
The auditor's remuneration for the year was as follows:
2022
£ 000
2021
£ 000
Fees payable to the auditor for audit of the Company's annual accounts
43 38
Fees payable to the auditor for audit of the Company's subsidiaries pursuant to
legislation 383 337
Total audit fees
426 375
Audit of regulatory reporting
59 51
Other services 8 51
Total auditor's remuneration
493 477
Other services relate to non-statutory audit services including bond issuance and pensions.
10 Income tax
Tax charged in the income statement
2022
£ 000
2021
£ 000
Current taxation
UK corporation tax
29,874 28,387
UK corporation tax adjustment to prior periods (664) (832)
29,210 27,555
Deferred taxation
Arising from origination and reversal of temporary differences
(1,814) 336
Deferred tax expense/(credit) from unrecognised temporary difference from prior
period
705 610
Deferred tax credit relating to changes in tax rates or laws 1,060 39,315
Total deferred taxation (49) 40,261
Tax expense in the income statement
29,161 67,816
Page 67
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
10 Income tax (continued)
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2021 - higher than
the standard rate of corporation tax in the UK) of 19.0% (2021 - 19.0%).
The differences are reconciled below:
2022
£ 000
2021
£ 000
Profit before tax
134,602 145,545
Corporation tax at standard rate
25,574 27,654
Increase in deferred tax due to changes in tax rates or laws
1,060 39,315
Tax effect of result of joint venture entities
(192) (207)
Decrease in current tax from adjustment for prior periods
(664) (832)
Permanent differences (including non-taxable dividends)
1,069 (198)
Pension contributions recognised in other comprehensive income
- (255)
Increase/(decrease) in deferred tax from adjustment for prior periods
705 610
Non-deductible interest
1,710 1,710
Release of deferred tax in respect of prior year holdover relief claim
(33) (45)
Other tax effects for reconciliation between accounting profit and tax
expense/(income) (68) 64
Total tax charge
29,161 67,816
The Autumn Budget 2022 confirmed that the corporation tax rate will increase to 25% from 1 April 2023 as previously
enacted. Deferred tax balances are therefore measured at 25% at 31 December 2022 (25% at 31 December 2021) after
taking into account the estimated effect of timing differences which will reverse at the 19% rate prior to 1 April 2023.
There is no uncertainty over the acceptable income tax treatment.
Should any uncertainties arise the Group will apply adopted amendments to IFRIC 23.
Amounts recognised in other comprehensive income
2022
Before tax
£ 000
Tax (expense)
benefit
£ 000
Net of tax
£ 000
Loss on cash flow hedges
20,559 (5,140) 15,419
Remeasurement of post employment benefit obligations (98,900) 24,725 (74,175)
(78,341) 19,585 (58,756)
2021
Before tax
£ 000
Tax (expense)
benefit
£ 000
Net of tax
£ 000
Gain on cash flow hedges
4,962 (1,012) 3,950
Remeasurement of post employment benefit obligations 165,100 (34,726) 130,374
170,062 (35,738) 134,324
Page 68
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
10 Income tax (continued)
Deferred tax
Group
Deferred tax movement during the year:
At 1 January
2022
£ 000
Recognised in
income
£ 000
Recognised in
other
comprehensive
income
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation
128,826 2,798 - 131,624
Pension benefit obligations
55,431 (2,972) (24,725) 27,734
Other items
(1,463) 158 5,140 3,835
Holdover relief 58 (33) - 25
182,852 (49) (19,585) 163,218
At 1 January
2021
£ 000
Recognised in
income
£ 000
Recognised in
other
comprehensive
income
£ 000
At
31 December
2021
£ 000
Accelerated tax depreciation
99,729 29,097 - 128,826
Pension benefit obligations
8,957 9,498 36,976 55,431
Other items
(1,950) (525) 1,012 (1,463)
Holdover relief
116 (58) - 58
106,852 38,012 37,988 182,852
The other deferred tax liability of £3.8m (2021:£1.5m asset) includes the deferred tax impact of cash flow hedges,
provisions and employee benefits which are deductible on a paid basis. Within pension benefit obligations the movement
in the year represents deferred tax on the movement in retirement benefit obligation/asset. A proportion of the movement
has been capitalised in property, plant and equipment.
Page 69
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
10 Income tax (continued)
Company
Deferred tax movement during the year:
At 1 January
2022
£ 000
Recognised in
income
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation
(10) 2 (8)
Pension benefit obligations (543) 29 (514)
(553) 31 (522)
Deferred tax movement during the prior year:
At 1 January
2021
£ 000
Recognised in
income
£ 000
At
31 December
2021
£ 000
Accelerated tax depreciation
(8) (2) (10)
Pension benefit obligations
(493) (50) (543)
Holdover relief 32 (32) -
(469) (84) (553)
Page 70
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
11 Property, plant and equipment
Group
Land and
buildings
£ 000
Distribution
system
£ 000
Metering
equipment
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021
6,534 3,762,662 461,902 81,829 4,312,927
Additions
- 187,580 56,998 2,615 247,193
Disposals - (9,005) (29,238) (1) (38,244)
As at 31 December 2021
6,534 3,941,237 489,662 84,443 4,521,876
sample
At 1 January 2022
6,534 3,941,237 489,662 84,443 4,521,876
Additions
- 156,104 53,266 5,665 215,035
Disposals - (9,612) (35,845) - (45,457)
At 31 December 2022
6,534 4,087,729 507,083 90,108 4,691,454
Depreciation
At 1 January 2021
6,490 1,136,148 205,396 75,215 1,423,249
Charge for year
44 87,068 51,169 2,659 140,940
Eliminated on disposal - (9,005) (26,547) (1) (35,553)
As at 31 December 2021
6,534 1,214,211 230,018 77,873 1,528,636
sample
At 1 January 2022
6,534 1,214,211 230,018 77,873 1,528,636
Charge for the year
- 90,958 52,843 2,977 146,778
Eliminated on disposal - (9,612) (33,547) - (43,159)
At 31 December 2022 6,534 1,295,557 249,314 80,850 1,632,255
Carrying amount
At 1 January 2021
44 2,626,514 256,506 6,614 2,889,678
At 31 December 2021
- 2,727,026 259,644 6,570 2,993,240
At 31 December 2022
- 2,792,172 257,769 9,258 3,059,199
Expenditure recognised in the carrying amount of property, plant and equipment in the course of construction was as
follows:
31
December
2022
£ 000
31
December
2021
£ 000
Distribution system 167,998 187,697
Page 71
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
11 Property, plant and equipment (continued)
Contractual commitments for the acquisition of property, plant and equipment were as follows:
31
December
2022
£ 000
31
December
2021
£ 000
Distribution system 20,757 21,104
Company
Land and
buildings
£ 000
Distribution
system
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021 280 1,259 3,634 5,173
At 31 December 2021
280 1,259 3,634 5,173
s
At 1 January 2022
280 1,259 3,634 5,173
At 31 December 2022 280 1,259 3,634 5,173
Depreciation
At 1 January 2021
63 - 3,548 3,611
Charge for year 7 - - 7
At 31 December 2021 70 - 3,548 3,618
s
At 1 January 2022
70 - 3,548 3,618
Charge for the year 7 - - 7
At 31 December 2022 77 - 3,548 3,625
Carrying amount
At 31 December 2022
203 1,259 86 1,548
At 31 December 2021
210 1,259 86 1,555
At 1 January 2021
217 1,259 86 1,562
Page 72
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
12 Right of use assets
Group
Fleet
£ 000
Property
£ 000
Land
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021
13,200 3,651 1,923 18,774
Additions
3,518 415 - 3,933
Disposals (600) (46) - (646)
At 31 December 2021 16,118 4,020 1,923 22,061
s
At 1 January 2022
16,118 4,020 1,923 22,061
Additions
2,062 - - 2,062
Disposals (1,482) - - (1,482)
At 31 December 2022 16,698 4,020 1,923 22,641
Depreciation
At 1 January 2021
4,014 702 27 4,743
Charge for year
2,984 505 64 3,553
Eliminated on disposal (600) (46) - (646)
At 31 December 2021 6,398 1,161 91 7,650
s
At 1 January 2022
6,398 1,161 91 7,650
Charge for the year
3,095 527 64 3,686
Eliminated on disposal (1,482) - - (1,482)
At 31 December 2022 8,011 1,688 155 9,854
Carrying amount
At 31 December 2022
8,687 2,332 1,768 12,787
At 31 December 2021
9,720 2,859 1,832 14,411
Company
Property
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021 1,366 1,366
At 31 December 2021 1,366 1,366
At 1 January 2022 1,366 1,366
At 31 December 2022 1,366 1,366
Depreciation
Page 73
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
12 Right of use assets (continued)
Property
£ 000
Total
£ 000
At 1 January 2021
76 76
Charge for year 137 137
At 31 December 2021 213 213
At 1 January 2022
213 213
Charge for the year 137 137
At 31 December 2022 350 350
Carrying amount
At 31 December 2022
1,016 1,016
At 31 December 2021
1,153 1,153
Page 74
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
13 Intangible assets
Group
Software
development
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021
130,811 130,811
Additions
9,544 9,544
Disposals (714) (714)
At 31 December 2021 139,641 139,641
s
At 1 January 2022
139,641 139,641
Additions 9,956 9,956
At 31 December 2022 149,597 149,597
Amortisation
At 1 January 2021
79,592 79,592
Amortisation charge
11,875 11,875
Amortisation eliminated on disposals (714) (714)
At 31 December 2021 90,753 90,753
s
At 1 January 2022
90,753 90,753
Amortisation charge 11,487 11,487
At 31 December 2022 102,240 102,240
Carrying amount
At 31 December 2022
47,357 47,357
At 31 December 2021
48,888 48,888
During the year the amount of contractual commitments for the acquisition of intangible assets amounted to £2.3 million
(2021: £2.9m).
