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ENW Finance plc (55VR)

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Thursday 04 June, 2020

ENW Finance plc

Final Results

RNS Number : 9884O
ENW Finance plc
04 June 2020
 

ENW Finance plc (the "Company") is pleased to announce its Annual Financial Report for the year ended 31 March 2020. The Annual Financial Report is available to view on the Company's website: www.enwl.co.uk

 

In accordance with the requirements of Listing Rule 17.3.1, a copy of the annual financial report has been submitted to the National Storage Mechanism and will shortly be available for inspection at:   https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism .

 

In accordance with Disclosure and Transparency Rule 6.3.5 the Annual Financial Report is here reproduced in full unedited text (the Company has not taken advantage of the exemption afforded in 6.3.5 (2)).

 

For further information please contact Electricity North West's press office on 
0844 209 1957 or email
[email protected]  

 

 

For the year ended 31 March 2020

 

ENW Finance plc

Registration number 06845434

 

 

Contents

 

Strategic Report

Directors' Report

Directors' Responsibilities Statement

Independent Auditor's Report

Profit and Loss Account

Balance Sheet

Statement of Changes in Equity

Notes to the Financial Statements

Strategic Report

ENW Finance plc ("the Company") is a private company limited by shares and incorporated in England, the United Kingdom under the Companies Act 2006.

Business review and principal activities

The Company acts as a financing company within the North West Electricity Networks (Jersey) Limited ("NWEN (Jersey)") group of companies ("the Group"); it has secured debt in issue and listed on the London Stock Exchange. Following the issue of the debt, the net proceeds were lent to a fellow group subsidiary, Electricity North West Limited ("ENWL").

The Company operates solely as a financing company and, therefore, there are no non- financial key performance indicators.  A review of the Group's non-financial key performance indicators is disclosed in the Annual Report and Consolidated Financial Statements of the key trading subsidiary, ENWL.

There have been no significant changes to the activity of the Company in the current period.

Financial performance and key performance indicators

The results for the year are set out in the Profit and Loss Account on page 15.

The primary KPI for the year was a loss before tax of £6.9m, derived primarily from fair value losses in the year (2019: loss before tax of £5.8m).  

The Company had borrowings of £199.7m at 31 March 2020 (2019: £199.5m) relating to the listed debt.  The debt has a nominal value of £200m at 6.125%, maturing in July 2021.  The Company recognises a hybrid asset receivable from ENWL on equivalent terms, equal and opposite, to the external borrowings and associated intercompany hedging arrangements. 

There are no planned changes to the business activities of the Company. 

 

Principal risks and uncertainties

As the Company's obligations, in respect of the listed debt, are met via income receivable from ENWL, the Board considers the principal risks and uncertainties facing the Company to be those that affect ENWL and the larger Group. 

The principal trade and activities of the Group are carried out in ENWL and a comprehensive review of the strategy and operating model, the regulatory environment, the resources and principal risks and uncertainties facing that company, and ultimately the Group, are outlined in the Strategic Report of the ENWL Annual Report and Consolidated Financial Statements, which are available on the website www.enwl.co.uk

The Company has exposure to interest rate risk and inflation risk; the intercompany index-linked swap and hybrid asset are exposed to a risk of change in their fair value arising from a risk of change of future cash flows due to changes in market interest rates and inflation rates.  This exposure is limited as the impact on the intercompany index-linked swap (liability) is largely offset by an opposite impact on the embedded derivative (asset) element of the hybrid asset.

 

 

Strategic Report (continued)

Going concern

When considering whether to continue to adopt the going concern basis in preparing these financial statements, the Directors have taken into account a number of factors, including the financial position of the Company and the Group in which it operates.

The Company is ultimately a subsidiary of NWEN (Jersey); the key trading subsidiary in the Group is ENWL.  As the Company's obligations in respect of the listed debt are met via income receivable from ENWL, the Board considers the principal risks and uncertainties facing the Company to be those that affect ENWL and the larger Group. 

In consideration of this, the Directors of the Company are cognisant of the going concern disclosure in the financial statements of both NWEN (Jersey) and ENWL for the year ended 31 March 2020, the latter of which is available on the website www.enwl.co.uk.

Regarding the continued trading of the Company, the immediate parent, NWEN plc will provide support to the Company, if required, to meet their liabilities. The Directors are confident that ENW Finance plc has sufficient funding to secure the operation of the Company.

Also, an assessment of the significance and rapid development of the COVID-19 impact has been undertaken.  The Directors have reviewed the assumptions behind demand projections, financial performance and liquidity, and assessed Group resilience to a reduction in income brought about by reduced electricity demand.

