Form 8-K PPL Corp For: Nov 03

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 3, 2015

 

Commission File Number		Registrant; State of Incorporation; Address and Telephone Number		IRS Employer Identification No.
1-11459		PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151		23-2758192

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Section 1 - Registrant’s Business and Operations

Item 1.01 Entry into a Material Definitive Agreement

The information contained in Item 2.03 of this Current Report on Form 8-K is incorporated by reference into this Item 1.01.

Section 2 - Financial Information

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

Issue of Notes by Western Power Distribution plc

Pursuant to a subscription agreement, dated November 3, 2015, by and among Western Power Distribution plc (the “Issuer”), Banco Santander, S.A., Barclays Bank plc, Lloyds TSB Bank plc and RBC Europe Limited (together the “Joint Lead Managers”), HSBC Bank plc, Mitsubishi UFJ Securities International plc, Mizuho International plc and The Royal Bank Of Scotland plc (together the “Co-Lead Managers”, together with the Joint Lead Managers, the “Managers”), the Issuer agreed to issue and the Managers agreed to subscribe for £500 million aggregate nominal value of 3.625% Notes due 2023 (“the Notes”). The Issuer is an indirect wholly owned subsidiary of PPL Corporation (“PPL”) and the principal holding company for the four distribution network operating companies that comprise PPL’s U.K. Regulated segment: Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (South West) plc and Western Power Distribution (West Midlands) plc. The Notes were issued on a standalone basis pursuant to the key terms of the Notes as set forth in the Prospectus dated November 3, 2015 (the “Prospectus”). On November 6, 2015, the Issuer issued the Notes and received proceeds of £495,480,000, net of fees paid to the Managers of the offering. The net proceeds from the offering will be used by the Issuer for general corporate purposes (including the re-financing of existing debt). The Notes have been admitted to the official list of the UK Listing Authority and have been admitted to trading on the London Stock Exchange’s Regulated Market.

A copy of the Prospectus is filed as Exhibit 1.1 to this Form 8-K and is incorporated herein by reference. The foregoing description is qualified in its entirety by reference to the actual terms of the exhibits filed herewith.

Section 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

 

(d)

Exhibits

 

		1.1		Prospectus of Western Power Distribution plc £500,000,000 3.625% Notes due 2023.
		4.1		Trust Deed, dated November 6, 2015, by and among Western Power Distribution plc as Issuer, and HSBC Corporate Trustee Company (UK) Limited as Note Trustee.
		4.2		Agency Agreement, dated November 6, 2015, by and among Western Power Distribution plc as Issuer, HSBC Corporate Trustee Company (UK) Limited and HSBC Bank plc as Principal Paying Agent.
		4.3		Subscription Agreement, dated November 3, 2015, by and among Western Power Distribution plc as Issuer, Banco Santander, S.A., Barclays Bank plc, Lloyds TSB Bank plc, RBC Europe Limited, HSBC Bank plc, Mitsubishi UFJ Securities International plc, Mizuho International plc and The Royal Bank Of Scotland plc.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		PPL CORPORATION
		By:		/s/ Stephen K. Breininger
				Stephen K. Breininger
				Vice President and Controller

Dated:   November 6, 2015

Exhibit 1.1

IMPORTANT NOTICE

NOT FOR DISTRIBUTION TO ANY U.S. PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES.

IMPORTANT: You must read the following before continuing. The following applies to the prospectus following this page (the “Prospectus”), and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them at any time you receive any information from us as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED IN THE PROSPECTUS IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO.

THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE OFFERED OR SOLD DIRECTLY OR INDIRECTLY WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED BELOW) EXCEPT IN CERTAIN TRANSACTIONS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. IN ORDER TO BE ELIGIBLE TO READ THE PROSPECTUS OR MAKE AN INVESTMENT DECISION WITH RESPECT TO THE SECURITIES DESCRIBED THEREIN, YOU MUST NOT BE A “U.S. PERSON” AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (A “U.S. PERSON”).

THE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER AND IN PARTICULAR MAY NOT BE FORWARDED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.

Confirmation of your representation: The Prospectus is being sent at your request and by accessing the Prospectus, you shall be deemed to have represented to us that you have understood and agreed to the terms set out herein and you are not a U.S. Person or acting for the account or benefit of a U.S. Person and the electronic mail address that you have given to us and to which this email has been delivered is not located in the United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands) or the District of Columbia and that you consent to delivery of the Prospectus by electronic transmission.

You are reminded that the Prospectus has been delivered to you on the basis that you are a person into whose possession the Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver the Prospectus to any other person. If you are in any doubt as to the contents of the Prospectus or the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000, or from another appropriately authorised independent financial adviser.

The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and a Manager (as defined below) or any affiliate of a Manager is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by such Manager or such affiliate on behalf of the Issuer in such jurisdiction.

This communication is directed solely at (i) persons outside the United Kingdom, (ii) persons with professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the “Order”), (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iv) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities of the Issuer, may otherwise lawfully be communicated or caused to be communicated (all such persons in (i)-(iv) above being “relevant persons”). Any investment activity to which this communication relates will only be available to and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this communication.

The Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Issuer, Banco Santander, S.A., Barclays Bank PLC, Lloyds Bank plc and RBC Europe Limited (together the “Joint Lead Managers”), HSBC Bank plc, Mitsubishi UFJ Securities International plc, Mizuho International plc and The Royal Bank of Scotland plc (together the “Co-Lead Managers”, and together with the Joint Lead Managers, the “Managers”, each a “Manager”), nor any person who controls any Manager, nor any director, officer, employee or agent or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format herewith and the hard copy version available to you on request from a Manager.

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PROSPECTUS

(Dated 3 November 2015)

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability in England and Wales with registered number 09223384)

Issue of £500,000,000 3.625 per cent. Notes due 6 November 2023

Issue price: 99.581 per cent.

 

 

Western Power Distribution plc, a public limited company incorporated under the laws of England and Wales (the Issuer), will issue £500,000,000 aggregate principal amount of 3.625 per cent. Notes due 6 November 2023 (the Notes). The issue price of the Notes is 99.581 per cent. of their principal amount.

Interest on the Notes will be payable annually in arrear on 6 November each year, beginning on 6 November 2016. Payments on the Notes will be made in GBP without deduction for or on account of taxes imposed or levied by the United Kingdom to the extent described under “Terms and Conditions of the Notes – Taxation”.

This Prospectus includes information on the terms of the Notes, including redemption and repurchase prices and covenants.

Application has been made to the United Kingdom Financial Conduct Authority in its capacity as competent authority under Part IV of the Financial Services and Markets Act 2000, as amended (FSMA) (the UK Listing Authority or UKLA) for the Notes to be admitted to the official list of the UK Listing Authority (the Official List) and to the London Stock Exchange plc (the London Stock Exchange) for the Notes to be admitted to trading on the London Stock Exchange’s Regulated Market (the Market). The Market is a regulated market for the purposes of the Markets in Financial Instruments Directive 2004/39/EC.

The Notes will be in bearer form and in denominations of GBP 100,000 and integral multiples of GBP 1,000 in excess thereof, up to and including GBP 199,000. The Notes will initially be represented by a temporary global note (the Temporary Global Note), without interest coupons, which will be deposited on or about 6 November 2015 (the Closing Date) with a common safekeeper (the Common Safekeeper) for Euroclear Bank SA/NV (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg). Interests in the Temporary Global Note will be exchangeable for interests in a permanent global note (the Permanent Global Note and, together with the Temporary Global Note, the Global Notes), without interest coupons, not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.

Interests in the Permanent Global Note will be exchangeable for definitive Notes only in certain limited circumstances – see “Summary of Provisions relating to the Notes while represented by the Global Notes”.

The Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or with any securities regulatory authority of any state or other jurisdiction of the United States, and are subject to United States tax law requirements. The Notes are being offered outside the United States in offshore transactions by the Managers in accordance with Regulation S under the Securities Act (“Regulation S”) to persons who are not “U.S. persons” as defined in Regulation S and may not be offered, sold or delivered within the United States or to, or for the account or benefit of U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each purchaser of the Notes in making its purchase will be deemed to have made certain acknowledgements, representations and agreements. See “Subscription and Sale” in this Prospectus.

Neither the United States Securities and Exchange Commission nor any state securities commission in the United States nor any other United States regulatory authority has approved or disapproved the Notes or determined that this Prospectus is truthful or complete.

Please see “Risk Factors” to read about certain factors you should consider before buying any Notes.

The Notes are expected to be rated on issue BBB+ by Standard & Poor’s Credit Market Services Europe Limited (Standard & Poor’s) and Baa3 by Moody’s Investors Service, Ltd. (Moody’s and together with Standard & Poor’s, the Rating Agencies). Ratings ascribed to all of the Notes reflect only the views of Standard & Poor’s and Moody’s. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by any one or all of the Rating Agencies. A suspension, reduction or withdrawal of the rating assigned to any of the Notes may adversely affect the market price of such Notes. Standard & Poor’s and Moody’s are established in the European Community and are registered under Regulation (EC) No 1060/2009 (the CRA Regulation).

 

		Joint Lead Managers
Barclays				Lloyds Bank
RBC Capital Markets				Santander Global Banking & Markets
		Co-Lead Managers
HSBC				MUFG
Mizuho Securities				The Royal Bank of Scotland

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NOTICE TO INVESTORS

This Prospectus constitutes a prospectus for the purposes of Article 5.3 of Directive 2003/71/EC, as amended, including by Directive 2010/73/EU, to the extent that such amendments have been implemented in the relevant Member State of the European Economic Area (the Prospectus Directive) and for the purpose of giving information with regard to the Issuer, the Issuer and its subsidiaries as a whole (the Group) and the Notes which, according to the particular nature of the Issuer and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer.