Page 75
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments
Investment in
joint ventures
£ 000
Investment in
associate
£ 000
Share in other
undertakings
£ 000
Total
£ 000
At 1 January 2021
3,627 - 21 3,648
Profit from investments
1,090 - - 1,090
Dividends paid by investments (840) - - (840)
At 31 December 2021
3,877 - 21 3,898
Profit from investments
1,011 - - 1,011
Dividends paid by investments (927) - - (927)
At 31 December 2022
3,961 - 21 3,982
Page 76
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments (continued)
Summary of the Company investments
31 December
2022
£ 000
31 December
2021
£ 000
Investments in subsidiaries
242,902 242,902
Group subsidiaries
Details of the Group subsidiaries as at 31 December 2022 are as follows:
Name of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2022 2021
CE Electric Services Limited Dormant
100% 100%
Central PowerGrid Limited Dormant
England and Wales
100% 100%
East PowerGrid Limited Dormant
England and Wales
100% 100%
Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
Infrastructure North Limited Dormant
England and Wales
100% 100%
Integrated Utility Services
Limited
Engineering contracting
England and Wales
100% 100%
IUS Limited Dormant
England and Wales
100% 100%
Midlands PowerGrid Limited Dormant
England and Wales
100% 100%
NEDL Limited Dormant
England and Wales
100% 100%
North East PowerGrid Limited Dormant
England and Wales
100% 100%
North Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
North PowerGrid Limited Dormant
England and Wales
100% 100%
North West PowerGrid Limited Dormant
England and Wales
100% 100%
North Western PowerGrid
Limited
Dormant
England and Wales
100% 100%
Northern Electric Distribution
Limited
Dormant
England and Wales
100% 100%
Northern Electric Properties
Limited*
Property holdings &
management company
England and Wales
100% 100%
Northern Electric Share Scheme
Trustee Limited
Dormant
England and Wales
100% 100%
Northern Electricity (North East)
Limited
Dormant
England and Wales
100% 100%
Northern Electricity (Yorkshire)
Limited
Dormant
England and Wales
100% 100%
Northern Electricity Limited Dormant
England and Wales
100% 100%
Page 77
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments (continued)
Name of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2022 2021
Northern Electricity Networks
Company (North East) Limited
Dormant
England and Wales
100% 100%
Northern Electricity Networks
Company (Yorkshire) Limited
Dormant
England and Wales
100% 100%
Northern Electricity Networks
Company Limited
Dormant
England and Wales
100% 100%
Northern Electrics Limited Dormant
England and Wales
100% 100%
Northern Energy Funding
Company Limited
Dormant
England and Wales
100% 100%
Northern Powergrid Metering
Limited
Meter asset provider
England and Wales
100% 100%
Northern Powergrid (Northeast)
plc
Distribution of
electricity
England and Wales
100% 100%
Northern Powergrid (North West)
Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company (North East) Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company (Yorkshire) Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company Limited
Dormant
England and Wales
100% 100%
Northern Transport Finance
Limited
Car finance company
England and Wales
100% 100%
Northern Utility Services Limited Dormant
England and Wales
100% 100%
PowerGrid (Central) Limited Dormant
England and Wales
100% 100%
PowerGrid (East) Limited Dormant
England and Wales
100% 100%
PowerGrid (Eastern) Limited Dormant
England and Wales
100% 100%
PowerGrid (Midlands) Limited Dormant
England and Wales
100% 100%
PowerGrid (North East) Limited Dormant
England and Wales
100% 100%
PowerGrid (North Eastern)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (North West) Limited Dormant
England and Wales
100% 100%
PowerGrid (North Western)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (North) Limited Dormant
England and Wales
100% 100%
PowerGrid (Northern) Limited Dormant
England and Wales
100% 100%
Page 78
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments (continued)
Name of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2022 2021
PowerGrid (South East) Limited Dormant
England and Wales
100% 100%
PowerGrid (South Eastern)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (South West) Limited Dormant
England and Wales
100% 100%
PowerGrid (South Western)
Limited
Dormant
England and Wales
100% 100%
PowerGrid (South) Limited Dormant
England and Wales
100% 100%
PowerGrid (Southern) Limited Dormant
England and Wales
100% 100%
PowerGrid (West) Limited Dormant
England and Wales
100% 100%
PowerGrid (Western) Limited Dormant
England and Wales
100% 100%
PowerGrid (Yorkshire) Limited Dormant
England and Wales
100% 100%
South East PowerGrid Limited Dormant
England and Wales
100% 100%
South Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
South PowerGrid Limited Dormant
England and Wales
100% 100%
South West PowerGrid Limited Dormant
England and Wales
100% 100%
South Western Powergrid Dormant
England and Wales
100% 100%
Southern PowerGrid Limited Dormant
England and Wales
100% 100%
West PowerGrid Limited Dormant
England and Wales
100% 100%
Western PowerGrid Limited Dormant
England and Wales
100% 100%
YEDL Limited Dormant
England and Wales
100% 100%
Yorkshire Electricity Distribution
Limited
Dormant
England and Wales
100% 100%
Yorkshire PowerGrid Limited Dormant
England and Wales
100% 100%
Northern Electric Finance plc** Finance company
England and Wales
100% 100%
*These companies have taken advantage of s479A Companies Act exemption from audit.
**These companies are indirectly owned subsidiaries, with the rest of the above being directly owned.
The class of shares related to the above companies are ordinary shares.
Unless otherwise stated the registered office of the above companies is: Lloyds Court, 78 Grey Street, Newcastle upon
Tyne, Tyne and Wear, NE1 6AF.
Page 79
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments (continued)
Group associates
Details of the Group associates as at 31 December 2022 are as follows:
Name of associate Principal activity Registered office
Proportion of
ownership interest and
voting rights held by
the Group
2022 2021
DCUSA Limited* Goverance of
Distribution Connection
and Use of System
Agreement
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
1.69% 1.69%
Electralink Limited* Data transfer network
operator
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
6.2% 6.2%
MRA Service Company Limited* Goverance of the
electricty industry's
Master Registrauion
Agreement
8 Fenchurch Place, London,
EC3M 4AJ, England and
Wales
0.36% 0.36%
Selectusonline Limited Procurement vehicle Hawaswater House, Lingley
Mere Business Park, Lingley
Green Avenue, Great Sankey,
Warrington, WA5 3LP,
England and Wales
16.67% 16.67%
*These companies are indirectly owned subsidiaries, with the rest of the above being directly owned.
The class of shares related to the above companies are ordinary shares.
Page 80
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments (continued)
Group joint ventures
Details of the Group joint ventures as at 31 December 2022 are as follows:
Name of Joint-ventures Principal activity Registered office
Proportion of
ownership interest and
voting rights held by
the Group
2022 2021
Vehicle Lease and Service
Limited
Transport services Centre for Advanced Industry,
3rd Floor, Coble Dene, North
Shields, NE29 6DE
England and Wales
50% 50%
VLS Limited Dormant Centre for Advanced Industry,
3rd Floor, Coble Dene, North
Shields, NE29 6DE
England and Wales
50% 50%
The class of shares related to the joint ventures above are ordinary shares.
Summarised financial information in respect of the Group's joint venture is set out below:
Joint ventures and associates are not strategic to the Group’s activities.
31 December
2022
£ 000
31 December
2021
£ 000
Current assets
15,481 16,158
Non-current assets
22,031 22,222
Current liabilities
(12,464) (14,559)
Non-current liabilities
(17,198) (16,069)
Net assets
7,850 7,753
Groups share of net assets
3,925 3,876
Revenue
20,615 19,085
Profit for the year
2,022 2,180
Groups share of profit for the year
1,011 1,090
15 Inventories
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Raw materials and consumables
24,968 19,638 - -
Work in progress
441 266 - -
Vehicle inventory 331 478 - -
25,740 20,382 - -
Page 81
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Distribution use of system receivables and
accrued income
57,273 56,769 - -
Trade receivables
26,267 24,630 2 18
Finance lease receivable
3,968 5,059 - -
Loss allowance (9,579) (8,757) - -
Net trade receivables
77,929 77,701 2 18
Social security and other taxes
- - 850 3,472
Prepayments
8,467 7,285 183 376
Other receivables 7,924 4,304 - -
94,320 89,290 1,035 3,866
Non-current Finance lease receivables 4,087 2,702 - -
98,407 91,992 1,035 3,866
The average credit period on receivables is 30 days. No interest is charged on outstanding trade receivables.
The Group always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit loss.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default
experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current
as well as the forecast direction of conditions at the reporting date.
There has been no change in the estimation techniques or significant assumptions made during the current reporting
period.