Consequently, after making appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

The going concern basis has been adopted by the Directors, with consideration of the guidance given in 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009' published by the Financial Reporting Council in October 2009, together with the updated guidance issued in 2016. 

Corporate governance

The details of the internal control and risk management systems which govern the Company in relation to the financial processes are outlined in the Corporate Governance Report of the ENWL Annual Report and Consolidated Financial Statements, which are available on the website www.enwl.co.uk.

Ultimate parent undertaking and controlling party

The immediate parent undertaking is NWEN plc, a company incorporated and registered in the United Kingdom.  The ultimate parent undertaking is NWEN (Jersey), a company incorporated and registered in Jersey.  Following a staged acquisition, there was a change in ownership of the shares in NWEN (Jersey) during the year and, therefore, a change in the ultimate controlling parties of the Company.

Following completion of the sale on 3 December 2019, the ultimate shareholdings are:

· KDM Power Limited (40.0%);

· Equitix ENW 6 Limited (25.0%)

· Equitix MA North HoldCo Limited (15.0%)

· Swingford Holding Corporation Limited (20.0%)

 

 

Strategic Report (continued)

Fair, balanced and understandable

The Directors have reviewed the Annual Report and Financial Statements, to ensure they are fair, balanced and understandable.  As part of the review of the Annual Report and Financial Statements the Directors have acknowledged the detailed guidance given to contributors to the financial statements.

 

Approved by the Board on 3 June 2020 and signed on its behalf by:

 

 

 

D Brocksom

Director 

 

 

Directors' Report

The Directors present their Strategic Report, Annual Report and the audited financial statements of ENW Finance plc for the year ended 31 March 2020.

Dividends

Dividends recognised in the year were £nil (2019: £nil).  The Directors do not propose a final dividend for the year ended 31 March 2020 (2019: £nil).

Financial instruments

The use of financial instruments and their related risks are disclosed in the Principal risks and uncertainties section of the Strategic Report on page 1.

Directors

The Directors of the Company during the year ended 31 March 2020 and to date are set out below.  Directors served for the whole year, and to the date of this report, except where otherwise indicated.

Executive Directors

D Brocksom

P Emery

Non-executive Directors

C Dowling

S Jones (appointed 3 October 2019)

G Pan (appointed 23 January 2020)

S Sumitomo (appointed 27 January 2020)

Y Hamada (appointed 1 April 2020)

P O'Flaherty (appointed 1 April 2020)

J Lynch (resigned 10 September 2019)

N Mills (resigned 12 December 2019)

M Scarsella (appointed 10 September 2019, resigned 12 December 2019)

Y Yamabayashi (appointed 3 October 2019, resigned 1 April 2020)

At no time during the year did any Director have a material interest in any contract or arrangement which was significant in relation to the Company's business (2019: same).

 

Events after the Balance Sheet date

Since the balance sheet date, the COVID-19 situation has continued to unfold.  We have outlined our responses to the pandemic within the Strategic Report of ENWL.  The financial impact will be a short-term reduction to revenue and cashflows, but allowed revenues will be adjusted in future years to collect any shortfall. Cash flows during the year ending 31 March 2020 will be impacted through participation in a supplier payment deferral scheme agreed across Industry on 2 June 2020, the expected impact of which is up to a £20m impact on the timing of cash flows. The impact in cash flows has been considered in the scenarios reviewed to determine the going concern and viability of the Group.

Future developments

There are no planned changes to the business activities of the Company.

Directors' and officers' insurance

The Group maintains an appropriate level of directors' and officers' insurance whereby Directors are indemnified against liabilities to third parties to the extent permitted by the Companies Act. 

The insurance is a group policy, held in the name of NWEN (Jersey) and is for the benefit of that company and all its subsidiaries.

Auditor

Each of the persons who are a Director at the date of approval of this report confirms that:

(1)  so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

(2)  each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
 

Directors' Report (continued)

Independent auditor

The Audit Committee have decided to commence a procurement exercise to review the provision of audit services for the Group. Deloitte LLP, Statutory Auditor, Manchester, United Kingdom has expressed its willingness to continue in office as auditor of the Group until such appointment is made.  In accordance with section 489 of the Companies Act 2006, Deloitte LLP were appointed as auditor of the Company for the present financial year.

Registered address

The Company is registered in England, the United Kingdom, at the following address:

ENW Finance plc
Borron Street

Stockport

Cheshire

SK1 2JD

Registered number: 06845434

Approved by the Board on 3 June 2020 and signed on its behalf by:

 

 

D Brocksom
Director 
 

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law regulations.