The Issuer accepts responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

None of the Issuer, the Managers (as defined below in “Subscription and Sale”), HSBC Bank Plc (the Principal Paying Agent), HSBC Corporate Trustee Company (UK) Limited (the Trustee) nor any of their respective representatives is making any representation to investors regarding the legality of an investment in the Notes, and investors should not construe anything in this Prospectus as legal, business, financial, tax or other advice. Investors should consult their own advisors as to the legal, tax, business, financial and related aspects of an investment in the Notes. In making an investment decision regarding the Notes, investors must rely on their own examination of the Issuer and the terms of the offering and the Notes, including the merits and risks involved. Neither this Prospectus nor any other information supplied in connection with the offering of the Notes constitutes an offer or invitation by or on behalf of the Issuer, any of the Managers, the Principal Paying Agent or the Trustee to any person to subscribe for or to purchase any Notes.

The Issuer has confirmed to the Managers that this Prospectus contains all information regarding the Issuer and the Notes which is (in the context of the issue of the Notes) material; such information is true and accurate in all material respects and is not misleading in any material respect; any opinions, predictions or intentions expressed in this Prospectus on the part of the Issuer are honestly held or made and are not misleading in any material respect; this Prospectus does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in such context) not misleading in any material respect; and all proper enquiries have been made to ascertain and verify the foregoing.

This Prospectus is based on information provided by the Issuer and other sources that the Issuer believes are reliable. Neither the Managers, the Principal Paying Agent nor the Trustee have independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Managers, the Principal Paying Agent or the Trustee as to the accuracy or completeness of the information contained in this Prospectus or any other information provided by the Issuer in connection with the offering of the Notes. No Manager or the Principal Paying Agent or the Trustee accepts any liability in relation to the information contained in this Prospectus or any other information provided by the Issuer in connection with the offering of the Notes or their distribution. In this Prospectus, the Issuer has summarised certain documents and other information in a manner it believes to be accurate, but it refers investors to the actual documents for a more complete understanding.

No person is or has been authorised by the Issuer, the Managers, the Principal Paying Agent or the Trustee to give any information or to make any representation not contained in this Prospectus and, if given or made, any other information or representation must not be relied upon as having been authorised by the Issuer, the Managers, the Principal Paying Agent or the Trustee.

The information contained in this Prospectus is given as of the date hereof. Neither the delivery of this Prospectus nor the offering, sale nor delivery of the Notes shall, under any circumstances, create an implication that there has been no change in the affairs of the Issuer or the information set forth in this Prospectus since the date of this Prospectus. The Managers, the Principal Paying Agent and the Trustee expressly do not undertake to review the financial condition or affairs of the Issuer during the life of the Notes or to advise any investor in the Notes of any information coming to their attention. Investors should be aware that they may be required to bear the financial risks of an investment in the Notes for an indefinite period of time.

This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy the Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Managers, the Principal Paying Agent and the Trustee do not represent that this Prospectus may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Managers, the Principal Paying Agent or the Trustee which is intended to permit a public offering of the Notes or the distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations.

 

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Persons into whose possession this Prospectus or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Prospectus and the offering and sale of Notes. In particular, there are restrictions on the distribution of this Prospectus and the offer or sale of Notes in the United States and the United Kingdom. See “Subscription and Sale”.

The Notes may not be a suitable investment for all investors.

Each potential investor in the Notes must determine the suitability of that investment in light of their own circumstances. In particular, each potential investor should:

 

1.

have sufficient knowledge and experience to make a meaningful evaluation of the merits and risks of investing in the Notes;

 

2.

have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of their particular financial situation, an investment in the Notes and the impact such investment will have on their overall investment portfolio;

 

3.

have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes;

 

4.

understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant markets; and

 

5.

be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect their investment and their ability to bear the applicable risks.

In this Prospectus, unless otherwise specified, references to a “Member State” are references to a Member State of the European Economic Area and references to “Sterling”, “GBP” or “£” are to the lawful currency of the United Kingdom.

IN CONNECTION WITH THE ISSUE OF THE NOTES, BARCLAYS BANK PLC AS STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.

 

FORWARD-LOOKING STATEMENTS

This Prospectus contains various forward-looking statements regarding events and trends that are subject to risks and uncertainties that could cause the actual results and financial position of the Issuer to differ materially from the information presented herein. When used in this Prospectus, the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to the Issuer and its management, are intended to identify such forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Issuer does not undertake any obligations publicly to release the result of any revisions to these forward-looking statements to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

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CONTENTS

 

 

OVERVIEW			5
RISK FACTORS			10
SELECTED FINANCIAL INFORMATION AND SUMMARY OF RESULTS			19
USE OF PROCEEDS			21
DESCRIPTION OF THE ISSUER AND ITS PRINCIPAL SUBSIDIARIES			22
DIRECTORS AND SENIOR MANAGEMENT OF THE ISSUER			31
TERMS AND CONDITIONS OF THE NOTES			32
PROVISIONS RELATING TO THE NOTES WHILE REPRESENTED BY THE GLOBAL NOTES			47
TAX CONSIDERATIONS			50
FATCA DISCLOSURE			51
SUBSCRIPTION AND SALE			54
GENERAL INFORMATION			56
APPENDIX – CONSOLIDATED AUDITED FINANCIAL STATEMENTS OF THE ISSUER			58

 

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RISK FACTORS

 

The Issuer believes that the factors below may affect its ability to fulfil its obligations under the Notes. All of these factors are contingencies which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring.

In addition, factors which are material for the purpose of assessing the market risks associated with the Notes are described below.

The Issuer believes that the factors described below represent the principal risks inherent in investing in the Notes, but the Issuer may be unable to pay interest, principal or other amounts on or in connection with the Notes for other reasons which may not be considered significant risks by the Issuer based on information currently available to it or which it may not currently be able to anticipate. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision. Noteholders may lose the value of their entire investment in certain circumstances.

Words and expressions defined in “Terms and Conditions of the Notes” below or elsewhere in this Prospectus have the same meaning in this section.

FACTORS THAT MAY AFFECT THE ISSUER’S ABILITY TO FULFIL ITS OBLIGATIONS UNDER OR IN CONNECTION WITH NOTES

Regulatory Risk

Under current regulation by Ofgem the revenue of the Distribution Companies available for distribution is determined by the distribution price controls set out under the terms of their respective distribution licences by Ofgem every eight years, the current distribution price control is the first to reflect the new RIIO (Revenue = Incentive + Innovation + Output) model for electricity network regulation (RIIO-ED1). Pursuant to this, each Distribution Company has agreed the price control with Ofgem that covers the eight year period from 1 April 2015 to 31 March 2023. Therefore, unless Ofgem reopens the price control, which the Issuer considers unlikely, there is a high degree of certainty as to the level of revenue permitted by regulation until 31 March 2023.

However, there can be no assurance that future price controls will permit the generation of sufficient revenues to enable the Issuer to meet its respective payment obligations under the Notes. Any adverse price control in the future may negatively impact the net operating revenue of the Distribution Companies. This may adversely affect the Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

Distribution licence

Failure by a Distribution Company to comply with the terms of its distribution licence may lead to Ofgem making an enforcement order or levying a fine on it. In respect of any of the Distribution Companies, Ofgem has the power to levy fines of up to 10 per cent of turnover of that company for any breach of its distribution licence. While the distribution licence may be terminated immediately in exceptional circumstances, such as in the event of insolvency proceedings, it otherwise continues indefinitely until revoked following no less than 25 years’ written notice.

Any future termination by Ofgem of the distribution license of the Distribution Companies will result in the loss of business for such Distribution Companies, which may have an adverse effect on the Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

 

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Retail price index movements and cost-base variations

The annual revenues of each Distribution Company are adjusted by the published retail price index (RPI) in the UK. There is therefore a risk that each Distribution Company’s cost base may increase at a faster rate than the RPI due to inflation as measured by the RPI being less than the rate of inflation on components of such Distribution Company’s cost base, even though Ofgem’s price control does allow for some cost increases in excess of RPI. If that were to happen, each Distribution Company’s profitability would be reduced and, if the differential between RPI-linked inflation and experienced operating cost inflation were sufficiently large, it could adversely affect the business, financial position and results of operations of such Distribution Company, and consequently, the revenues available to the Issuer. The effects of deflation would also be similar. The annual revenue of each Distribution Company may reduce at a greater degree to any deflationary impact on the component costs of the business. Again if this were to happen each Distribution Company’s profitability would be reduced and, if the differential between RPI-linked deflation and experienced operating cost deflation was sufficiently large, it could adversely affect each Distribution Company’s business, financial position and results of operations and ultimately that of the Issuer.

Change to measure of inflation

On 8 January 2015, the UK Statistics Authority published a review recommending that the Office for National Statistics adopt the so-called “CPIH” measure of inflation (which, among other things, would include housing costs in its measure of inflation) as its main measure of inflation.