As the Company’s historical credit loss experience does shows significantly different loss patterns for different customer
segments, the provision for loss allowance based on past due status is distinguished as follows:
• Distribution businesses: DUoS receivables, damages receivables, and other receivables;
• Metering: contracted meters, contracted churn, and non-contracted churn; and
• Engineering contracting.
31 December
2022
£ 000
31 December
2021
£ 000
At 1 January
8,757 6,154
Amounts utilised/written off in the year
(144) (3,791)
Amounts recognised in the income statement 966 6,394
At 31 December
9,579 8,757
The significant increase in the amount recognised in the prior year follows the failure of a number of a electricity supply
companies in 2021. Subject to certain conditions mentioned on page 82, losses arising in relation to distribution use of
system debts will be recovered through an increase in future allowed income.
Page 82
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the
Company compares the risk of a default occurring on a financial instrument at the reporting date with the risk of a default
occurring on the financial instrument at the date of initial recognition. In making this assessment the Company considers
historical experience as well as forward-looking information that is available without undue cost or effort.
Forward-looking information includes the future prospects of the industries in which the Company's debtors operate
obtained from economic expert reports, financial analysts, government bodies, relevant think-tanks and other similar
organisations. In particular the following information is taken into account when assessing whether credit risk has
increased significantly since initial recognition:
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a
significant decrease in the debtor's ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• significant increases in credit risk on other financial instruments of the same debtor; and
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the
debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.
Distribution use of system receivables
The customers served by the Group’s distribution network are supplied predominantly by a number of electricity supply
businesses (circa 110) with the E.ON group accounting for approximately 21.7% of distribution revenues in 2022 (2021:
21.5%) and British Gas plc accounting for approximately 14.1% of distribution revenues in 2022 (2021: 11.4%). Ofgem
under Code Governance arrangements, set out a framework known as Credit Cover within the Distribution Connection and
Use of System Agreement (DCUSA), which sets credit limits for each supply business based on its credit rating (taken
from a credit agency). If no score is available, then they can build up their credit limit through good payment history. In
addition, suppliers can provide other forms of collateral to cover their value at risk (measured as being equivalent to 45
days usage) or if their credit rating alone is not sufficient to cover their value at risk. Acceptable collateral typically is
provided in the form of a parent company guarantee, letter of credit, cash or an escrow account.
Provided the Group has implemented credit control, billing and collection processes in line with best practice guidelines
and can demonstrate compliance with the guidelines or is able to satisfactorily explain departure from the guidelines, any
losses arising from supplier default will be recovered through an increase in future allowed income. Losses incurred to
date have not been material therefore no ECL has been made on DUoS balances.
The following is the expected credit loss for receivables past due:
2022
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
35,177 26,865 7 2,965
Less specific provisions - - (3) (2,962)
Balance eligible for ECL 35,177 26,865 4 3
Lifetime ECL
0% 0% 0% 0%
Expected credit loss
- - - -
2021
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
31,375 22,590 1,703 1,100
Less specific provisions - (255) (1,696) (844)
Balance eligible for ECL 31,375 22,335 7 256
Lifetime ECL
0% 0% 0% 0%
Expected credit loss
- - - -
Page 83
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Other distribution trade receivables
Sales of goods and services comprise all income streams which are not classified as DUoS income. Examples of
non-DUoS income streams would be service alterations/disconnections, assessment and design fees, and recovery of
amounts for damage caused by third parties to the distribution system. The average credit period on sales of goods and
services is 30 days. Interest is not generally charged on the trade receivables paid after the due date.
The following is the expected credit loss for receivables past due:
Damages receivables
2022
0-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 year
£ 000
Total balance
943 1,180 546 113 261
Less specific provisions (97) (68) (232) - (226)
Balance eligible for
ECL 846 1,112 314 113 35
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
169 278 94 45 28
2021
0-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 year
£ 000
Total balance
1,785 373 237 424 53
Less specific provisions
(165) (114) (24) (363) (22)
Balance eligible for
ECL 1,620 259 213 61 31
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
324 65 64 24 25
Non-damages receivables
2022
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
313 315 1,224 222 319
Less specific provisions - - - - -
Balance eligible for
ECL 313 315 1,224 222 319
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 111 278
2021
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
259 393 480 121 234
Less specific provisions - - - - -
Balance eligible for
ECL 259 393 480 121 234
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 61 204
Page 84
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Meter asset provision
Included in trade receivables are balances relating to the provision of meters through Northern Powergrid Metering
Limited. The average credit period on these receivables is 30 days. Interest is not generally charged on receivables paid
after the due date.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty
and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into
bankruptcy proceedings, or when the debtor is over 1 year past due. None of the trade receivables that have been written
off are subject to enforcement activities.
For receivables where there is no specific provisions, a provision is made for debts past their due date based on lifetime
expected credit loss determined by reference to past default experience. The following is the expected credit loss for
receivables past due:
Contracted
2022
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
6,774 2,145 27 4 58
Less specific provisions - (2,145) (27) (4) (58)
Balance eligible for
ECL 6,774 - - - -
Lifetime ECL
0% 100% 100% 100% 100%
Expected credit loss
- - - - -
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
5,926 2,365 - 7 -
Less specific provisions - - - (7) -
Balance eligible for
ECL 5,926 2,365 - - -
Lifetime ECL
0% 0% 100% 100% 100%
Expected credit loss
- - - - -
Contracted churn
2022
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
4,164 1,128 270 117 1,053
Less specific provisions - (1,128) (270) (117) (1,053)
Balance eligible for
ECL 4,164 - - - -
Lifetime ECL
0% 100% 100% 100% 100%
Expected credit loss
- - - - -
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
5,184 3,384 336 449 21
Less specific provisions
(27) (377) (336) (449) (21)
Balance eligible for
ECL 5,157 3,007 - - -
Lifetime ECL
0% 30% 100% 100% 100%
Expected credit loss
- 902 - - -
Page 85
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Non-contracted churn
2022
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
347 36 1 33 660
Less specific provisions - (36) (1) (33) (660)
Balance eligible for
ECL 347 - - - -
Lifetime ECL
0% 100% 100% 100% 100%
Expected credit loss
- - - - -
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
2,457 1,021 613 170 83
Less specific provisions (28) (258) (613) (170) (83)
Balance eligible for
ECL 2,429 763 - - -
Lifetime ECL
0% 17% 100% 100% 100%
Expected credit loss
- 130 - - -
Engineering contracting receivables
The average credit period on Engineering contracting receivables is 30 days. Interest is not generally charged on
receivables paid after due date. Included in the Group’s construction contracts balance are debtors with a carrying amount
of £1.9 million (2021: £2.1 million), which are past due at the reporting date for which the Group has provided for an
irrecoverable amount of £0.1 million (2021: £0.1 million) based on past experience. The Group does not hold and
collateral over these balances. The average age of these receivables is 50 days (2021: 54days).
Included in the Group's construction contracts balance are debtors with a carrying amount of £nil (2021: £nil) which are
past due at the reporting date for which the Group has not provided as there has not been a significant change in credit
quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances.
The average credit period on sales of goods and services is 30 days. Interest is not generally charged on the trade
receivables paid after the due date.
2022
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
2,174 1,891 135 44 104
Less specific provisions - - - - (104)
Balance eligible for
ECL 2,174 1,891 135 44 -
Lifetime ECL
0% 1% 10% 50% 100%
Expected credit loss
- 19 14 22 -
2021
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
2,136 1,909 25 123 78
Less specific provisions - - - - (78)
Balance eligible for
ECL 2,136 1,909 25 123 -
Lifetime ECL
0% 1% 10% 50% 100%
Expected credit loss
- 19 3 62 -
Page 86
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Finance lease receivables
Northern Transport Finance Limited ("NTFL"), a wholly owned subsidiary, enters into credit finance arrangements for
motor vehicles with employees in the Group. All agreements are denominated in sterling. The term of the finance
agreements is predominantly three years.
The interest rate inherent in the agreements is fixed at the contract date for all of the term of the agreement. The average
effective interest rate contracted is approximately 6.5% (2021: 6.5%) per annum. None of these debts are past due and
there are no indicators of impairment.
The interest rate inherent in the agreements is fixed at the contract date for all of the term of the agreement. None of these
debts are past due and there are no indicators of impairment.
The directors consider the carrying value of finance lease receivables approximates their fair value. The maximum risk
exposure is the book value of these receivables, less the residual value of the leased assets.
2022
Minimum
lease
payments
£ 000
Interest
£ 000
Present value
£ 000
Within one year
4,027 (109) 3,918
In two to five years 4,624 (537) 4,087
8,651 (646) 8,005
2021
Minimum
lease
payments
£ 000
Interest
£ 000
Present value
£ 000
Within one year
5,075 (92) 4,983
In two to five years 3,036 (334) 2,702
8,111 (426) 7,685
Page 87
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Operating lease receivables
Operating leases relate to the metering assets owned by the Group with lease terms of 10 years, these are disclosed in Note
11. The lessee does not have an option to purchase the meters at the expiry of the lease period.
The total future value of minimum lease payments is as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Within one year
79,519 73,145
In two to five years
262,627 272,860
Over five years 145,932 131,950
488,078 477,955
The group's exposure to credit and market risks, including maturity analysis, relating to trade and other receivables is
disclosed in note 29 "Financial risk review".