Company law requires the Directors to prepare financial statements for each financial year.  Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 101 'Reduced Disclosure Framework'.  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 of the profit or loss of the Company for that period.  In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

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

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose, with reasonable accuracy at any time, the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

 

 The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation of other jurisdictions. 

This responsibility statement was approved by the Board of Directors on 3 June 2020 and is signed on its behalf by:

 

 

 

D Brocksom 

Director

Independent Auditor's Report to the Members of ENW Finance plc

Opinion

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

· give a true and fair view of the state of the company's affairs as at 31 March 2020 and of its loss for the year then ended;

· have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 "Reduced Disclosure Framework"; and

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

We have audited the financial statements which comprise:

· the profit and loss account;

· the balance sheet;

· the statement of changes in equity; and

· the related notes 1 to 17.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 "Reduced Disclosure Framework" (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC's Ethical Standard were not provided to the company.

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

 

 

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

Summary of our audit approach

Key audit matters

The key audit matter that was identified in the current year is:

· Recoverability of the intercompany receivable

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 in the current year was £3.1m which was determined on the basis of total assets.

Scoping

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

Significant changes in our approach

There have been no significant changes in our audit approach in the current year.

Conclusions relating to going concern

We are required by ISAs (UK) to report in respect of the following matters where:

· the directors' use of the going concern basis of accounting in preparation of the financial statements is not appropriate; or

· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

We have nothing to report in respect of these matters. 

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.

 

 

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

Recoverability of the intercompany receivable 

Key audit matter description

There is significant level of judgement involved in determining the recoverability of the £209.5m (2019: £216.6m) receivable from group undertakings based on the financial position and future prospects of the group undertakings.  The loan to group undertakings includes a hybrid asset of £550.8m (2019: £551.9m) and a derivative liability of £341.3m (2019: £335.3m). Our assessment takes into consideration a range of factors such as the trading performance of the group undertakings and support available from the wider group where required.

See also the accounting policy on financial instruments in note 2 to the financial statements, the critical accounting judgement and key sources of estimation uncertainty in note 3 to the financial statements and the further detail in note 13 to the financial statements.  

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

We challenged the directors' judgements regarding the appropriateness of the carrying value through obtaining a copy of the latest financial information and our understanding of the future trading performance of the group undertakings and by assessing the ability of the group undertakings to repay these amounts. We also reviewed the historical accuracy of management's forecasts by comparing the actual results to forecasts.

We involved our financial instrument specialists to assess the fair value of the intercompany hybrid loan and derivative liability as at 31 March 2020 due to the complexity associated with these instruments.

Key observations

Based on the work performed we concluded that the intercompany receivables balance is appropriate.

 

 

 

Independent Auditor's Report to the Members of NWEN Finance 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:

Materiality

£3.1m (2019: £3.0m)

Basis for determining materiality

Materiality represents 1% of total assets (2019: same).

Rationale for the benchmark applied

We determined materiality based on total assets as this is the key metric used by management, investors, analysts and lenders. When determining materiality, as the company is part of the wider Electricity North West Limited Group, we also considered that this materiality is appropriate for the consolidation of this set of financial statements to the group's results.

 

Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for the 2020 audit (2019: 70%). In determining performance materiality, we considered the following factors:

-  our risk assessment, including our assessment of the Company's overall control environment; and

-  our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods.

Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £100,000 (2019: £60,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit

Scoping

Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

 

 

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

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in respect of these matters.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

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.

Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws and regulations are set out below.

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.

 

 

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

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

We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.

Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:

· the nature of the industry and sector, control environment and business performance including the design of the company's remuneration policies, key drivers for directors' remuneration, bonus levels and performance targets;

· results of our enquiries of management, internal audit and the Audit Committee about their own identification and assessment of the risks of irregularities;

· any matters we identified having obtained and reviewed the company's documentation of their policies and procedures relating to:

identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

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

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

· the matters discussed among the audit engagement team and involving relevant internal specialists, including financial instrument specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.

In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory frameworks that the company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, pensions legislation and tax legislation.

Audit response to risks identified

As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance with laws and regulations.

Our procedures to respond to risks identified included the following:

· reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;

· enquiring of management, the Audit Committee 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

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

 

· 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.

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 company and its environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.

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, or returns adequate for our audit have not been received from branches not visited by us; or

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

We have nothing to report in respect of these matters.

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.