No final decision will be made before the end of 2015 but if Ofgem decides to use the CPIH measure of inflation, after the expiry of the RIIO-ED1 period, this could have an impact on the Distribution Companies’ revenue growth and, ultimately, on their respective businesses, financial positions and results of operations. In turn, this may impact the Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

Supply Installation Regulations

Failure to comply with current supply installation regulations could lead to prosecution by the Department of Energy and Climate Change. While each Distribution Company has robust inspection and maintenance programmes in place to mitigate this risk, no assurance can be given that any Distribution Company will not be subject to such action in the future. Any such action may impact the Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

Health and Safety

Failure to comply with legislation, or a health and safety incident, could lead to prosecution by the Health and Safety Executive (the HSE). Each Distribution Company places the highest priority on health and safety, and invests in robust training and auditing of all its employees. No assurance can be given that any Distribution Company will not be subject to HSE action in the future. Any such action may impact the Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

Ofgem Requirements

Each Distribution Company’s activities are regulated by Ofgem. Failure to operate the network properly could lead to compensation payments or penalties or loss of incentive revenues under incentive arrangements. Failure to invest capital expenditure in line with agreed programmes could also lead to deterioration of the network and clawback of investment deferred if specified outputs are not met. While each Distribution Company’s investment programme is targeted to maintain asset condition and meet the prescribed outputs over an eight year period and improve customer interruptions and customer minutes lost over the period, no guarantee can be given that these regulatory requirements will be met. If such regulatory requirements are not met, this may result in insufficient cash being available to the Distribution Companies for them to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

 

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IT Systems

The Distribution Companies rely on a number of key IT systems for network operation. Failure to plan and execute suitable contingencies in the event of critical IT system breakdowns could result in poor customer service and/or an inability to operate the network effectively. Each Distribution Company has robust contingency plans in place to cover such eventualities and regularly tests these plans, but no assurance can be given as to their effectiveness going forward.

Environment

Failure to comply with legislation in the event of an environmental incident could lead to prosecution by the Environment Agency. While each Distribution Company has robust operating, inspection and maintenance procedures in place to mitigate this risk, ongoing compliance cannot be guaranteed.

Storm Related Supply Interruptions

Failure to manage storm related supply interruptions adequately could lead to negative customer perception, adverse publicity and a potential financial impact on the business. Each Distribution Company has developed robust operating procedures to manage storm related supply interruptions and has, through independent review, achieved benchmark performance in previous incidents. However, no assurance can be given that satisfactory performance can be delivered in the future.

Combined Operating Activities of WPDE, WPDW, WPD South West and WPD South Wales

As required by Ofgem in its regulation of distribution network operators (DNOs and each a DNO), each Distribution Company is a separate legal entity, which is subject to financial ring-fencing and which holds a separate distribution licence. However, on a management and commercial level the Distribution Companies are operated on a combined basis under the commercial brand “Western Power Distribution”. As a result, any event which has an adverse impact on the WPD Group may affect the management and delivery of operations for each Distribution Company. In turn, this may impact the Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes.

Procurement Risk

In order to support its core business activities, it is necessary for each Distribution Company to purchase significant quantities of resources and enter into contracts for the supply of other products and services. Although each Distribution Company routinely enters into long-term contracts to protect its commercial position, significant price rises and/or failure to secure key materials could have a significant adverse effect on the operations and/or financial position of such Distribution Company. Whilst each Distribution Company receives protection from inflation through its price controls being linked to the retail price index, it will be exposed or benefit from any changes relative to inflation, either as a result of commodity prices or issues around supply and demand for plant and equipment or with its contractors. To the extent it purchases equipment from overseas, this exposure would also extend to exchange rate fluctuations.

Key management personnel and employees

Each Distribution Company’s business depends upon the efforts and dedication of its senior management team. Competition for highly qualified personnel is intense, and the loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on each Distribution Company’s business, financial condition and results of operations.

Each Distribution Company’s future business success depends in part on its ability to continue to recruit, train, motivate and retain employees and on its ability to continue to employ creative employees and consultants. The loss of service of any key personnel, or an inability to attract and retain qualified employees and consultants, could have a material adverse impact on each Distribution Company’s business, financial condition and results of operations.

 

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Each Distribution Company’s workforce is covered by collective bargaining agreements, which impacts its labour costs. The current collective bargaining agreements are renewed on a rolling basis and no Distribution Company can ensure that the collective bargaining agreements will continue without required amendments or that it will reach new agreements with the unions on satisfactory terms if this event occurs. Furthermore, work stoppages, strikes or similar industrial actions could adversely impact each Distribution Company’s business, financial position and results of operations.

RISKS RELATING TO FINANCING STRUCTURE

The Issuer is a holding company and must rely on the Distribution Companies for payments on the Notes.

As a holding company, the primary assets of the Issuer are its investments in the Distribution Companies. Substantially all of the Issuer’s operations are conducted by the Distribution Companies. Consequently, the operating cash flow of the Issuer and its ability to service its indebtedness and fund its other obligations depends upon the operating cash flow and distributions from the Distribution Companies. The Distribution Companies are separate legal entities that have no obligation to pay any amounts due pursuant to the obligations of the Issuer or to make any funds available for that purpose, whether by dividends or otherwise. In addition, each Distribution Company’s ability to pay dividends to the Issuer depends on any statutory, regulatory and/or contractual restrictions that may be applicable to each one, which may include without limitation, pensions liabilities and requirements to maintain minimum levels of equity ratios, working capital or other assets.

In particular, under their respective licences, unless Ofgem grants its consent, a Distribution Company is prohibited from paying any dividends to the Issuer if such Distribution Company loses its investment grade issuer rating from any rating agency or if it already has the lowest investment grade rating and its rating is on review for possible downgrade or on a negative credit or rating watch or its rating outlook becomes negative.

Ofgem have the following events as additional dividend stopper trigger events:

 

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any report by the licensee of adverse circumstances under the availability of resources condition that the licensee’s board considers that it will not have sufficient financial/operational resources for the next twelve months or is not compliant with the stipulated license conditions or there has been a change in circumstances from a previously positive certificate; and

 

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any material breach of a formal financial covenant entered into by the licensee. This restriction would not apply where the breach was remedied, or the covenant renegotiated, to the satisfaction of the counter party and Ofgem is notified in writing, or Ofgem had given advance confirmation that a particular breach would not trigger the restriction.

If the Issuer ceases directly or indirectly to own or control a majority stake in any of the Distribution Companies, and consequently a Rating Downgrade (as defined in Condition 5(e) (Redemption on disposal of a Distribution Company)) occurs, then a Disposal Event (as defined in Condition 5(e) (Redemption on disposal of a Distribution Company)) will be triggered pursuant to Condition 5(e) (Redemption on disposal of a Distribution Company), which may adversely affect the remaining Distribution Companies’ ability to pay sufficient dividends to the Issuer for the Issuer to be able to comply with its payment obligations under the Notes. If a Disposal Event occurs, then the Issuer shall redeem all of the Notes in accordance with Condition 5(e) (Redemption on disposal of a Distribution Company).

The level of indebtedness of any Distribution Company could adversely affect the financial condition of the Issuer.

As of 31 August 2015, the Distribution Companies had a consolidated total of £3,935 million aggregate principal amount of debt outstanding. WPDW, WPDE and WPD South West each have revolving credit facilities permitting WPDW and WPDE to borrow up to £300 million, respectively and WPD South West to borrow up to £245 million. Each of these facilities expires in 2020. In addition, the Distribution Companies have issued and may from time to time issue further notes under a £3,000,000,000 euro medium term note programme.

 

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The amount of indebtedness of the Distribution Companies could limit their ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other purposes. It may also increase their vulnerability to adverse economic, market and industry conditions, and limit their flexibility in planning for, or reacting to, changes in our business operations or the industry overall.

If the results of operations and financial condition of the Distribution Companies are adversely affected by their level of indebtedness, their ability to make dividend payments or other distributions to the Issuer may be impaired. As a result, the financial condition and ability to meet the obligations of the Issuer, including under the Notes, would be adversely affected.

Despite current indebtedness levels, the Issuer and the Distribution Companies may still be able to incur substantially more debt, which could further exacerbate the risks faced by the Issuer. In addition, the Issuer could be negatively affected by rising interest rates, downgrades to its credit ratings or other negative developments in its ability to access capital markets.

Together with each of the Distribution Companies, the Issuer may incur substantially more debt in the future. The terms of the Notes do not restrict the ability of the Issuer to incur additional indebtedness. Any future debt agreement entered into by the Issuer may contain covenants and restrictions limiting the ability of the Issuer to finance its capital needs, or expand its business and pursue its business strategies. If further debt is added, the related restrictions and covenants could materially and adversely affect the ability of the Issuer to finance its future operations or capital needs. In order to finance its significant capital expenditures, debt service requirements and other operating needs, each Distribution Company expects to be reliant upon adequate long-term and short-term financing. Consequently, the Distribution Companies are likely to be sensitive to movements in interest rates, credit rating considerations, market liquidity and credit availability. Adverse changes in these conditions could result in increased costs and decreased liquidity to them and the Issuer.

FACTORS WHICH ARE MATERIAL FOR THE PURPOSE OF ASSESSING THE MARKET RISKS ASSOCIATED WITH NOTES

Risks related to Notes generally

Set out below is a description of material risks relating to the Notes generally:

The Issuer has the right to redeem the Notes at its option; this may limit the market value of the Notes and an investor may not be able to reinvest the redemption proceeds in a manner which achieves a similar effective return.

The Issuer has the option to redeem the Notes prior to their scheduled maturity date as described in Condition 5(c) (Redemption at the Option of the Issuer) of the conditions of the Notes. Such optional redemption feature is likely to limit the market value of Notes. During any period when the Issuer may elect to redeem Notes, the market value of the Notes generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period.