17 Cash and cash equivalents
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Cash at bank
15,324 26,098 - -
Other cash and cash equivalents 253,337 16,042 18,090 29,036
268,661 42,140 18,090 29,036
Cash and cash equivalents have a maturity of less than three months, are readily convertible to cash and are subject to an
insignificant risk of changes in value. The carrying amount of these assets approximates their fair value. Other cash and
cash equivalents include intercompany loans that are highly liquid and repayable on demand.
Page 88
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
18 Share capital
Allotted, issued, and fully paid:
The Company has one class of ordinary shares which carries no right to fixed income. Details of cumulative non-equity
preference shares are contained in the borrowings Note 20.
Share value No. of shares
2022
£ 000
2021
£ 000
Ordinary shares 56 12/13p 127,689,809
72,173 72,173
19 Reserves
Group
The changes to each component of equity resulting from items of other comprehensive income for the current year were as
follows:
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
Loss on cash flow hedge (net)
15,419 - 15,419
Remeasurements of post employment benefit obligations - (74,175) (74,175)
15,419 (74,175) (58,756)
Prior period
The changes to each component of equity resulting from items of other comprehensive income for the prior year were as
follows:
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
Loss on cash flow hedge (net)
3,950 - 3,950
Remeasurements of post employment benefit obligations - 130,374 130,374
3,950 130,374 134,324
Page 89
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
20 Loans and borrowings
Group Company
2022
£ 000
2021
£ 000
2022
£ 000
2021
£ 000
Non-current loans and borrowings
1,193,131 985,988 1,117 1,117
Current loans and borrowings 125,040 51,379 7,831 13,861
1,318,171 1,037,367 8,948 14,978
Page 90
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
20 Loans and borrowings (continued)
Group
Carrying value Fair value
2022
£ 000
2021
£ 000
2022
£ 000
2021
£ 000
Short-term loans
63,614 499 63,614 499
Amortising loan 2026 - 2.3012%*
174,915 212,395 173,480 212,395
Bond 2035 - 5.125%
153,457 153,366 150,066 204,175
Bond 2049- 2.75%
150,098 150,037 100,507 172,211
Bond 2052 - 3.25%
354,942 - 259,793 -
Bond 2062 - 1.875%
297,649 297,558 154,267 289,945
European Investment Bank 2027 - 2.564%
120,128 120,128 103,252 126,098
Cumulative preference shares
3,368 3,368 139,037 166,952
Yorkshire Electricity Group - 5.9%
- 100,016 - 148,285
1,318,171 1,037,367 1,144,016 1,320,560
The group's exposure to market and liquidity risks, including maturity analysis, relating to loans and borrowings is
disclosed in note 29 "Financial risk review".
*2026 £218m Amortising Loan is 80% swapped at a fixed rate of 2.4455%, with the remaining 20% floating at SONIA
plus 1.55%.
In April 2022, the Group issued a £350 million bond at 3.25% maturing 2052, the funds were used for general corporate
purposes including the repayment of debt maturities in 2022.
In December 2022, the Yorkshire Electricity Group 5.9% loan was repaid.
Company
Carrying value Fair value
2022
£ 000
2021
£ 000
2022
£ 000
2021
£ 000
Short-term loans
5,580 11,610 5,580 11,610
Cumulative preference shares 3,368 3,368 139,037 166,952
8,948 14,978 144,617 178,562
Of the total financial liabilities of £1,318.2 million, £1,254.6 million (2021: £936.9 million) relates to external borrowings
and preference shares whose fair value is determined with reference to quoted market prices. The directors' estimates of
the fair value of internal borrowings are determined in accordance with generally accepted pricing models based on
discounted cash flow analysis using prices from observable current market transactions or dealer quotes for similar
instruments. The valuation of liabilities set out above is based on Level 1 inputs.
The terms of the cumulative preference shares:
• entitle holders, in priority to holders of all other classes of shares, to a fixed cumulative preferential dividend of 8.061p
(net) per share per annum payable half-yearly in equal amounts on 31 March and 30 September;
• on a return of capital on a winding up, or otherwise, will carry the right to repayment of capital together with a
premium of 99p per share and a sum equal to any arrears or accruals of dividend. This right is in priority to the rights of
ordinary shareholders;
• carry the right to attend a general meeting of Northern Electric plc and vote if, at the date of the notice convening the
meeting, payment of the dividend to which they are entitled is six months or more in arrears, or if a resolution is to be
considered at the meeting for the winding-up of Northern Electric plc or abrogating, varying or modifying any of the
special rights attaching to them; and
Page 91
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
20 Loans and borrowings (continued)
• are redeemable in the event of the revocation by the Secretary of State of Northern Electric plc's Public Electricity
Supply Licence at the value given above.
During the year ended 31 December 2001, under the terms of the Northern Electric plc's transfer scheme, as approved by
the Secretary of State in accordance with the provisions of the Utilities Act 2000, the Northern Electric plc's Public
Electricity Supply Licence was converted into an Electricity Distribution Licence and an Electricity Supply Licence.
21 Obligations under leases and hire purchase contracts
Group
Lease liability
Operating lease commitments relate to fleet vehicles from Vehicle Lease and Service Limited, a joint venture, with terms
of up to 7 years and operational and non-operational land and buildings with terms of up to 50 years.
The total future value of minimum lease payments is as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Within one year
3,690 3,630
In two to five years
8,014 8,545
In over five years 2,755 3,406
Total lease payment
14,459 15,581
Unearned interest
(1,266) (791)
Total lease liability
13,193 14,790
Page 92
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
21 Obligations under leases and hire purchase contracts (continued)
Company
Operating leases
The Company holds one single lease relating to the main office building within Newcastle upon Tyne.
The total future value of minimum lease payments is as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Within one year
172 172
In two to five years
601 601
In over five years 391 563
Total lease payment
1,164 1,336
Unearned interest
(102) (130)
Total lease liability
1,062 1,206
22 Provisions
Group
Claims
£ 000
Other
£ 000
Total
£ 000
At 1 January 2022
793 5,057 5,850
Additional provisions
1,952 48 2,000
Provisions used (1,650) (1,766) (3,416)
At 31 December 2022
1,095 3,339 4,434
Non-current liabilities
- 1,921 1,921
Current liabilities
1,095 1,418 2,513
Claims: Provision has been made to cover costs arising from utility damage, public liability, and motoring third party
claims, which are not externally insured. Settlement is expected substantially within 12 months.
Other: Relates primarily to Storm Arwen related customer costs, environmental liabilities, wayleave disputes, provision for
future safe disposal of transformers which contain oil contaminated with Polychlorinated Biphenyls (PCBs) and unfunded
pension arrangements. Settlement is expected substantially after the next 12 months.
Also included within 'other' are pension provisions which releate to the Group's share of expected settlements of liabilities
relating to pension deficit repair of Electricity Association Technology Limited ("EATL") and are expected to be settled
over a period of approximately eight years. As at 31 December 2022 the provision relating to the EATL is £0.6m (2021:
£0.7m).
Company
Other
provisions
£ 000
Total
£ 000
At 1 January 2022
2,099 2,099
Provisions used (226) (226)
At 31 December 2022
1,873 1,873
Page 93
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
22 Provisions (continued)
The Company's provisions relate to the actuarial assessment of the costs of unfunded pension arrangements in respect of
former employees. This is expected to be realised over the next 20 years.
Also included above are pension provisions which releate to the Group's share of expected settlements of liabilities relating
to pension deficit repair of Electricity Association Technology Limited ("EATL") and are expected to be settled over a
period of approximately eight years. As at 31 December 2022 the provision relating to the EATL is £0.6m (2021: £0.7m).
23 Trade and other payables
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Payments on account
54,169 37,143 - -
Trade payables
4,838 4,956 1,550 2,756
Capital creditors
20,754 24,330 - -
Accrued expenses
14,353 15,277 2,291 1,520
Social security and other taxes
8,498 7,943 94 94
Other payables 14,792 13,763 317 145
117,404 103,412 4,252 4,515
The group's exposure to market and liquidity risks, including maturity analysis, relating to trade and other payables is
disclosed in note 29 "Financial risk review".
The Group's exposure to market and liquidity risks, including maturity analysis, related to trade and other payables is
disclosed in the financial risk review Note 29.
The directors consider that the carrying amount of other financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the statement of financial position date. The valuation is based on Level 1
inputs. Trade creditors and accruals principally comprise amounts outstanding for trade purchases and on-going costs.
Invoices are paid at the end of the month following the date of the invoice. The Group has financial risk management
policies in place to ensure that all payables are paid within the credit timeframe. The standard payment term for trade
payables is net monthly.
Page 94
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
24 Deferred revenue
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Opening balance
677,658 669,356 - -
Additions
33,397 36,247 - -
Amortisation
(29,253) (27,945) - -
681,802 677,658 - -
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Current
29,326 28,645 - -
Non-current 652,476 649,013 - -
681,802 677,658 - -
Deferred revenue relates to customer contributions towards distribution system assets. The Group's policy is to credit the
customer contribution to revenue on a straight-line basis, in line with the useful life of the distribution system assets.