 

 

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

Other matters

Auditor tenure

Following the recommendation of the Audit Committee, we were appointed by the Shareholders in 2002 to audit the financial statements for the year ending 31 March 2003 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 18 years, covering the years ending 31 March 2003 to 31 March 2020.

Consistency of the audit report with the additional report to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

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.

 

 

 

Christopher Robertson (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

Manchester, United Kingdom

3 June 2020

 

 

 

Financial Statements

Profit and Loss Account

For the year ended 31 March 2020

 

Note

2020

2019

 

 

£000

£000

 

 

 

 

Operating result

4

-

-

 

 

 

 

Interest receivable from group companies

6

10,168

9,864

Net interest payable and similar charges

7, 13

(17,100)

(15,632)

 

 

 

 

Loss before taxation

 

(6,932)

(5,768)

 

 

 

 

Tax

8

533

785

 

 

 

 

Loss for the year attributable to shareholders of the Company

 

(6,399)

(4,983)

The results for the current and prior year are derived from continuing operations.

There were no other items of comprehensive income other than the results shown above, therefore no separate Statement of Other Comprehensive Income has been presented. 

 

 

 

Balance Sheet

as at 31 March 2020

 


Note

2020
£000

2019
£000

ASSETS

 

 

 

Non-current assets

 

 

 

Loans to group undertakings

9

571,271

572,376

 

 

 

 

Current assets

 

 

 

Amounts due from group undertakings

10

4,848

4,447

Cash and cash equivalents

 

12

12

 

 

4,860

4,459

Total assets

 

576,131

576,835

LIABILITIES

 

 

 

Current liabilities

 

 

 

Accrued interest

 

(2,378)

(2,378)

Amounts due to group undertaking

11

(4,648)

(4,313)

Current liabilities

 

(7,026)

(6,691)

Net current liabilities

 

(2,166)

(2,232)

 

 

 

 

Total assets less current liabilities

 

584,757

570,144

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

12

(199,738)

(199,521)

Derivative financial instruments

13

(341,303)

(335,291)

Deferred tax liabilities

14

(4,371)

(5,240)

 

 

(545,412)

(540,052)

Total liabilities

 

(552,438)

(546,743)

Net assets

 

23,693

30,092

 

 

 

 

CAPITAL AND RESERVES

 

 

 

Called up share capital

15

13

13

Profit and loss account

 

23,680

30,079

Total shareholders' funds

 

23,693

30,092

The financial statements of ENW Finance plc (registered number 06845434) were approved and authorised for issue by the Board of Directors on 3 June 2020 and signed on its behalf by:

 

 

D Brocksom
Director 

 

 

 

Statement of Changes in Equity

for the year ended 31 March 2020

 

Called up share capital

£000

Profit and loss account

£000

Total equity

£000

 

 

 

 

At 31 March 2018

13

12,941

12,954

 

 

 

 

Opening reserves adjustment on transition to IFRS 9

-

27,139

27,139

Deferred tax on opening reserves adjustment on transition to IFRS 9

-

(5,018)

(5,018)

Loss and total comprehensive expense for the year

-

(4,983)

(4,983)

 

 

 

 

At 31 March 2019

13

30,079

30,092

 

 

 

 

Loss and total comprehensive expense for the year

-

(6,399)

(6,399)

 

 

 

 

At 31 March 2020

13

23,680

23,693

 

 

 

Notes to the Financial Statements

ENW Finance plc is a company incorporated in the United Kingdom and registered in England and Wales under the Companies Act 2006. 

The financial statements are presented in sterling, which is the functional currency of the Company.  All values are rounded to the nearest thousand pounds (£'000) unless otherwise indicated. 

The financial statements are prepared on the going concern basis.  Further detail on the going concern assessment is contained in the Strategic Report. 

1.  Adoption of new and revised standards 

New and amended IFRS Standards that are effective for the current year

IFRS 16: Leases

IFRS 16 is effective from the current year and this has no impact on the Company.

2.  Significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below.  These policies have been applied consistently in the current year and the prior year.

Basis of preparation

The Company has adopted Financial Reporting Standard 101 'Reduced Disclosure Framework' (FRS 101) on the basis that it meets the definition of a qualifying entity under FRS 100 'Application of Financial Reporting Requirements' and the financial statements have, therefore, been prepared in accordance with FRS 101, as issued by the Financial Reporting Council. 

As permitted by FRS 101, for both periods presented, the Company has taken advantage of the disclosure exemptions available under the standard in relation to financial instruments, capital management, presentation of cash flow statement, standards not yet effective and related party transactions with other wholly-owned members of the Group. 