The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.

The conditions of the Notes contain provisions which may permit their modification without the consent of all investors and confer significant discretions on the Trustee which may be exercised without the consent of the Noteholders or Couponholders and without regard to the individual interests of particular Noteholders.

The conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.

 

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The conditions of the Notes also provide that the Trustee may, without the consent of Noteholders or Couponholders and without regard to the interests of particular Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the Notes, the Trust Deed, the Coupons or the conditions of the Notes which is of a formal, minor or technical nature or to correct a manifest error or which in the opinion of the Trustee is not materially prejudicial to the Noteholders (save in relation to a Reserved Matter), or (ii) determine without the consent of the Noteholders or Couponholders that any Event of Default shall not be treated as such or (iii) the substitution the Issuer’s successor in business as principal debtor under any Notes in place of the Issuer, and in case of such a substitution, to a change of the law governing the Notes and the Coupons, in the circumstances described in Condition 10 (Meetings of Noteholders, Modification, Waiver and Substitution).

The Notes may be subject to withholding taxes in circumstances where the Issuer is not obliged to make gross up payments and this would result in holders receiving less interest than expected and could significantly adversely affect their return on the Notes.

Withholding under the EU Savings Directive.

Under Council Directive 2003/48/EC on the taxation of savings income (the Savings Directive), EU Member States are required to provide to the tax authorities of other EU Member States details of certain payments of interest or similar income paid or secured by a person established in an EU Member State to or for the benefit of an individual resident in another EU Member State or certain limited types of entities established in another EU Member State.

For a transitional period, Austria is instead required (unless during that period it elects otherwise) to operate a withholding system in relation to such payments (subject to a procedure whereby, on meeting certain conditions, the beneficial owner of the interest or other income may request that no tax be withheld). The end of the transitional period is dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries. A number of non-EU countries and territories have adopted similar measures and the EU Member States have adopted similar measures with certain dependent or associated territories of certain EU Member States.

On 24 March 2014, the Council of the European Union adopted a Council Directive (the Amending Directive) amending and broadening the scope of the requirements described above. The Amending Directive requires EU Member States to apply these new requirements from 1 January 2017 and if they were to take effect the changes would expand the range of payments covered by the Savings Directive, in particular to include additional types of income payable on securities. They would also expand the circumstances in which payments must be reported or subject to withholding. This approach would apply to payments made to, or secured for, persons, entities or legal arrangements (including trusts) where certain conditions are satisfied, and may in some cases apply where the person, entity or arrangement is established or effectively managed outside of the European Union.

However, the European Commission has proposed the repeal of the Savings Directive from 1 January 2017 in the case of Austria and from 1 January 2016 in the case of all other EU Member States (subject to ongoing requirements to fulfil administrative obligations such as the reporting and exchange of information relating to, and accounting for withholding taxes on, payments made before those dates). This is to prevent overlap between the Savings Directive and a new automatic exchange of information regime to be implemented under Council Directive 2011/16/EU on Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU). The new regime under Council Directive 2011/16/EU (as amended) is in accordance with the Global Standard released by the Organisation for Economic Cooperation and Development in July 2014. Council Directive 2011/16/EU (as amended) is generally broader in scope than the Savings Directive, although it does not impose withholding taxes. The proposal also provides that, if it proceeds, EU Member States will not be required to apply the new requirements of the Amending Directive.

If a payment were to be made or collected through an EU Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent (as defined in the Conditions of the Notes) nor any other person would be obliged to pay

 

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additional amounts with respect to any Note as a result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in an EU Member State that is not obliged to withhold or deduct tax pursuant to the Savings Directive.

U.S. Foreign Account Tax Compliance Act Withholding

Whilst the Notes are in global form and held within Euroclear or Clearstream, Luxembourg (together the ICSDs), in all but the most remote circumstances, it is not expected that the new reporting regime and potential withholding tax imposed by sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986 (FATCA) will affect the amount of any payment received by the ICSDs (see FATCA Disclosure under Tax Considerations). However, FATCA may affect payments made to custodians or intermediaries in the subsequent payment chain leading to the ultimate investor if any such custodian or intermediary generally is unable to receive payments free of FATCA withholding. It also may affect payment to any ultimate investor that is a financial institution that is not entitled to receive payments free of withholding under FATCA, or an ultimate investor that fails to provide its broker (or other custodian or intermediary from which it receives payment) with any information, forms, other documentation or consents that may be necessary for the payments to be made free of FATCA withholding. Investors should choose the custodians or intermediaries with care (to ensure each is compliant with FATCA or other laws or agreements related to FATCA) and provide each custodian or intermediary with any information, forms, other documentation or consents that may be necessary for such custodian or intermediary to make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a more detailed explanation of FATCA and how FATCA may affect them. The Issuer’s obligations under the Notes are discharged once it has made payment to, or to the order of, the Common Safekeeper (as bearer of the Notes) and the Issuer has therefore no responsibility for any amount thereafter transmitted through the ICSDs and custodians or intermediaries. Further, foreign financial institutions in a jurisdiction which has entered into an intergovernmental agreement with the United States (an IGA) are generally not expected to be required to withhold under FATCA or an IGA (or any law implementing an IGA) from payments they make.

The value of the Notes could be adversely affected by a change in English law or administrative practice.

The conditions of the Notes are based on English law in effect as at the date of the issue of the Notes. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of the issue of the Notes and any such change could materially adversely impact the value of the Notes.

Risks related to the market generally

Set out below is a description of material market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:

An active secondary market in respect of the Notes may never be established or may be illiquid and this would adversely affect the value at which an investor could sell his Notes.

The Notes may have no established trading market when issued, and one may never develop. If a market does develop, it may not be very liquid. Therefore, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Although application has been made for the Notes to be admitted to listing on the Official List and to trading on the Market, there is no assurance that such application will be accepted or that an active trading market will develop. Illiquidity may have a severely adverse effect on the market value of Notes.

Exchange rate risks and exchange controls

The Issuer will pay principal and interest on the Notes in Sterling (the Specified Currency). This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the Investor’s Currency) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the

 

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Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor’s Currency-equivalent value of the principal payable on the Notes and (3) the Investor’s Currency-equivalent market value of the Notes.

Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate or the ability of the Issuer to make payments in respect of the Notes. As a result, investors may receive less interest or principal than expected, or no interest or principal.

Interest rate risks

Investment in the Notes involves the risk that if market interest rates subsequently increase above the rate paid on the Notes, this will adversely affect the value of the Notes.

Credit ratings assigned to the Issuer or the Notes may not reflect all the risks associated with an investment in the Notes.

One or more independent credit rating agencies may assign credit ratings to the Issuer or the Notes. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised, suspended or withdrawn by the rating agency at any time.

In general, European regulated investors are restricted under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation) from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances whilst the registration application is pending. Such general restriction will also apply in the case of credit ratings issued by non-EU credit rating agencies, unless the relevant credit ratings are endorsed by an EU-registered credit rating agency or the relevant non-EU rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended). The list of registered and certified rating agencies published by the European Securities and Markets Authority (ESMA) on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency included in such list, as there may be delays between certain supervisory measures being taken against a relevant rating agency and the publication of the updated ESMA list. Certain information with respect to the credit rating agencies and ratings is set out on the cover of this Prospectus.

Legal investment considerations may restrict certain investments

The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisors to determine whether and to what extent (1) the Notes are legal investments for it; (2) the Notes can be used as security for indebtedness; and (3) other restrictions apply to its purchase or pledge of any of the Notes. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-based capital or similar rules.

Definitive Notes not having denominations in integral multiples of the minimum authorised denomination may have difficulty in trading in the secondary market

The Notes have a denomination consisting of a minimum authorised denomination of £100,000 plus higher integral multiples of £1,000 up to £199,000. Accordingly, it is possible that the Notes may be traded in amounts in excess of the minimum authorised denomination that are not integral multiples of such denomination. In such a case, if Definitive Notes are required to be issued, a Noteholder who holds a principal amount less than the minimum authorised denomination at the relevant time may not receive a Definitive Note in respect of such holding and may need to purchase a principal amount of Notes such that its holding amounts to the minimum authorised denomination (or another relevant denomination amount).

 

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If Definitive Notes are issued, Noteholders should be aware that Definitive Notes which have a denomination that is not an integral multiple of the minimum authorised denomination may be illiquid and difficult to trade.

Notes in a book-entry form will be subject to the rules of Euroclear and Clearstream, Luxembourg, respectively, which may not be adequate to ensure the owners their timely exercise of rights under the Notes

The Notes will initially only be issued in global form and deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg. Interests in the Global Notes will trade in book-entry form only. The Common Safekeeper, or its nominee, for Euroclear and Clearstream, Luxembourg, will be the sole holder of the Global Notes. Accordingly, owners of book-entry interests must rely on the procedures of Euroclear and Clearstream, Luxembourg, and non-participants in Euroclear or Clearstream, Luxembourg must rely on the procedures of the participant through which they own their interests, to exercise any rights and obligations of a holder of the Notes.

Unlike the holders of the Notes themselves, owners of book-entry interests will not have the direct right to act upon the Issuer’s solicitations for consents, requests for waivers or other actions from holders of the Notes. The procedures to be implemented through Euroclear and Clearstream, Luxembourg may not be adequate to ensure the timely exercise of rights under the Notes.