Page 95
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes
Defined benefit pension schemes
Electricity Supply Pension Scheme
The Group contributes to two pension schemes, which it operates on behalf of the participating companies within the
Group. Those pension schemes are:
- The Northern Powergrid Group of the ESPS (the "DB Scheme"); and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new employees of the Group from July 1997 and is a money
purchase arrangement accounted for as a defined contribution scheme.
The DB Scheme is a defined benefit scheme for directors and employees, which provides pension and other related
retirement benefits based on final pensionable pay. The DB Scheme closed to staff commencing employment with the
Group on or after 23 July 1997. Members who joined before this date, including some Protected Persons under The
Electricity (Protected Persons) (England and Wales) Pension Regulations 1990, continue to build up future pension
benefits.
Under the DB Scheme, employees are typically entitled to annual pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such as withdrawing from active service.
No other post-retirement benefits are provided to members of the DB Scheme.
Pension regulation
The UK pensions market is regulated by the Pensions Regulator whose key statutory objectives in relation to UK defined
benefit plans are to:
- protect the benefits of members;
- promote and to improve understanding of good administration;
- reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund
("PPF"); and
- minimise any adverse impact on the sustainable growth of an employer.
The Pensions Regulator has various powers including the power to:
- wind up a scheme where winding up is necessary to protect members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions where trustees and company fail to agree on appropriate contributions; and
- impose contributions where there has been a detrimental action against the scheme.
Page 96
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Role of Trustees
The DB Scheme is administered by a board of Trustees which is legally separate from the Company. The assets of the DB
Scheme are held in a separate trustee-administered fund. The board of Trustees is made up of Trustees appointed by the
Company, as the Principal Employer of the DB Scheme, Trustees elected by the membership and an independent trustee.
The Trustees are required by law to act in the interests of all relevant beneficiaries and are responsible in particular for the
asset investment strategy plus the day-to-day administration of the benefits payable. They also are responsible for jointly
agreeing with the Principal Employer the level of contributions due to the DB Scheme.
Funding requirements
UK legislation requires that pension schemes are funded prudently (i.e. to a level in excess of the current expected cost of
providing benefits). The last actuarial valuation of the DB Scheme was carried out by the Trustee's actuarial advisors, Aon,
as at 31 March 2022. Such valuations are required by law to take place at intervals of no more than three years. Following
each valuation, the Trustees and the Northern Powergrid Group must agree the contributions required (if any) such that the
DB Scheme is fully funded over time on the basis of suitably prudent assumptions.
At the latest funding valuation as at 31 March 2019, the funding deficit was assessed to be £116.3 million. In light of this
and subsequent changes in the funding position, the Group agreed with the Trustees in September 2020 to pay £2.44
million per month from 1 April 2019 to 31 March 2021. A further £29.3 million will be paid on 30 November 2021 and 30
November 2022 and £14.1 million on 30 November 2023 and 30 November 2024. These amounts are in 2019/20 prices
and will be updated on 1 April 2020 and on each 1 April thereafter in line with annual changes in RPI inflation. If the
actuarial assumptions are borne out in practice then the funding deficit is expected to be removed by 31 March 2025. The
amounts due each November may be reduced by up to 100% depending on the updated funding position. Due to a
significantly improved funding position,the November 2021 and 2022 deficit contributions were suspended. The next
actuarial valuation is underway as at 31 March 2022 and is expected to be completed by 30 June 2023, by which time a
new contribution schedule will be agreed.
The contributions payable by the Group to the DB Scheme in respect of future benefits which are accruing is 49.1% of
pensionable pay. These contributions were determined as part of the 31 March 2019 actuarial valuation and are payable in
addition to the deficit repair contributions mentioned above. These rates will remain in place until such a time as a new
schedule of contributions is agreed between the Trustees and the Group as part of the 31 March 2022 valuation.
In addition, the Group pays contributions to cover the expenses of running the DB Scheme are 6.3% of pensionable pay
from 1 October 2020.
The Northern Powergrid Group’s total contribution to the DB Scheme for the next financial year are expected to be
£11.2m (subject to a new contribution schedule being put in place).
The Trust Deed provides the Group with an unconditional right to a refund of surplus assets assuming the gradual
settlement of plan liabilities over time. Furthermore, in the ordinary course of business the Trustees have no right to
unilaterally wind up, or otherwise augment the benefits due to members of the DB scheme. Based on these rights, any net
surplus in the plan is recognised in full.
Profile of the scheme
The defined benefit obligation ("DBO") includes benefits for current employees, former employees and current pensioners.
The overall duration of the DB Scheme's obligation was assessed to be about 17 years based on the results of the 31 March
2019 funding valuation. This is the weighted-average time over which benefit payments are expected to be made.
As at 31 March 2019, broadly about 30% of the liabilities are attributable to current employees (duration about 24 years),
10% to former employees (duration about 23 years) and 60% to current pensioners (duration about 13 years). Given
increases in yields, we anticipate that the overall duration of the Scheme’s obligation will have reduced to around 14 years
at 31 December 2022.
Investment objectives for the DB Scheme
Page 97
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
The Trustees aim to achieve the Scheme's investment objectives through investing partly in a diversified mix of growth
assets which, over the long term, are expected to grow in value by more than low risk assets like cash and gilts. This is
done with a broad liability driven investing framework that uses cash, gilts and other hedging instruments like swaps in a
capital efficient way. In combination this efficiently captures the Trustees' risk tolerances and return objectives relative to
the Scheme's liabilities.
The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This
includes the use of Liability Driven Investment (LDI) from October 2016 to more closely match the nature and duration of
the DB Scheme's liabilities through the use of derivatives such as swaps and repurchase agreements. The portfolio is
designed to hedge a proportion of the interest rate and inflation risk inherent in the Scheme's liabilities. The target hedging
level is currently 99% (2021: 99%) of the DB Scheme's liabilities as measured on the basis used for the funding valuation.
The trustees insure certain benefits which are payable on death before retirement.
Risks
Volatile asset returns
The DBO is calculated using a discount rate set with reference to corporate bond yields. If assets underperform this
discount rate, this will create an element of deficit. The DB Scheme aims to hold a proportion (7%) of its assets in
return-seeking assets (such as equities) which, although expected to outperform corporate bonds in the long-term, create
volatility and risk in the short-term.
Mitigation
The allocation to return-seeking assets is monitored to ensure it remains appropriate given the DB Scheme's long-term
objectives. The Trustees regularly review the strategy from return-seeking assets and have diversified some return-seeking
assets from equities into Reinsurance and Listed Infrastructure to reduce overall risk. To avoid concentration risk, the
allocation to UK equity is restricted to 35% of the total equity allocation.
Changes in bond yields
A decrease in corporate bond yields will increase the value placed on the DBO for accounting purposes, although this will
be partially offset by an increase in the value of the DB Scheme's bond holdings.
Mitigation
The DB Scheme aims to hold a substantial proportion of its assets (73%) as bonds and Liability Driven Investments (LDI),
which provide a significant hedge against falling bond yields (falling yields which increase the DBO will also increase the
value of the bond assets). There are some differences in the credit quality of bonds held by the DB Scheme and the bonds
analysed to decide the DBO discount rate, such that there remains some risk should yields on different quality bond/swap
assets diverge.
Inflation risk
A significant proportion of the DBO is indexed in line with price inflation (specifically in line with RPI) and higher
inflation will lead to higher liabilities
Mitigation
The DB Scheme invests around 42% in LDI (included in the 73% above) which provides a hedge against
higher-than-expected inflation increases on the DBO (rising inflation will increase both the DBO and the value of the LDI
portfolio).
Life expectancy risk
The majority of the DB Scheme's obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the liabilities.
Mitigation
The DB Scheme regularly reviews actual experience of its membership against the actuarial assumptions underlying the
future benefit projections and carries out detailed analysis when setting an appropriate scheme specific mortality
assumption.
Currency risk
To increase diversification, the DB Scheme invests in overseas assets. This leads to a risk that foreign currency movements
negatively impact the value of assets in Sterling terms.
Page 98
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Mitigation
The DB Scheme hedges a proportion of the overseas investments currency risk for those overseas currencies that can be
hedged efficiently. The DB Scheme's currency hedging ratio is currently 50% in respect of overseas developed market
currencies.
Page 99
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Other risks
There are a number of other risks associated with the DB Scheme including operational risks (such as paying out the
wrong benefits), legislative risks (such as the government increasing the burden on pension schemes through new
legislation) and other demographic risks (such as a higher proportion of members dying than assumed with a dependant
eligible to receive a survivor's pension from the DB Scheme).
Reporting at 31 December 2022
For the purposes of this disclosure, the current and future pension costs of the Northern Powergrid Group have been
assessed by Aon, a qualified independent actuary, using the assumptions set out below, which the actuary has confirmed
represent a reasonable best estimate of those costs. The review has been based on the same membership and other data as
at 31 March 2019. The board of Northern Powergrid Holdings Company has accepted the advice of the actuary and
formally approved the use of these assumptions for the purpose of calculating the pension cost of the Northern Powergrid
Group.
The results of the latest funding valuation at 31 March 2019 have been adjusted to 31 December 2021. Those adjustments
take account of experience over the period since 31 March 2019, changes in market conditions, and differences in the
financial and demographic assumptions. The present value of the DBO and the related current service cost were measured
using the Projected Unit Credit Method.