Where relevant, equivalent disclosures are given in the consolidated financial statements of NWEN plc, the Company's immediate parent; the consolidated financial statements of NWEN plc are available to the public and can be obtained as set out in Note 17.

The financial statements have been prepared on the historical cost basis, except for the valuation of derivative financial instruments.  The derivative financial instruments are held at fair value.

All Company operations arise from its activities as a financing company in the North West of England.  Accordingly, only one operating and geographic segment is reviewed by the Chief Executive Officer and Executive Team. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Taxation

The tax expense represents the sum of current and deferred tax charges for the financial year, adjusted for prior year items.

Current taxation

Current tax is based on taxable profit for the year and is calculated using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.  Taxable profit differs from the net profit as reported in the Profit and Loss Account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method.  Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. 

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.  Deferred tax is charged or credited in the Profit and Loss Account, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Financial instruments

Financial assets and financial liabilities are recognised in the Company's Balance Sheet when the Company becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value.  Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.  Transaction costs, directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss, are recognised immediately in profit or loss. 

If the transaction price differs from fair value at initial recognition, the Group will account for such difference as follows:

· if fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets, then the difference is recognised as a gain or loss on initial recognition (i.e. day 1 profit or loss);

· in all other cases, the fair value will be adjusted to bring it in line with the transaction price (i.e. day 1 profit or loss will be deferred by including it in the initial carrying amount of the asset or liability). 

After initial recognition, the deferred gain or loss will be released to profit or loss such that it reaches a value of zero at the time when the contract can be valued using active market quotes or verifiable objective market information.  The Group policy for the amortisation of day 1 gain or loss is to release it in a reasonable fashion based on the facts and circumstances (e.g. using a straight-line amortisation). 

Financial assets

All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis.  Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. 

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Classification of financial assets

Financial assets that meet the following conditions are measured subsequently at amortised cost:

· the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

· the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are measured subsequently at fair value through other comprehensive income (FVTOCI):

· the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

· the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 

By default, all other financial assets are measured subsequently at fair value through profit or loss (FVTPL). 

Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. 

The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. 

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance.  The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance. 

Income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost and at FVTOCI.  For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired.  The Group has no financial assets purchased or originated credit-impaired, or that have subsequently become credit-impaired. 

Interest income is recognised in profit or loss and is included in the 'Investment income' line item. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at FVTPL.  Specifically, the financial assets held by the Company classified as at FVTPL are derivatives and an inter-company hybrid contract; these are stated at fair value, with any fair value gains or losses recognised in profit or loss to the extent they are not part of a designated hedging relationship.  Fair value is determined in the manner described in Note 13. 

Impairment of financial assets

The Company recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised cost or at FVTOCI, trade receivables and contract assets; the Company holds no lease receivables or financial guarantee contracts.  The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. 

The Company always recognises lifetime ECL for trade receivables and contract assets.  The expected credit losses on these financial assets are estimated using a provision matrix based on the Company's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. 

For all other financial instruments, the Company recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition.  However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL. 

Lifetime ECL represents the expected credit losses that will result from all possible default events over the life of a financial instrument.  In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Impairment of financial assets (continued)

a)  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 the 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 both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. 

Irrespective of the outcome of the above assessment, the Company presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Company has reasonable and supportable information that demonstrates otherwise. 

Despite the foregoing, the Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date.  A financial instrument is determined to have low credit risk if the financial instrument has a low risk of default and the debtor has a strong capacity to meet its contractual cash flow obligations in the near term. 

The Company regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying a significant increase in credit risk before the amount becomes past due. 

b)  Definition of default

The Company considers that default has occurred when a financial asset is more than 90 days past due, unless the Company has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. 

c)  Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. 

d)  Measurement and recognition of expected credit losses

The measurement of expected credit losses is a function of the probability of default, loss given default and the exposure at default.  The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information.  The exposure at default is represented by the assets' gross carrying amount at the reporting date. 

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original effective interest rate. 

If the Company has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Company measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which the simplified approach was used.
 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Impairment of financial assets (continued)

The Company recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. 

Derecognition of financial assets

The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. 

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. 

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.  

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.  Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs. 

Financial liabilities

All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL. 

Financial liabilities at FVTPL

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognised in profit or loss to the extent that they are not part of a designated hedging relationship.  The Company has no financial liabilities designated at FVTPL.  Fair value is determined in the manner described in Note 13. 

Financial liabilities measured subsequently at amortised cost

Financial liabilities that are not at FVTPL are measured subsequently at amortised cost using the effective interest method. 