 

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SELECTED FINANCIAL INFORMATION AND SUMMARY OF RESULTS

In October 2014, as part of an intra-group corporate reorganisation, the Issuer became the parent of substantially all of the subsidiaries and assets and liabilities previously reported by the PPL WW Holdings Limited Group (PPL WW Group) and PPL WEM Holdings Limited Group (PPL WEM Group). The Issuer has elected to present the consolidated financial statements as if the subsidiaries and assets and liabilities of the PPL WW Group and PPL WEM Group had been owned by the Issuer for the financial year ended 31 March 2015 in accordance with the pooling of interests principles for business combinations of entities under common control. Set out in the Appendix to this Prospectus are the audited consolidated annual accounts of the Issuer for the financial year ended 31 March 2015.

Revenue

Revenue for the WPD Group for the financial year ended 31 March 2015 was £1,620,100,000 compared to £1,574,000,000 for the previous financial year, an increase of £46,100,000 (2.9 per cent.). This was principally due to an average tariff increase of 3.0 per cent. in WPD South West, 3.1 per cent. in WPD South Wales, 6.0 per cent. in WPD West Midlands and 11.7 per cent. in WPD East Midlands, effective from 1 April 2014. The tariff increase has been partly offset by the reduction of £5 per residential end-user, as agreed with Ofgem, equating to £35,600,000 being offset across the WPD Group.

Operating costs

Operating costs for the WPD Group were broadly in line with the previous financial year decreasing by £12,900,000 (2.2 per cent.) from £589,800,000 in the financial year ended 31 March 2014 to £576,900,000 in the financial year ended 31 March 2015. This includes a decrease in the depreciation of network assets (calculated to be circa. £5,500,000) resulting from an increase in the weighted average useful lives of network assets effective from 1 December 2014.

Other operating expenses

Other operating expenses were £700,000 for the financial year ended 31 March 2015 compared to £5,300,000 for the previous financial year. The movement has arisen due to a lower decrease in fair value of investment properties.

Impairment of intangible assets

During the financial year ended 31 March 2015, the WPD Group recognised an impairment loss in respect of goodwill of £72,000,000 (compared to £248,400,000 in the financial year ended 31 March 2014, which was allocated between WPD East Midlands (accounting for £186,200,000 in the financial year ended 31 March 2014) and WPD West Midlands (accounting for £62,200,000 in the financial year ended 31 March 2014)). All of the impairment loss in respect of goodwill in the financial year ended 31 March 2015 is attributable to WPD West Midlands.

The impairment in the financial year ended 31 March 2015 has largely arisen as a result of changes to the short-term inflation assumption which has reduced both the operating cash flows and the terminal value used in the discounted cash flow model, and the growth in the carrying amount of the cash generating unit in the year exceeding the underlying growth in its recoverable amount. These factors are partly offset by higher than previously anticipated levels of capital expenditure in the current year which has increased both the future operating cash flows and terminal value used in the discounted cash flow model, and a reduction to the discount rate.

Finance costs

Finance costs for the financial year ended 31 March 2015 were £259,900,000 compared to £267,700,000 for the financial year ended 31 March 2014. The decrease of £7,800,000 (2.9 per cent) mainly arose due to the movement in the foreign exchange variance on US$ denominated financial assets and liabilities (of a decrease of £160 million) offset by the movement in the transfers from the hedging reserve in relation to cash flow hedges of £169.8 million.

 

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Tax expense

Tax expenses incurred by the WPD Group increased from £57,200,000 for the financial year ended 31 March 2014 to £144,400,000 for the financial year ended 31 March 2015 (an increase of £87,200,000 (152.4 per cent.)). The current tax expense decreased by £11.1 million due to the reduction in the corporation tax rate from 23 per cent. to 21 per cent., partly offset by an increase in taxable profits. The deferred tax expense increased by £98.3 million to £53.2 million, mainly due to the beneficial impact of the tax rate change in 2014 of £85.4 million.

Reconciliation to previously reported results

The financial information for the WPD Group has been prepared on the basis that the restructuring transactions that took place in October 2014 are all between entities under common control and hence are outside the scope of IFRS 3 “Business combinations.” As such, the financial information does not include the effects of acquisition accounting principles, with all values being based on amounts previously recorded for assets and liabilities, without the recognition of any fair value adjustments.

The WPD Group income statement and balance sheet have been prepared using the pooling of interests method as if the group restructuring had taken place on 1 April 2013.

 

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USE OF PROCEEDS

The net proceeds of the issue of the Notes will be used by the Issuer and its subsidiaries (including the Distribution Companies) for general corporate purposes (including to refinance certain existing indebtedness).

 

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DESCRIPTION OF THE ISSUER AND ITS PRINCIPAL SUBSIDIARIES

Western Power Distribution plc (the Issuer) was incorporated under the Companies Act 2006 as PPL WPD 2 Limited on 30 September 2014 and registered as a private limited company with number 09223384. The Issuer was subsequently renamed Western Power Distribution Limited on 24 June 2015, and was re-registered as a public limited company on 24 June 2015. The Issuer is the holding company of four regulated monopoly distributors of electricity in the Midlands area of England, the South West of England and South Wales namely Western Power Distribution (East Midlands) plc (WPDE), Western Power Distribution (South Wales) plc (WPD South Wales), Western Power Distribution (South West) plc (WPD South West), and Western Power Distribution (West Midlands) plc (WPDW, and together with WPDE, WPD South Wales and WPD South West, the Distribution Companies). The Issuer is also the holding company of several other subsidiary companies that support the Distribution Companies, and such supporting companies including, inter alios, Surf Telecoms Limited, South Western Helicopters Limited and WPD Smart Metering Limited. The parent of Western Power Distribution plc is PPL WPD Limited, whose registered number is 09172857 and whose registered office is Avonbank, Feeder Road, Bristol, BS2 0TB. The ultimate parent of PPL WPD Limited is PPL Corporation, an energy and utility holding company based in Pennsylvania, USA.

Description of WPD

WPDE, WPDW, WPD South West and WPD South Wales are all indirect subsidiaries of WPD which is an indirect subsidiary of PPL Corporation and operate together as a single commercial entity under the brand “Western Power Distribution”. “Western Power Distribution”, or “WPD” as used in this Prospectus, means the multiparty commercial operations of the Issuer, WPDE, WPDW, WPD South West, WPD South Wales and also the unregulated entities.

Western Power Distribution – Service Area map

 

History

In 1999 South Western Electricity divested its supply business and was renamed Western Power Distribution. The following year Western Power Distribution acquired South Wales Electricity. In 2011 Western Power Distribution acquired Central Networks, which comprised of the two distribution businesses operating in the Midlands.

 

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Western Power Distribution also maintains a property portfolio, predominantly to meet the occupancy needs of the Distribution Companies. It has also developed a fibre optic telecoms network to predominantly provide data and voice infrastructure to the Distribution Companies. Spare capacity is however made available to third party users. WPD also maintains a fleet of five helicopters. These are principally used to provide fault location and surveying services to the Distribution Companies, but again are outsourced to third parties.

Description of the principal subsidiaries of the Issuer

Western Power Distribution (East Midlands) plc

WPDE is the regulated monopoly distributor of electricity in the East Midlands area of England. WPDE was incorporated as a public limited company under the Companies Act 1985 on 1 April 1989. The registered office of WPDE is at Avonbank, Feeder Road, Bristol, BS2 0TB and its telephone number is + 44-117-933-2000.

WPDE is an indirectly wholly-owned subsidiary of WPD. It was formerly known as Central Networks East plc and registered itself as Western Power Distribution (East Midlands) plc on 1 April 2011 when it became part of the WPD Group.

WPDE is one of the 14 regulated electricity DNOs in England, Wales and Scotland. It is the regulated distributor of electricity with a distribution licence authorising it to distribute electricity in the East Midlands area of England and its principal activity being the distribution of electricity to industrial, commercial and domestic customers within its regulated area. It is regulated by the Ofgem of Great Britain.

Its network covers approximately 16,000 square kilometres, extending from the Lincolnshire coast to the outskirts of Coventry, and from Milton Keynes in the south to the Derbyshire Peak District in the north. As a result, it serves a diverse customer base including large urban areas such as Nottingham, Derby, Northampton and Leicester, as well as rural communities.

WPDE distributed electricity to over 2.6 million customers through approximately 72,000 kilometres of network.

At the date of this Prospectus WPDE has no subsidiary companies.

Western Power Distribution (West Midlands) plc

WPDW is the regulated monopoly distributor of electricity in the West Midlands area of England. WPDW was incorporated as a public limited company under the Companies Act 1985 on 1 April 1989. The registered office of WPDW is at Avonbank, Feeder Road, Bristol, BS2 0TB and its telephone number is + 44-117-933-2000.

WPDW is an indirectly wholly-owned subsidiary of WPD. It was formerly known as Central Networks West plc and registered itself as Western Power Distribution (West Midlands) plc on 1 April 2011 when it became part of the WPD Group.

WPDW is also one of the 14 DNOs in England, Wales and Scotland. It is the regulated distributor of electricity with a distribution licence authorising it to distribute electricity in the West Midlands area of England and its principal activity being the distribution of electricity to industrial, commercial and domestic customers. It is also regulated by Ofgem.

Its network covers approximately 13,300 square kilometres, extending from the outskirts of Bristol in the South to Staffordshire in the North and from approximately the M6 motorway to the Welsh border. As a result, WPDW serves a diverse customer base including England’s second largest city, Birmingham, as well as rural communities.