For schemes closed to new members, such as the DB Scheme, the current service cost calculated under the Projected Unit
Credit Method is expected to increase as the members of the DB Scheme approach retirement.
Principal actuarial assumptions
The significant actuarial assumptions used to determine the present value of the defined benefit obligation at the statement
of financial position date are as follows:
31 December
2022
%
31 December
2021
%
Discount rate
4.80 1.95
Future salary increases
3.20 3.45
Future pension increases
2.75 2.85
Inflation - RPI
2.95 2.95
Inflation- CPI
2.50 2.55
Proportion of pension exchanged for additional cash at retirement
10.00 10.00
Post retirement mortality assumptions
31 December
2022
Years
31 December
2021
Years
Life expectancy for male currently aged 60
26.70 26.70
Life expectancy for female currently aged 60
26.60 28.60
Life expectancy at 60 for male currently aged 45
27.40 27.40
Life expectancy at 60 for female currently aged 45
29.70 29.60
Page 100
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Reconciliation of scheme assets and liabilities to assets and liabilities recognised
The amounts recognised in the statement of financial position are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Fair value of scheme assets
1,117,000 1,742,600
Present value of scheme liabilities (965,500) (1,480,400)
Defined benefit pension scheme surplus
151,500 262,200
Scheme assets
Changes in the fair value of scheme assets are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Fair value at start of year
1,742,600 1,700,700
Interest income
33,600 23,800
Re-measurement (loss)/gains on scheme assets
(582,000) 87,900
Employer contributions
12,100 20,800
Contributions by scheme participants
400 400
Benefits paid
(88,300) (89,700)
Administrative expenses paid (1,400) (1,300)
Fair value at end of year
1,117,000 1,742,600
Page 101
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Analysis of assets
The major categories of scheme assets are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Developed market equity
78,400 124,000
Emerging market equity
4,400 3,200
Property
169,400 194,300
Reinsurance
80,800 80,200
Listed infrastructure
62,800 95,300
Investment grade corporate bonds
15,900 201,300
Other debt (non-investment grade)
32,800 133,100
Fixed interest gilts
6,500 46,400
Index-linked gilts
- 3,800
Liability driven investments
584,300 703,200
Cash and cash equivalents including derivatives
81,700 157,800
1,117,000 1,742,600
The pension scheme has not invested in any of the Company's own financial instruments or in properties or other assets
used by the Company.
Scheme liabilities
Changes in the present value of scheme liabilities are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Present value at start of year
(1,480,400) (1,612,600)
Current service cost
(11,100) (12,000)
Past service cost
(16,500) -
Actuarial gains/(losses) arising from changes in demographic assumptions
900 2,900
Actuarial gains/(losses) arising from changes in financial assumptions
530,100 55,100
Actuarial gains arising from experience adjustments
(47,900) 19,200
Interest cost
(28,500) (22,300)
Benefits paid
88,300 89,700
Contributions by scheme participants (400) (400)
Present value at end of year
(965,500) (1,480,400)
Page 102
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Amounts recognised in the income statement
31 December
2022
£ 000
31 December
2021
£ 000
Current service cost
11,100 12,000
Past service cost
16,500 -
Losses (gains) on curtailments and settlements
1,490 1,300
Net interest (5,100) (1,500)
Amounts recognised 23,990 11,800
Costs included in cost of qualifying assets (6,800) (8,000)
Total recognised in the income statement
17,190 3,800
Amounts taken to the Statement of Comprehensive Income
31 December
2022
£ 000
31 December
2021
£ 000
Actuarial (gains) and losses arising from changes in demographic assumptions
(900) (2,900)
Actuarial (gains) and losses arising from changes in financial assumptions
(530,100) (55,100)
Actuarial (gains) and losses arising from experience adjustments
47,900 (19,200)
Return on plan assets in excess of that recognised in net interest 582,000 (87,900)
Amounts recognised in the Statement of Comprehensive Income
98,900 (165,100)
Sensitivity analysis
Significant actuarial assumptions for determination of the defined benefit obligation are discount rate, inflation, and
mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective
assumptions occurring at the end of the reporting period, while holding all other assumptions constant:
31 December
2022
31 December
2021
Adjustment to discount rate
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
952,700 965,500 979,300 1,445,600 1,480,400 1,505,600
31 December
2022
31 December
2021
Adjustment to rate of inflation
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
978,700 965,500 953,300 1,503,900 1,480,400 1,466,300
31 December
2022
31 December
2021
Adjustment to mortality age rating
assumption
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
Present value of total obligation
995,300 965,500 934,900 1,545,600 1,480,400 1,415,600
Page 103
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
The sensitivity analysis presented above may not be representative of the actual change in defined benefit obligation as it
is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be
correlated.
26 Dividends
31 December
2022
31 December
2021
£ 000 £ 000
Dividend of £0.90 (2021 - £0.20 ) per ordinary share
114,946 26,000
27 Net debt reconciliation
Group
At 1
January
2022
£ 000
Cash flows
£ 000
New leases
£ 000
Other
changes
£ 000
At 31
December
2022
£ 000
Cash and cash equivalents
42,140 226,521 - - 268,661
Lease liabilities
(14,790) 4,032 (2,435) - (13,193)
Borrowings
(1,037,367) (270,518) - (10,286) (1,318,171)
(1,010,017) (39,965) (2,435) (10,286) (1,062,703)
At 1
January
2021
£ 000
Cash flows
£ 000
New leases
£ 000
Other
changes
£ 000
At 31
December
2021
£ 000
Cash and cash equivalents
21,874 20,266 - - 42,140
Lease liabilities
(14,331) 3,891 (4,350) - (14,790)
Borrowings (1,023,245) (14,256) - 134 (1,037,367)
(1,015,702) 9,901 (4,350) 134 (1,010,017)
Oher changes include accrued interest movement and amortisation of borrowings.
Page 104
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
27 Net debt reconciliation (continued)
Company
At 1 January
2022
£ 000
Cash flows
£ 000
New finance
leases
£ 000
At 31
December
2022
£ 000
Cash and cash equivalents
29,036 (10,946) - 18,090
Lease liabilities
(1,206) 171 (27) (1,062)
Borrowings (14,978) 6,030 - (8,948)
12,852 (4,745) (27) 8,080
At 1 January
2021
£ 000
Cash flows
£ 000
New finance
leases
£ 000
At 31
December
2021
£ 000
Cash and cash equivalents
38,148 (9,112) - 29,036
Lease liabilities
(1,346) 171 (31) (1,206)
Borrowings (10,858) (4,120) - (14,978)
25,944 (13,061) (31) 12,852
Page 105
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities
Group
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2022 was as follows:
Non-current assets
Financial
assets at
amortised
cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets &
liabilities at
FVTOCI
£ 000
Financial
liabilities at
amortised
cost
£ 000
Non-financial
assets &
liabilities
£ 000
Property, plant and equipment
- - - - 3,059,199
Right of use assets
- - - - 12,787
Intangible assets
- - - - 47,357
Investments in subsidiaries, joint
ventures and associates
- 3,982 - - -
Retirement benefit obligations
- - 151,500 - -
Trade and other receivables
4,087 - - - -
Other non-current financial assets - - 18,926 - -
4,087 3,982 170,426 - 3,119,343
Current assets
Inventories
- - - - 25,740
Trade and other receivables
94,320 - - - -
Income tax asset
1,054 - - - -
Cash and cash equivalents
268,661 - - - -
Contract assets
5,824 - - - -
Other current financial assets - - 2,781 - -
369,859 - 2,781 - 25,740
Total assets
373,946 3,982 173,207 - 3,145,083
Non-current liabilities
Long term lease liabilities
- - - (9,791) -
Loans and borrowings
- - - (1,193,131) -
Provisions
- - - (1,921) -
Deferred revenue
- - - (652,476) -
Deferred tax liabilities - - - (163,218) -
- - - (2,020,537) -
Current liabilities
Current portion of long term lease
liabilities
- - - (3,402) -
Trade and other payables
- - - (117,404) -
Loans and borrowings
- - - (125,040) -
Deferred revenue
- - - (29,326) -
Provisions - - - (2,513) -
- - - (277,685) -
Total liabilities
- - - (2,298,222) -
Page 106
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2021 was as follows:
Financial
assets at
amortised
cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets &
liabilities at
FVTOCI
£ 000
Financial
liabilities at
amortised
cost
£ 000
Non-financial
assets &
liabilities
£ 000
Non-current assets
Property, plant and equipment
- - - - 2,993,240
Right of use assets
- - - - 14,411
Intangible assets
- - - - 48,888
Investments in subsidiaries, joint
ventures and associates
- 3,898 - - -
Retirement benefit obligations
- - 262,200 - -
Trade and other receivables
2,702 - - - -
Other non-current financial assets - - 944 - -
2,702 3,898 263,144 - 3,056,539
Current assets
Inventories
- - - - 20,382
Trade and other receivables
89,290 - - - -
Income tax asset
2,294 - - - -
Cash and cash equivalents
42,140 - - - -
Contract assets
7,593 - - - -
Other current financial assets - - 204 - -
141,317 - 204
Total assets
144,019 3,898 263,348
- 20,382
- 3,076,921
Non-current liabilities
Long term lease liabilities
- - - (11,359) -
Loans and borrowings
- - - (985,988) -
Provisions
- - - (2,341) -
Deferred revenue
- - - (649,013) -
Deferred tax liabilities - - - (182,852) -
- - - (1,831,553) -
Current liabilities
Current portion of long term lease
liabilities
- - - (3,431) -
Trade and other payables
- - - (103,412) -
Loans and borrowings
- - - (51,379) -
Deferred revenue
- - - (28,645) -
Provisions - - - (3,509) -
- - - (190,376) -
Total liabilities
- - - (2,021,929) -
Page 107
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
Company
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2022 was as follows:
Financial
assets at
amortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 1,548
Right of use assets
- - - 1,016
Investments in subsidiaries, joint ventures
and associates
- 242,902 - -
Deferred tax asset 522 - - -
522 242,902 - 2,564
Current assets
Trade and other receivables
1,035 - - -
Income tax asset
1,400 - - -
Cash and cash equivalents 18,090 - - -
20,525 - - -
Total assets
21,047 242,902 - 2,564
Liabilities
Non-current liabilities
Long term lease liabilities
- - (914) -
Loans and borrowings
- - (1,117) -
Provisions - - (1,610) -
- - (3,641) -
Current liabilities
Current portion of long term lease
liabilities
- - (148) -
Trade and other payables
- - (4,252) -
Loans and borrowings
- - (7,831) -
Provisions - - (263) -
- - (12,494) -
Total liabilities
- - (16,135) -
Page 109
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December
2021 was as follows:
Financial
assets at
amortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 1,555
Right of use assets
- - - 1,153
Investments in subsidiaries, joint ventures
and associates
- 242,902 - -
Deferred tax asset 553 - - -
553 242,902 - 2,708
Current assets
Trade and other receivables
3,866 - - -
Income tax asset
158 - - -
Cash and cash equivalents 29,036 - - -
33,060 - - -
Total assets
33,613 242,902 - 2,708
Liabilities
Non-current liabilities
Long term lease liabilities
- - (1,062) -
Loans and borrowings
- - (1,117) -
Provisions - - (1,850) -
- - (4,029) -
Current liabilities
Current portion of long term lease
liabilities
- - (144) -
Trade and other payables
- - (4,515) -
Loans and borrowings
- - (13,861) -
Provisions - - (249) -
- - (18,769) -
Total liabilities
- - (22,798) -
Page 110
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review
Capital management
The Group manages its capital centrally to ensure that entities in the Group will be able to continue as going concerns
while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall
strategy remains unchanged from 2021.