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums and discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or have expired.  The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. 

When the Company exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.  Similarly, the Company accounts for substantial modification of terms of an existing liability, or part of it, as an extinguishment of the original financial liability and the recognition of a new liability.  It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. 

Derivative financial instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and inflation risk.  Further details of derivative financial instruments are disclosed in Note 13. 

Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date.  The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated in a hedging relationship. 

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability.  A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months.  Other derivatives are presented as current assets or current liabilities. 

Embedded derivatives

An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. 

Derivatives embedded in hybrid contracts with a financial asset host within the scope of IFRS 9 are not separated.  The entire hybrid contract is classified and subsequently measured as either amortised cost or fair value as appropriate. 

Derivatives embedded in hybrid contracts with hosts that are not financial assets within the scope of IFRS 9 are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. 

An embedded derivative is presented as a non-current asset or non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected to be realised or settled within 12 months. 

 

 

Notes to the Financial Statements (continued)

2.  Significant accounting policies (continued)

Hedge accounting

The Company considers hedge accounting when entering any new derivative, however, there are currently no formal hedging relationships in the Company. 

3.  Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company's accounting policies, which are described in Note 2, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.  The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates. 

The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period; or in the period of the revision and future periods if the revision affects both current and future periods. 

The Directors do not deem there to be any critical accounting judgements that affect the Company. 

Key sources of estimation uncertainty

Fair values of derivative financial instruments

In estimating the fair value of derivative financial instruments, the Company uses market-observable data (Level 1 and 2 inputs) to the extent it is available.  Where such data is not available, certain estimates (Level 3 inputs) regarding inputs to the valuation are required to be made.  Level 3 inputs form a significant part of the fair value of the financial instruments held by the Company.  Information about the valuation techniques and inputs used are disclosed in Note 13. 

 

 

Notes to the Financial Statements (continued)

4.  Operating result

Audit fees payable to Deloitte LLP of £7,431 for the year (2019: £7,257) were borne by another Group company and have not been recharged (2019: same).  These fees relate to the auditing of the financial statements. There were no non-audit fees payable to the auditor in the year (2019: same).

5.  Directors and employees

The Company had no employees during the year (2019: same).  Directors' costs are borne by another Group company and cannot be fairly apportioned to the Company (2019: same). 

6.  Interest receivable from group companies 

 

2020

£'000

2019

£'000

 

 

 

From parent company on loan at amortised cost

387

327

From affiliated company on hybrid loan asset at FVTPL

9,781

9,537

 

 

 

Interest receivable from group companies

10,168

9,864

7.  Net interest payable and similar charges 

 

2020

£'000

2019

£'000

Interest payable:

 

 

On borrowings held at amortised cost

12,467

12,422

Net receipts on inter-company derivatives

(2,469)

(2,712)

Impairment of inter-company loan (Note 9)

14

-

Reimbursement of inter-company loan impairment (Note 9)

(14)

-

 

 

 

Total interest expense

9,998

9,710

 

 

 

Fair value movements on financial instruments:

 

 

On inter-company hybrid asset at FVTPL

1,091

(22,880)

On inter-company derivatives

6,011

28,802

 

 

 

Total fair value movements (Note 13)

7,102

5,922

 

 

 

Net interest payable and similar charges

17,100

15,632

 

 

Notes to the Financial Statements (continued)

8.  Taxation

 

2020
£000

2019
£000

Current tax:

 

 

Current year

336

343

 

 

 

Deferred tax (Note 14):

 

 

Current year

(1,485)

(1,128)

Prior year

616

-

 

 

 

Tax credit for the year

(533)

(785)

Corporation tax is calculated at 19% (2019:19%) of the estimated assessable profit for the year. The rate applicable from 1 April 2020 now remains at 19%, rather than the previously enacted reduction to 17%.  This was substantively enacted on 17 March 2020. 

Deferred tax is calculated using the rate at which it is expected to reverse.  Accordingly, the deferred tax has been calculated on the basis that it will reverse in future at the 19% rate.  