 

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WPDW distributed electricity to almost 2.5 million customers through approximately 64,000 kilometres of network.

At the date of this Prospectus WPDW has no subsidiary companies.

Western Power Distribution (South West) plc

WPD South West is the regulated monopoly distributor of electricity in the south-western area of England. WPD South West was incorporated as a public limited company under the Companies Act 1985 on 1 April 1989. The registered office of WPD South West is Avonbank, Feeder Road, Bristol, BS2 0TB. Its telephone number is + 44-117-933-2000.

WPD South West is an indirectly wholly-owned subsidiary of WPD. WPD South West was formerly known as South Western Electricity plc and registered itself as Western Power Distribution (South West) plc on 31 July 2001.

WPD South West is also one of the 14 DNOs in England, Wales and Scotland. It is the regulated distributor of electricity with a distribution licence authorising it to distribute electricity in the South West area of England and its principal activity being the distribution of electricity to industrial, commercial and domestic customers. It is also regulated by Ofgem.

Its network covers approximately 14,400 square kilometres, extending from Bristol and Bath in the northeast, southwest along the peninsula to Land’s End and beyond to the Isles of Scilly. WPD South West serves a diverse customer base from the largest cities and towns in WPD South West’s service area of Bath, Bristol, Exeter, Plymouth and Taunton to small rural communities.

WPD South West distributed electricity to almost 1.6 million customers through approximately 50,000 kilometres of network.

At the date of this Prospectus WPD South West has no subsidiary companies.

Western Power Distribution (South Wales) plc

WPD South Wales is the regulated monopoly distributor of electricity in South Wales. WPD South Wales was incorporated as a public limited company under the Companies Act 1985 on 1 April 1989. The registered office of WPD South Wales is Avonbank, Feeder Road, Bristol, BS2 0TB. Its telephone number is + 44-117-933-2000.

WPD South Wales is an indirectly wholly-owned subsidiary of WPD. WPD South Wales was formerly known as South Wales Electricity plc and registered itself as Western Power Distribution (South Wales) plc on 31 July 2001.

WPD South Wales is also one of the 14 DNOs in England, Wales and Scotland. It is the regulated distributor of electricity with a distribution licence authorising it to distribute electricity in South Wales and its principal activity being the distribution of electricity to industrial, commercial and domestic customers. It is also regulated by Ofgem.

Its network covers approximately 11,800 square kilometres. The service area in Wales covers the south of the country. It covers an extremely diverse region including areas such as the Brecon Beacons National Park to the north, the Pembrokeshire Coast National Park in the West and city of Cardiff in the south. The largest cities and towns in WPD South Wales’ service area are Cardiff, Swansea and Newport. Most of the population of South Wales is located in the coastal belt region between Newport and Llanelli, (to the east and west of Cardiff), or in the valleys region to the north of this coastal belt. The remainder of the area is sparsely populated.

WPD South Wales distributed electricity to over 1.1 million customers through approximately 35,000 kilometres of network.

 

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At the date of this Prospectus WPD South Wales has no subsidiary companies.

WPD Summary Group Structure Chart

 

 

 

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Description of PPL Corporation

PPL Corporation, headquartered in Allentown, Pennsylvania, is an energy and utility holding company that was incorporated in 1994. Through its subsidiaries, PPL Corporation delivers electricity and natural gas to over 10 million customers in the United States and the United Kingdom.

The Western Power Distribution Business

As required by Ofgem in its regulation of DNOs, WPDE, WPDW, WPD South West and WPD South Wales, are separate legal entities, which are subject to financial ring-fencing and which hold separate distribution licences. As a result of this, all four entities are separately assessed by Ofgem and undergo a separate distribution price control review process (as further explained in the section below entitled “Regulation applying to the Distribution Companies”).

However, on a management and commercial level, WPDE, WPDW, WPD South West, WPD South Wales and the unregulated entities, are operated on a combined basis through shared divisional management (as further explained in the section entitled “Description of the Western Power Distribution Business”). Western Power Distribution is the second largest electricity network operator in the United Kingdom (by customer numbers) as at 31 March 2015, with more than 7.8 million customers.

As WPDE, WPDW, WPD South West and WPD South Wales are separate entities for legal and regulatory purposes they each produce accounts. The unregulated entities also produce separate financial accounts. The costs of shared services, employees and operations are allocated back to each entity (as appropriate) in order to produce such accounts.

As at 31 March 2015, WPDE and WPDW had regulated asset value (RAV) of £2.03 billion and £2.07 billion respectively. In addition the WPD South West and WPD South Wales operations had RAV of £1.28 billion and £0.89 billion respectively. In total Western Power Distribution have a total RAV of £6.26 billion making it the largest electricity network operator in the United Kingdom by RAV. The combined fixed asset values of the unregulated entities totalled £0.2bn as at 31 March 2015, predominantly property assets.

Potential investors are also referred to the section entitled “Combined Operating Activities of WPDE, WPDW, WPD South West and WPD South Wales” within the section entitled “Risk Factors”.

Regulation applying to the Distribution Companies

Licences

The distribution licences held by WPDE, WPDW, WPD South West and WPD South Wales authorise the licencees to distribute electricity for the purpose of providing a supply in Great Britain with additional obligations under Section B of the distribution licence for any premises in the distribution services area specified in the distribution licence. The licence exists in perpetuity, and can only be revoked by Ofgem (giving no less than 25 years’ notice) or by breach of licence. A failure of a Distribution Company to comply with its licence could lead to an enforcement order being issued by Ofgem. Ofgem has the power to levy fines of up to 10 per cent. of turnover for any breach. In certain circumstances i.e. insolvency, the distribution licence itself may be revoked. The licences provide for a distribution services area, equating to the former authorised area of the former public electricity suppliers in the East Midlands and West Midlands areas the South West of England and South Wales, respectively, in which the respective licensee has certain specific distribution services obligations.

Under the Electricity Act 1989 (as amended), an electricity distributor has a duty, except in certain circumstances, to make a connection between its distribution system and any premises within the designated area for the purpose of enabling electricity to be conveyed to or from the premises and to make a connection between its distribution system and any distribution system of another authorised distributor, for the purpose of enabling electricity to be conveyed to or from that other system.

 

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Each DNO is a regional monopoly and its operations are regulated by its distribution licence. Each DNO is subject to annual limits on its regulated revenues and the quality of supply it must provide, and is provided with financial incentives to minimise its costs and improve the service it provides to its customers.

Distribution Price Controls

Distribution price controls are intended to provide companies with sufficient revenues to allow them to finance their efficient operating costs and capital investment. In addition to setting revenues, the price controls also include targets for the overall quality of network performance based upon the average number and duration of supply outages experienced by customers. Companies can be either rewarded or penalised for exceeding or failing these targets.

The charges made for the use of the distribution network are regulated on the basis of annually profiled revenues adjusted for RPI. The RPI is a measure of inflation and in RIIO-ED1 prices are set using a forecast of RPI; subsequently reconciled 2 years later for the actual RPI observed.

It is then for DNOs to develop a charging regime in accordance with Ofgem’s approved methodology in order to recover from suppliers an amount up to the allowed revenue. Historically, these tariffs have been a matter for each company individually but Ofgem has implemented licence conditions which compel distributors to work together and set tariffs based upon a common methodology.

The current RIIO-ED1 was agreed with Ofgem in May 2014 for the period 1 April 2015 to 31 March 2023. This has resulted in a reduction in the price for the distribution of electricity in the first year of RIIO-ED1. The decreases, before taking into account inflation are 9.1 per cent. for WPDE, 9.4 per cent. for WPDW and respective decreases of 17.5 per cent. and 23.8 per cent. for South West and South Wales. For the remaining seven years of RIIO-ED1 the revenues increase annually. All of these annual movements will have RPI inflation applied to them.

DNOs must also meet the Guaranteed Standards of Performance, which are set by Ofgem to ensure an appropriate level of quality of supply. If a company fails to provide the level of service specified, it must make a fixed payment to the end user affected.

The objective of RIIO is to drive real benefits for consumers; providing companies with strong incentives to meet the challenges of delivering a sustainable energy sector at a lower cost. The RIIO model has been implemented for transmission (RIIO-T1) and gas distribution (RIIO-GD1) price controls since April 2013 and comes into effect for electricity distribution (RIIO-ED1) from 1 April 2015.

Key elements of the regulation of electricity distribution businesses in RIIO-ED1 and beyond, include:

 

(a)	8 year price controls with mid-point reviews restricted to outputs and whether they remain appropriate;

 

(b)

the RIIO-ED1 price control will include an Annual Iteration Process. This will allow base revenues to be updated during the price control for financial adjustments covering tax, pension deficit payments and the cost of debt allowed to be recovered in revenues, adjustments relating to actual and allowed total expenditure and the “Totex Incentive Mechanism” and legacy price control adjustments from preceding price control periods. Under the proposed Annual Iteration Process, the financial model used to calculate base revenue is re-run using a series of revised input values. This process calculates an incremental change to base revenue, the “MOD” term, which would be advised by 30 November preceding each regulatory year;

 

(c)	more closely aligned regulatory and physical asset lives on new assets purchased after 2015. This resulted in a decision to extend the regulatory depreciation lives for new expenditure on assets installed after 1 April 2015 from 20 years to 45 years over the course of RIIO-ED1;

 

(d)

the introduction of a proportionate treatment concept where the degree of scrutiny of licence holders’ business plans for any forthcoming price control period is related to the quality of the business plan and records of previous performance, with the possibility of the some companies achieving limited scrutiny and an early settlement decision (to be known as a “Fast Track” decision); and

 

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(e)

more clarity around the cost of capital and capitalisation policies at the beginning of the review period as well as recognising the role of equity in financing network businesses, together with a move to a rolling cost of debt allowance based on trailing averages of corporate bond indices. The cost of equity for each of the Distribution Companies is 6.4 per cent. As fast tracked companies, the cost of debt for the Distribution Companies is calculated from a 10 year rolling average of real rates that will be determined from the arithmetical average of the iBoxx A-rated and BBB-rated non-financial indices (of eligible bonds greater than 10 years) less the implied 10-year gilt inflation break evens published daily by the Bank of England. For the first year of the RIIO-ED1 period the cost of debt for the Distribution Companies has been set at 2.55 per cent..