The capital structure of the Group consists of net debt (borrowings as detailed in Note 20 offset by equity of the Company
(comprising issued capital, reserves and retained earnings as detailed in Notes 18 and 19).
At 31 December 2022, 97% of the Group's long-term borrowings were at fixed rates (2021: 96%) and the average maturity
for these borrowings was 23 years (2021: 20 years).
During the year all obligations under the various debt covenants have been complied with.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group's exposure and the
credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread
amongst approved counterparties. The carrying amount of financial assets recorded in the financial statements, which is
net of impairment losses, represents the Group's maximum exposure to credit risk as no collateral or other credit
enhancements are held.
The Group's income is primarily generated from use of system revenue from electricity suppliers; suppliers are credit
checked by independent ratings agencies. Impaired income from DUoS will be recovered in future periods through system
charges and is therefore of no material risk to the Group. The Company's receivables are subject to expected credit loss
calculations disclosed further within the trade receivables (Note 16). The Group's credit risk exposure is shown below:
Group
2022 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 107,986 (9,579) 98,407
Income tax asset
1,054 - 1,054
Cash and short-term deposits
17 268,661 - 268,661
Contracts
3
5,824 - 5,824
16
383,525 (9,579) 373,946
2021 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 100,749 (8,757) 91,992
Income tax asset
2,294 - 2,294
Cash and short-term deposits
17 42,140 - 42,140
Contracts
3
7,593 - 7,593
16
152,776 (8,757) 144,019
For trade receivables the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime
ECL. The Group determines the expected credit losses on these items by using a provision matrix, estimated based on
historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current
conditions and estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented
based on their past due status in terms of the provision matrix. Note 16 includes further details on the loss allowance for
these assets.
Page 111
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
The carrying amount of the Group’s financial assets at FVTPL as disclosed in Note 28 best represents their respective
maximum exposure to credit risk. The Group holds no collateral over any of these balances.
Page 112
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
Company
2022 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 1,035 - 1,035
Cash and cash equivalents
17
18,090 - 18,090
2021 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 3,866 - 3,866
Cash and cash equivalents
17
29,036 - 29,036
Amounts due from Group undertakings are regarded as low credit risk as the Group has a strong capacity to meet its
contractual cash flow obligations and maintains an investment grade credit rating.
Liquidity risk
Ultimate responsibility of liquidity risk management rests with the board of directors, which has established an appropriate
liquidity risk management framework for the management of the Group's short, medium, and long-term funding and
liquidity management requirements. The Group manages liquidity by maintaining adequate reserves, banking facilities and
reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity
profiles of financial assets and liabilities.
The Group has access to a £100 million revolving credit facility provided by Barclays Bank plc, Lloyds Bank plc, HSBC
UK Bank plc and Royal Bank of Canada. The facility was executed in December 2021 for a period of three years, with two
1-year extensions. During 2022, the first 1-year extension option was exercised, extending the expiry date to December
2022. In addition, the Group has access to further short-term borrowing facilities provided by YEG and to a £22 million
overdraft facility provided by Lloyds Bank plc, which is reviewed annually, these borrowings are repayable on demand.
At 31 December 2022, the Group had available £88.8m (2021: £121.6m) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
Maturity analysis for financial liabilities
The following table sets out the remaining contractual maturities of financial liabilities by type.
Page 113
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
Group
2022
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
73,854 - - - 73,854
Short-term interest bearing
63,592 3,717 30,386 - 97,695
Long-term interest bearing - 102,786 363,611 1,583,500 2,049,897
137,446 106,503 393,997 1,583,500 2,221,446
2021
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
55,923 - - - 55,923
Short-term interest bearing
439 - - - 439
Long-term interest bearing - 27,651 148,197 1,444,098 1,619,946
56,362 27,651 148,197 1,444,098 1,676,308
Company
2022
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
1,889 - - - 1,889
Short-term interest bearing
5,558 - - - 5,558
Long-term interest bearing - 9,001 36,004 226,144 271,149
7,447 9,001 36,004 226,144 278,596
2021
Less than 3
months
£ 000
3 months -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
3,363 - - - 3,363
Short-term interest bearing
11,588 - - - 11,588
Long-term interest bearing - 9,001 36,004 226,144 271,149
14,951 9,001 36,004 226,144 286,100
Market risk
Market risk is the risk of loss arising from movements in market variables such as interest rates, exchange rates and
commodity prices. Risks are mitigated by utilising appropriate risk management products.
The Group's policy on interest rate risk is designed to limit the Group's exposure to floating interest rates. Consistent with
this policy, at 31 December 2022 the Group had 97% (2021: 96%) of long term debt at fixed rates. Short-term loans under
the multicurrency revolving credit facility are charged at a floating rate of interest at SONIA plus 0.20% plus a credit
adjustment spread. In aggregate, 14% of the amortising long-term loan and the capital expenditure facility loans are at a
floating rate of interest at SONIA plus 1.55% and 1.60% respectively, thus exposing the Group to cash flow interest rate
risk. A 1% movement in interest rates would subject the Group to an approximate change in interest costs of £0.4m per
year. This is considered an acceptable level of risk. All other loans are at fixed interest rates and expose the Group to fair
value interest rate risk.
More information on the use of cash flow hedges to manage interest rate risk on is available in Note 30.
Page 114
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
Financial risk
30 Derivatives held for risk management and hedge accounting
Derivatives held for risk management
Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates,
foreign exchange rates, credit spreads, commodities, equity or other indices. In accordance with Board approved policies,
derivatives are transacted to manage our exposure to fluctuations in interest rate. The Group uses derivatives to manage
these risks from our financing portfolio to optimise the overall cost of accessing the debt capital markets.
The following table provides a reconciliation by risk category of components of equity and analysis of other
comprehensive income items (net of tax) resulting from hedge accounting. All derivative financial instruments relate to
cash flow hedges.
2022 2021
Assets
£ 000
Liabilities
£ 000
Assets
£ 000
Liabilities
£ 000
Non-current
18,926 - 944 -
Current 2,781 - 204 -
21,707 - 1,148 -
The maturity of financial instruments was as follows:
3 months to 1
year
£ 000
1 to 5 years
£ 000
More than 5
years
£ 000
Total
£ 000
2022
Notional principal
32,801 145,179 - 177,980
Cash flow hedge
2,781 18,926 - 21,707
35,582 164,105 - 199,687
2021
Notional principal
31,006 143,394 - 174,400
Cash flow hedge
204 944 - 1,148
31,210 144,338 - 175,548
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as
cash flow hedges to reduce the Group’s cash flow exposure resulting from variable interest rate borrowings. The interest
rate swaps and interest payments on the underlying loan occur simultaneously and the amount accumulated in equity is
reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss.