The table below reconciles the notional tax charge at the UK corporation tax rate to the effective tax rate for the year:

 

2020
£000

 

 

 

Loss before tax

(6,932)

(5,768)

 

 

 

Tax at the UK corporation tax rate of 19% (2019: 19%)

(1,317)

(1,096)

Non-taxable expenses

168

178

Reduction in current year deferred tax due to rate change

-

133

Impact from change in future tax rates

616

-

 

 

 

Tax credit for the year

(533)

 

 

 

Notes to the Financial Statements (continued)

9.  Loans to group undertakings

 

2020
£000

2019
£000

 

 

 

Loan to parent company at amortised cost

20,500

20,500

Impairment of loan

(14)

-

 

 

 

Hybrid loan to affiliated company at FVTPL (Note 13)

550,785

551,876

 

 

 

Loans to group undertakings

571,271

572,376

On 21 July 2009, the Company lent £20.5m to the immediate parent company, NWEN plc. 

On the same date, the Company lent ENWL £198.2m net proceeds of the £200.0m 6.125% fixed rate bond maturing in 2021, on terms aligned to the terms of the external bond (see Note 12) and associated intercompany hedging arrangements, which formed an embedded derivative. The entire hybrid asset is required to be measured at fair value through profit or loss (see Note 13). 

Impairment

Financial assets measured at amortised cost are subject to impairment.  The credit risk of the inter-company loan at amortised cost has been assessed as low.  Accordingly, any loss allowance is measured at an amount equal to 12-month ECL.  In determining the expected credit losses for this asset, the directors of the Company have taken into account the historical default experience, the financial position of the counterparty, as well as the future prospects of the industry, as appropriate, in estimating the probability of default and loss upon default. 

In accordance with provisions within the inter-company loan agreement, the Company has requested the reimbursement of the impairment charges incurred to date (Note 10). 

No impairment assessment is required for financial assets held at FVTPL. 

10.  Amounts due from group undertakings 

 

2020
£000

2019
£000

 

 

 

Accrued interest due from parent company

4,727

4,350

Amount due from affiliated company 

107

97

Reimbursement due from parent company (Note 9)

14

-

 

 

 

Interest due on loans to group undertakings

4,848

4,447

 

 

 

 

Notes to the Financial Statements (continued)

11.  Amounts due to Group undertaking

 

 

2020
£000

2019
£000

 

 

 

Amounts falling due within one year

4,648

4,313

Amounts owed to Group undertaking relate to payments for group tax relief. 

12.  Borrowings

This note provides information about the contractual terms of the Company's loans and borrowings.  For more information about the Group's financial risk management and exposure to credit risk, liquidity risk and market risk, refer to NWEN plc consolidated financial instruments. 

 

2020
£000

2019
£000

 

Bonds held at amortised cost

199,738

199,521

As at 31 March 2020, the Company had a £200.0m 6.125% fixed rate bond in issue, maturing in 2021 and guaranteed by ENWL (2019: same).

Borrowing facilities

The Company had no unutilised committed bank facilities at 31 March 2020 (2019: same).  There was no formal bank overdraft facility in place at 31 March 2020 (2019: same).

 

 

Notes to the Financial Statements (continued)

13.  Financial instruments

Fair values

All of the fair value measurements recognised in the balance sheet for the Company occur on a recurring basis. 

Where available, market values have been used to determine fair values (Level 1 inputs).

Where market values are not available, fair values have been calculated by discounting future cash flows at prevailing interest and RPI rates sourced from market data (Level 2 inputs).  In accordance with IFRS 13, an adjustment for non-performance risk has then been made to give the fair value. 

The non-performance risk has been quantified by calculating either a credit valuation adjustment (CVA) based on the credit risk profile of the counterparty, or a debit valuation adjustment (DVA) based on the credit risk profile of the relevant group entity, using market-available data.

Whilst the majority of the inputs to the CVA and DVA calculations meet the criteria for Level 2 inputs, certain inputs regarding the Group's credit risk are deemed to be Level 3 inputs, due to the lack of market-available data.  The credit risk profile of the Group has been built using the few market-available data points, e.g. credit spreads on the listed bonds, and then extrapolated over the term of the derivatives.  It is this extrapolation that is deemed to be Level 3.  All other inputs to both the underlying valuation and the CVA and DVA calculations are Level 2 inputs. 

The Level 3 inputs form a significant part of the fair value of the financial instruments held by the Company and, as such, these financial instruments are disclosed as Level 3. 

The adjustment for non-performance risk as at 31 March 2020 was £62.9m on the hybrid asset and £62.9m on the derivative liability (2019: £53.4m on the hybrid asset and £53.4m on the derivative liability), all of which (2019: same) is classed as Level 3. 