The WPD business plan, covering all four DNOs, can be found on the WPD website, www.westernpower.co.uk. The comprehensive plan provides details of the level of investment, the improvements in customer service, the financing requirements, etc. that will occur within the RIIO-ED1 period.

Description of the Western Power Distribution Business

Key Strengths

The business of the WPD Group has a number of strengths, deriving both from the commercial strength of the business, and from the status of the Distribution Companies as regulated monopoly distributors of electricity. The key strengths of the business of the WPD Group are based on:

 

(a)	a stable, well established transparent regulatory regime;

 

(b)	strong and predictable operating cash flow;

 

(c)	no volume risk;

 

(d)	inflation linked earnings and asset base;

 

(e)	positive cash flow generation before financing;

 

(f)	industry leading delivery of Ofgem output targets; and

 

(g)	accurate forecasting and efficient delivery of investment programmes.

Strategy

Monitoring the satisfaction of end users connected to the network with the quality of supply provided is a key element of the Western Power Distribution strategy. Each Western Power Distribution entity aims to meet or exceed all the performance criteria established by Ofgem. Network performance is measured by two key criteria:

 

(a)	availability: the number of customer minutes lost per connected customer (CML); and

 

(b)	security: the number of supply interruptions (if greater than 3 minutes) recorded per 100 connected customers (CI).

All licensees who operate a distribution system are required to report annually to Ofgem on their performance in maintaining system security and availability. The IIS incentive scheme financially incentivises all licensees including WPDE, WPDW, WPD South West and WPD South Wales with respect to both key measures of supply delivered to customers. Ofgem also incentivises the quality of telephone response the customer receives when they contact the licensees, which is assessed by a customer survey carried out on a monthly basis.

 

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For the year 2014/15, the reported adjusted minutes lost per customer and the adjusted interruptions per 100 customers for each of the four companies was:

 

		WPD   South West				WPD   South Wales				WPD   East Midlands				WPD   West Midlands
		CI		CML		CI		CML		CI		CML		CI		CML
OFGEM   IIS Target 2014/15		73.6		51.0		79.5		44.6		75.7		67.8		109.9		94.2
IIS Outturn 2014/15		51.3		38.9		56.5		30.4		46.0		22.9		69.8		34.3
% Out Performance		30.3%		23.7%		28.9%		31.8%		39.2%		66.0%		36.5%		63.6%

(Figures subject to Ofgem audit)

In addition to this 83.2 per cent, of customers off supply in the South West as a result of a High Voltage fault were restored within one hour of a fault occurring with the figure being 84.3 per cent. for South Wales, 90.3 per cent. for WPDE and 91.1 per cent. for WPDW. These figures place the WPD Group as one of the highest performers of any of the UK DNOs.

The Energy Ombudsman has the role of complaint handling and customer representation for the electricity sector in the United Kingdom and replaced energywatch in October 2008. Western Power Distribution’s strategy has been and will be to position itself as number one for fewest complaints to either The Energy Ombudsman or its successor.

Customer Information

WPDE’s network, which consists of approximately 51,000 kilometres of underground cables and 22,000 kilometres of overhead line (as at 31 March 2015), distributed 26.4 terawatt hours of electricity in the year ended 31 March 2015 to approximately 2.6 million end customers. While over 99 per cent, of these end users are domestic premises and smaller businesses, this group accounts for 62 per cent. of revenues and 52 per cent. of units distributed (for the year ended 31 March 2015). WPDE has approximately 12,000 larger customers as of 31 March 2015 (large commercial and industrial customers based on consumption above 100kW and half hourly metering) who account for the remaining 38 per cent. of revenues and 48 per cent. of units distributed (for the year ended 31 March 2015).

WPDW’s network, which consists of approximately 40,000 kilometres of underground cables and 24,000 kilometres of overhead line (as at 31 March 2015), distributed 23.6 terawatt hours of electricity in the year ended 31 March 2015 to approximately 2.5 million end customers. While over 99 per cent. of these end users are domestic premises and smaller businesses, this group accounts for 63 per cent. of revenues and 55 per cent. of units distributed (for the year ended 31 March 2015). WPDW has approximately 11,000 larger customers as of 31 March 2015 (large commercial and industrial customers based on consumption above 100kW and half hourly metering) who account for the remaining 37 per cent. of revenues and 45 per cent. of units distributed (for the year ended 31 March 2015).

WPD South West’s network, which consists of approximately 23,000 kilometres of underground cables and 28,000 kilometres of overhead line (as at 31 March 2015), distributed 13.7 terawatt hours of electricity in the year ended March 2015 to approximately 1.6 million end customers. While over 99 per cent. of these end users are domestic premises and smaller businesses, this group accounts for 74 per cent. of revenues and 62 per cent. of units distributed (for the year ended 31 March 2015). WPD South West has approximately 5,900 larger customers as of 31 March 2015 (large commercial and industrial customers based on consumption above 100kW and half hourly metering) who account for the remaining 26 per cent. of revenues and 38 per cent. of units distributed (for the year ended 31 March 2015).

 

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WPD South Wales’ network, which consists of approximately 18,000 kilometres of underground cables and 18,000 kilometres of overhead line (as at 31 March 2015), distributed 11.3 terawatt hours of electricity in the year ended 31 March 2015 to approximately 1.1 million end customers. While over 99 per cent. of these end users are domestic premises and smaller businesses, this group accounts for 65 per cent. of revenues and only 46 per cent. of units distributed (for the year ended 31 March 2015). WPD South Wales has approximately 4,100 larger customers as of 31 March 2015 (large commercial and industrial customers based on consumption above 100kW and half hourly metering) who account for the remaining 35 per cent. of revenues and 54 per cent. of units distributed (for the year ended 31 March 2015).

Distribution Facilities

Electricity is transported across National Grid Electricity Transmission plc’s transmission system at 400kV or 275kV to 14 Grid Supply Points (GSPs) connected to WPDE’s distribution network and 18 GSPs connected to WPDW’s network, and 11 GSPs connected to both the WPD South West and WPD South Wales networks, where it is transformed to 132kV and enters Western Power Distribution’s distribution systems. Substantially all electricity that enters Western Power Distribution’s system is received at these 54 GSPs. (As at 31 March 2015).

Whilst Western Power Distribution supplies some 7.8 million connected customers, revenue is derived via some 49 electricity suppliers operating in Western Power Distribution’s area with the following market shares as of March 2015:

 

Operation and control of Western Power Distribution’s distribution systems are continuously monitored and coordinated from three control centres located on the outskirts of Birmingham for the West Midlands, near Nottingham for the East Midlands and for the outskirts of Cardiff for the South West and South Wales. Electricity is received by end users at various voltages depending upon their requirements.

 

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DIRECTORS AND SENIOR MANAGEMENT OF THE ISSUER

 

Board of Directors of the Issuer

The Board of Directors of the Issuer determines the Issuer’s long-term strategy, to ensure that the Issuer acts ethically and has the necessary resources to meet its objectives, to monitor performance, and to ensure the Issuer meets its responsibilities as a leading power distribution company.

The current directors and secretary of the Issuer are set out below.

 

Name		Position		Principal non-Group activities
R A Symons		Chief Executive Officer		None
D C S Oosthuizen		Group Finance Director		None
I R Williams		Resources and External Affairs Director		None
P Swift		Operations Director		None
W H Spence		Non-Executive Director		Chairman, President and Chief Executive Officer, PPL Corporation
V Sorgi		Non-Executive Director		Senior Vice President and Chief Financial Officer, PPL Corporation
M F Wilten		Non-Executive Director		Vice President, Treasurer, and Chief Risk Officer, PPL Corporation
A J Torok		Non-Executive Director		Vice President, PPL Services
S K Breininger		Non-Executive Director		Vice President and Controller, PPL Corporation
Sally Jones		Company Secretary		None

 

The business address of each of the Directors is Avonbank, Feeder Road, Bristol BS2 0TB. No Director has any actual or potential conflict of interest between WPD and his private interests and/or other duties.