The interest rate swaps are settled on a quarterly basis and are based on receiving a floating rate of interest based on
SONIA and paying a fixed rate of 0.8955% on the amortising long-term loans and 0.8505% on the capital expenditure
facility loans. The Group will settle the difference between the fixed and floating interest rate on a net basis.
Effectiveness testing
Page 115
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
30 Derivatives held for risk management and hedge accounting (continued)
The Group is using regression analysis to assess the effectiveness of the interest rate swap on a retrospective and
prospective basis throughout the term of the hedging relationship. The dollar offset method was also performed at
inception, showing zero ineffectiveness.
Nature of the risk being hedged
The Group is hedging the risk of variability in cash flows indexed to SONIA. Further details of the Group's risk
management is available in the strategic report, pages 16 to 21, and in financial risk review, Note 29.
31 Related party transactions
Directors' advances, credits and guarantees
During the year, 3 directors (2021: 2) and 3 key personnel (2021: 3) utilised the services provided by Northern Transport
Finance Limited. The amounts included in finance lease receivables owed by these directors and key personnel were
£90,000 (2021: £89,000).
Group
2022
Sales to
£ 000
Purchases
from
£ 000
Amounts
owed
from/(to)
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
Integrated Utility Services (Eire)
2,414 (3,015) - - -
CE Gas Ltd
215 - - - -
Northern Powergrid (Yorkshire) plc
32,346 (10,591) - - -
Vehicle Lease and Service Limited
28 (5,175) - 1,011 -
Yorkshire Electricity Group - - - 2,948 253,337
35,003 (18,781) - 3,959 253,337
2021
Sales to
£ 000
Purchases
from
£ 000
Amounts
owed
from/(to)
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
Integrated Utility Services (Eire)
2,156 (5,786) - - -
CE Gas Ltd
134 - - - -
Northern Powergrid Limited
- - - (6,222) -
Northern Powergrid (Yorkshire) plc
28,293 (11,292) - - -
Vehicle Lease and Service Limited
37 (4,951) - 1,090 -
Yorkshire Electricity Group - - - (182) 16,042
30,620 (22,029) - (5,314) 16,042
Page 116
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
31 Related party transactions (continued)
Company
2022
Sales to
£ 000
Purchases
from
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
CE Gas Ltd
215 - - -
Northern Powergrid (Northeast) plc
4,193 (6) 27,700 -
Northern Powergrid (Yorkshire) plc
2,092 - - -
Northern Transport Finance Limited
7 - 3,249 -
Vehicle Lease and Service Limited
- - 1,011 -
Yorkshire Electricity Group
- - 370 18,090
Northern Powergrid Metering Limited
- - 75,000 -
Northern Electric Properties Limtied - - 8,997 -
6,507 (6) 116,327 18,090
2021
Sales to
£ 000
Purchases
from
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
CE Gas Ltd
134 - - -
Northern Powergrid Limited
- - (6,222) -
Northern Powergrid (Northeast) plc
4,552 (7) 26,000 -
Northern Powergrid (Yorkshire) plc
1,992 - - -
Northern Transport Finance Limited
18 - - -
Vehicle Lease and Service Limited
- - 1,090 -
Yorkshire Electricity Group - - 13 29,036
6,696 (7) 20,881 29,036
Page 117
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
32 Parent and ultimate parent undertaking
The Company's immediate parent is Northern Powergrid Limited .
The ultimate parent and controlling party is Berkshire Hathaway Inc .. These financial statements are available upon
request from 3555 Farnam Street, Omaha, Nebraska 68131.
Relationship between entity and parents
The parent of the largest group in which these financial statements are consolidated is Berkshire Hathaway Inc.,
incorporated in United States of America.
The registered address of Berkshire Hathaway Inc. is:
3555 Farnam Street, Omaha, Nebraska 68131
The parent of the smallest group in which these financial statements are consolidated is Northern Powergrid Holdings
Company, incorporated in England and Wales.
The registered address of Northern Powergrid Holdings Company is::
Lloyds Court, 78 Grey Street, Newcastle upon Tyne, Tyne and Wear, NE1 6AF
33 Other reserves
At the Company's Annual General Meeting in August 1994, the shareholders gave approval to on-market purchases of up
to 10% of its shares and this was given effect on 21 September 1994 when 12,370,400 shares were purchased. This
transaction resulted in the creation of a capital redemption reserve of £6.2m. Under section 831(4) of the Companies Act
2006 this reserve is treated as an un-distributable reserve.
34 Notice of annual general meeting
Notice is hereby given that the Annual General Meeting of Northern Electric plc will be held by WebEx on Wednesday 21
June 2023 at 11.00 am.
WebEx joining instructions
For shareholders wishing to join the Annual General Meeting of Northern Electric plc please visit
https://www.webex.com/login/attend-a-meeting and when prompted, enter ‘the meeting information’: 2614 803 6565.
The following resolutions will be proposed as ordinary resolutions:
Annual Report and Accounts
1 To receive and consider the strategic, directors' and auditor's reports and the Group accounts for the year ended 31
December 2022.
Dividend
2 To declare that no final dividend be paid for the year ended 31 December 2022.
Re-election of Directors
3 To re-elect Mr A P Jones as a director.
4 To re-elect Mr S J Lockwood as a director.
The Auditors
5 To re-appoint Deloitte LLP as the Company’s auditor until the conclusion of the next general meeting at which
accounts are laid and to authorise the directors to determine their remuneration.
Authority to allot shares
Page 118
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
34 Notice of annual general meeting (continued)
6 That:
a) the Directors be authorised to allot shares in the Company or grant rights to subscribe for, or convert any security
into, shares in the Company up to a maximum nominal amount of £27,827,000;
b) this authority shall expire at close of business on 21 June 2028 or, if earlier, on the conclusion of the Company’s
annual general meeting in 2028, unless previously revoked or varied by the Company;
c) the Company may before such expiry make offers and agreements which would or might require shares to be
allotted or rights to subscribe for, or convert securities into, shares to be granted after the expiry of this authority
and the directors may allot shares or grant rights to subscribe for, or convert securities into, shares under any such
offer or agreement as if the authority conferred hereby had not expired;
d) subject to paragraph (e), all existing authorities given to the directors pursuant to Section 551 of the Act shall be
revoked by this resolution; and
e) That paragraph (d) shall be without prejudice to the continuing authority of the directors to allot shares, or grant
rights to subscribe for or convert any security into shares, pursuant to an offer or agreement made by the Company
before the expiry of the authority pursuant to which such offer or agreement was made.
The following resolutions will be proposed as special resolution:
Authority to dis-apply pre-emption rights
7 That, subject to the passing of and pursuant to the general authority conferred by resolution 5 in the notice
convening this meeting and in place of all existing powers, the directors be and are hereby generally empowered
pursuant to Section 570 of Act to allot equity securities (as defined in Section 560 of the Act) for cash, pursuant to
the authority so conferred as if Section 561 of the Act did not apply to any such allotment. This power shall expire
(unless previously renewed, varied or revoked by the Company in general meeting) at the close of business on 20
June 2023 or, if earlier, on the conclusion of the Company’s annual general meeting in 2028, but the Company may
make an offers or and agreements which would or might require equity securities to be allotted after expiry of this
power and the directors may allot equity securities in pursuance of that offer or agreement as if this power had not
expired.
By order of the board
J C Riley
Company Secretary
28 April 2023
Registered office:
Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF
Registered in England No 2366942
Notes:
1 All the issued ordinary shares in the Company are held by or on behalf of Northern Powergrid Limited.
2 Holders of preference shares have the right to receive notice of, attend and speak at the Annual General Meeting but
are only entitled to vote if, at the date of the notice of the meeting, payment of the dividend to which they are
entitled is six months or more in arrears, or if a resolution is to be considered at the meeting for the winding up of
the Company or abrogating, varying or modifying any of the special rights attaching to the preference shares. As
none of these circumstances apply to this Annual General Meeting, preference shareholders should note that they
do not have the right to vote on any of the business to be considered.
3 Members are entitled to appoint a proxy to exercise all or any of their rights on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy
is appointed to exercise the rights attached to a different share or shares held by the shareholder. A proxy need not
be a shareholder of the Company.
Page 119
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
34 Notice of annual general meeting (continued)
4 Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to
enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by
whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the
Annual General Meeting. If a Nominated person does not have such a right or does not wish to exercise it, he/she
may have a right under such an agreement to give instructions to the member as to the exercise of voting rights.
5 Any corporation which is a member can appoint one or more corporate representatives who may exercise on its
behalf all of its powers as a member provided that they do not do so in relation to the same shares.
6 The current price of the Company’s preference shares can be obtained from the website of the London Stock
Exchange at www.londonstockexchange.com.
7 Resolution 5. The CA06 provides that directors may only allot shares if authorised to do so by the Company’s
articles of association or by the shareholders in general meeting. This resolution replaces the resolution passed by
the shareholders on 20 June 2018.
8 Special Resolution 6. This special resolution empowers the directors for the duration of the authority conferred by
Resolution 6 to allot equity shares for cash without regard to the pre-emption provisions to which the ordinary
shareholders would otherwise be entitled under Section 561 of the CA06.
Page 120