On entering certain derivatives, the valuation technique used resulted in a fair value gain on the hybrid asset and a fair value loss on the derivative liability.  As this, however, was neither evidenced by a quoted price nor based on a valuation technique using only data from observable markets, this gain and loss on initial recognition was not recognised.  This was supported by the transaction price of nil.  The difference is being recognised in profit or loss on a straight-line basis over the life of the instruments.  The aggregate difference yet to be recognised in profit or loss is £27.3m (2019: £25.9m) on the hybrid asset and £24.5m (2019: £30.5m) on the derivative liability.  The movement in the period all relates to the straight-line release to profit or loss. 

There were no transfers between levels during the current year (2019: same). 

 

 

Notes to the Financial Statements (continued)

13.  Financial instruments (continued)

 

2020

£000

 

 

FV of hybrid asset pre IFRS 13 adjustment

640,982

CVA/DVA adjustment

(62,893)

Day 1 adjustment

(27,304)

(25,880)

 

 

IFRS 13 FV of hybrid asset (Note 9)

550,785

 

 

FV of derivative liability pre IFRS 13 adjustment

(428,732)

CVA/DVA adjustment

62,893

Day 1 adjustment

24,536

 

 

IFRS 13 FV of derivative liability

(341,303)

The following table shows the sensitivity of the fair values of the financial instruments to the Level 3 inputs, determined by applying a 10bps shift to the credit curve used to calculate the DVA. 

 

2020

-10bps

£000

2020

+10bps

£000

2019

-10bps

£000

2019

-10bps

£000

 

Group and Company

 

 

 

 

 

Hybrid loan to affiliated company at FVTPL

3,313

(3,243)

3,717

(3,628)

Inter-company derivative financial liabilities

(3,313)

3,243

(3,717)

3,628

Categories of financial instruments at FVTPL

 

2020
£000

2019
£000

 

 

 

Hybrid loan to affiliated company at FVTPL (Note 9)

550,785

551,876

Inter-company derivative financial liabilities

(341,303)

(335,291)

Loss for the year has been derived after charging/ (crediting) the following fair value movements:

 

2020
£000

2019
£000

 

 

 

Hybrid loan to affiliated company at FVTPL

1,091

(22,880)

Inter-company derivative financial liabilities

6,011

28,802

 

 

 

Net charge to Profit and Loss Account (Note 7)

7,102

5,922

For cash and cash equivalents, trade and other receivables and trade and other payables the book values approximate to the fair values because of their short-term nature. 

Financial risk management

Disclosure around the Company's risk management policies, which are the same as the Group's, can be found in NWEN plc's consolidated financial statements. 

 

 

Notes to the Financial Statements (continued)

14.  Deferred tax

The following are the deferred tax liabilities recognised by the Company, and the movements thereon during the current and prior year.

 

2020
£000

2019
£000

 

 

 

At 1 April

5,240

1,350

Opening reserves adjustment on transition to IFRS 9

-

5,018

Increase in opening balance due to rate change (Note 8)

616

-

Movement in short term timing differences (Note 8)

(1,485)

(1,128)

 

 

 

At 31 March

4,371

5,240

The deferred tax arises on certain financing items, primarily those held at FVTPL. 

There are no unrecognised deferred tax assets or liabilities in either the current or prior year. 

15.  Called up share capital

 

2020
£000

2019
£000

 

 

 

Authorised:

 

 

50,000 ordinary shares of £1 each

50

50

 

 

 

Allotted, called up and fully paid:

 

 

50,000 ordinary shares of £1 each of which £0.25 has been called up and paid

13

13

16.  Financial commitments

There are no contracted for, but not provided for, financial commitments at the year end (2019: same). 

 

 

Notes to the Financial Statements (continued)

17.  Ultimate parent undertaking and controlling party

The immediate parent undertaking is NWEN plc and the ultimate parent undertaking is NWEN (Jersey), a company incorporated and registered in Jersey.  The address of the ultimate parent company is: 44 Esplanade, St Helier, Jersey JE4 9WG.

The largest group in which the results of the Company are consolidated is that headed by NWEN (Jersey).

The smallest group in which they are consolidated is that headed by NWEN plc, a company incorporated and registered in the UK. The registered office of NWEN plc is Borron Street, Stockport, Cheshire, SK1 2JD.  The consolidated financial statements of this Group are available to the public and may be obtained from this address. 

Following a staged acquisition, there was a change in ownership of the shares in NWEN (Jersey) during the year and, therefore, a change in the ultimate controlling parties of the Company.

Following completion of the sale on 3 December 2019, the ultimate shareholdings are:

· KDM Power Limited (40.0%);

· Equitix ENW 6 Limited (25.0%)

· Equitix MA North HoldCo Limited (15.0%)

· Swingford Holding Corporation Limited (20.0%)

 


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