 

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TERMS AND CONDITIONS OF THE NOTES

The following are the terms and conditions of the Notes which (subject to modification) will be endorsed on each Note in definitive form:

The GBP500,000,000 3.625 per cent. Notes due 6 November 2023 (the Notes, which expression includes any further notes issued pursuant to Condition 14 (Further issues) and forming a single series therewith are constituted by, are subject to, and have the benefit of, a trust deed dated on or around 6 November 2015 (as amended or supplemented from time to time, the Trust Deed) between Western Power Distribution plc (the Issuer) and HSBC Corporate Trustee Company (UK) Limited (the Trustee, which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the Noteholders (as defined below). These terms and conditions (the Conditions) include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Notes and Coupons referred to below. An Agency Agreement dated on or around 6 November 2015 (as amended or supplemented from time to time) has been entered into in relation to the Notes between the Issuer, the Trustee, HSBC Bank Plc as principal paying agent and the other agents named in it. The principal paying agent and the other paying agents for the time being (if any) are referred to below respectively as the Principal Paying Agent and the Paying Agents (which expression shall include the Principal Paying Agent). Copies of the Trust Deed, the Agency Agreement and the Prospectus are available for inspection during usual business hours at the specified offices of the Paying Agents.

The Noteholders and the holders of the interest coupons (the Coupons) (the Couponholders) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of those provisions applicable to them of the Agency Agreement.

 

1.	Form, Denomination and Title

The Notes are issued in bearer form serially numbered, in the denominations of £100,000 and integral multiples of £1,000 in excess thereof, up to and including £199,000, each with Coupons attached on issue. Notes of one denomination may not be exchanged for Notes of any other denomination.

Title to the Notes and the Coupons shall pass by delivery. Except as ordered by a court of competent jurisdiction or as required by law, the holder (as defined below) of any Note or Coupon shall be deemed to be and may be treated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it, any writing on it or its theft or loss and no person shall be liable for so treating the holder.

In these Conditions, Noteholder means the bearer of any Note, holder (in relation to a Note or Coupon) means the bearer of any Note or Coupon.

 

2.

Status

The Notes and the Coupons relating to them constitute direct, general, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and the Coupons relating to them shall, save for such exceptions as may be provided by applicable legislation, at all times rank at least equally with all other unsecured and unsubordinated indebtedness of the Issuer present and future.

 

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3.	Negative Pledge

Save with the prior written consent of the Trustee, the Issuer shall not, so long as any Note remains outstanding, create or permit to subsist any encumbrance (unless arising by operation of law) or other security interest whatsoever over any of its assets or undertaking.

 

4.	Interest and other Calculations

Each Note bears interest on its outstanding principal amount from 6 November 2015 (the Issue Date) at the rate per annum (expressed as a percentage) equal to the Rate of Interest, such interest being payable in arrear on 6 November in each year (each, an Interest Payment Date), subject as provided in Condition 6 (Payments).

 

(a)	Accrual of Interest:

Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall continue to accrue (both before and after judgment) at the Rate of Interest in the manner provided in this Condition 4 (Interest and other Calculations) to the Relevant Date (as defined in Condition 7 (Taxation)).

 

(b)	Calculations:

The amount of interest payable on each Interest Payment Date shall be GBP 36.25 per Calculation Amount in respect of any Note or GBP 48.75 per Calculation Amount in respect of any Note following a Step-Up Event and for an Interest Period to which the higher rate of interest applies. If interest is required to be paid in respect of a Note on any other date, it shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by the relevant Day Count Fraction, rounding the resulting figure to the nearest penny (half a penny being rounded upwards) and multiplying such rounded figure by a fraction equal to the denomination of such Note divided by the Calculation Amount.

 

(c)	Definitions:

In these Conditions, unless the context otherwise requires, the following defined terms shall have the meanings set out below:

Business Day means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in London.

Calculation Amount means GBP 1,000.

Day Count Fraction means, in respect of any period, the number of days in the relevant period, from (and including) the first day in such period to (but excluding) the last day in such period, divided by the number of days in the Interest Period in which the relevant period falls.

Interest Amount means in respect of an Interest Accrual Period, the amount of interest payable per Calculation Amount for that Interest Accrual Period and which, in the case of Fixed Rate Notes, shall mean the Fixed Coupon Amount or Broken Amount as being payable on the Interest Payment Date ending the Interest Period of which such Interest Accrual Period forms part.

Interest Period means the period beginning on and including the Issue Date and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date.

Rate of Interest means 3.625 per cent., provided that if a Step-up Event has occurred and is continuing, the Rate of Interest shall be calculated as the aggregate of 3.625 per cent. plus 1.25 per cent. from and including the Interest Payment Date immediately following the occurrence of that Step-up Event, provided further that the Rate of Interest shall revert to 3.625 from and including the Interest Payment Date immediately following the date on which the relevant Step-up Event ceases to be continuing, and the Rate of Interest shall not be affected by any subsequent Step-up Event thereafter.

 

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Step-up Event means that the then current rating assigned to the Rated Securities by any Rating Agency (whether provided by a Rating Agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced to a non-investment grade rating (BB+/Bal, or their respective equivalents for the time being, or worse), for any reason other than as a result of an event falling within paragraph (A) of the definition of Restructuring Event set out in Condition 5(d) (Redemption at the Option of Noteholders).

 

5.	Redemption, Purchase and Options

 

(a)	Final Redemption:

Unless previously redeemed, purchased and cancelled as provided below, each Note shall be finally redeemed on the Maturity Date at its principal amount.

 

(b)	Redemption for Taxation Reasons:

The Notes may be redeemed at the option of the Issuer in whole, but not in part, on any Interest Payment Date on giving not less than 30 nor more than 60 days’ notice to the Trustee and the Noteholders in accordance with Condition 15 (Notices) (which notice shall be irrevocable) at their principal amount (together with interest accrued to the date fixed for redemption), if (i) the Issuer satisfies the Trustee immediately before the giving of such notice that it has or will become obliged to pay additional amounts as described under Condition 7 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the United Kingdom or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the Notes, and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this Condition 5(b) (Redemption for Taxation Reasons), the Issuer shall deliver to the Trustee a certificate signed by two directors of the Issuer stating that the obligation referred to in (i) above cannot be avoided by the Issuer taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate (without any further investigation) as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above, in which event it shall be conclusive and binding on Noteholders and Couponholders.

All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition.

 

(c)	Redemption at the Option of the Issuer:

The Issuer may, on giving not less than 15 nor more than 30 days’ irrevocable notice to the Trustee and the Noteholders redeem all or some of the Notes on any Interest Payment Date. Any such redemption of Notes shall be at their Early Redemption Amount together with interest accrued up to (and including) the date fixed for redemption.

For the purposes of these Conditions, Early Redemption Amount means an amount equal to the principal amount of that Note then outstanding multiplied by the higher of: (A) 1; and (B) the price expressed as a percentage and determined by an internationally recognised investment bank based in London acting as financial adviser (selected by the Issuer and notified in writing to the Trustee) at which the Gross Redemption Yield (as defined below) on such Notes on the Reference Date (as defined below) is equal to the Gross Redemption Yield at 3.00 p.m. (London time) on the Reference Date on the Reference Gilt (as defined below) while that stock is in issue, and thereafter such UK government stock as the Issuer may, with the advice of three persons operating in the gilt-edged market (selected by the Issuer and notified in writing to the Trustee) determine to be appropriate, plus accrued but unpaid interest on the principal amount of that Note then outstanding.

 

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For the purposes of this Condition, Gross Redemption Yield means a yield expressed as a percentage and calculated on a basis consistent with the basis indicated by the United Kingdom Debt Management Office publication “Formulae for Calculating Gilt Prices from Yields” published on 8 June 1998 with effect from 1 November 1998 and updated on 16 March 2005, page 5 or any replacement therefor and, for the purposes of such calculation, the date of redemption of the relevant Notes shall be the Final Maturity Date; Reference Date means the date which is two Business Days prior to the despatch of the notice of redemption under this Condition; and Reference Gilt means the Treasury stock whose modified duration most closely matches that of the Notes on the Reference Date determined by agreement of three persons operating in the gilt-edged market (selected by the Issuer and notified in writing to the Trustee).

All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition.

In the case of a partial redemption of the Notes pursuant to this Condition, such Notes to be redeemed shall be drawn by lot in London, or identified in such other manner or in such other place as the Issuer deems appropriate and fair, subject always to compliance with all applicable laws and the requirements of each listing authority, stock exchange and/or quotation system (if any) by which the Notes may have been admitted to listing, trading and/or quotation.

 

(d)	Redemption at the Option of Noteholders:

 

(i)

 

(a)

If, at any time while any of the Notes remains outstanding, a Restructuring Event (as defined below) occurs and prior to the commencement of or during the Restructuring Period (as defined below):

 

(A)

an independent financial adviser (as described below) shall have certified in writing to the Trustee that such Restructuring Event will not be or is not, in its opinion, materially prejudicial to the interests of the Noteholders; or

 

(B)

if there are Rated Securities (as defined below), each Rating Agency (as defined below) that at such time has assigned a current rating to the Rated Securities confirms in writing to the Issuer at its request (which it shall make as set out below) that it will not be withdrawing or reducing the then current rating assigned to the Rated Securities by it from an investment grade rating (BBB-/Baa3, or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Bal, or their respective equivalents for the time being, or worse) or, if the Rating Agency shall have already rated the Rated Securities below investment grade (as described above), the rating will not be lowered by one full rating category or more, in each case as a result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event,

the following provisions of this Condition 5(d) (Redemption at the Option of Noteholders) shall cease to have any further effect in relation to such Restructuring Event.

 

(b)

If, at any time while any of the Notes remains outstanding, a Restructuring Event occurs and (subject to Condition 5(d)(i)(a)):

 

(A)

within the Restructuring Period, either:

 

(i)

if at the time such Restructuring Event occurs there are Rated Securities, a Rating Downgrade (as defined below) in respect of such Restructuring Event also occurs; or

 

(ii)

if at such time there are no Rated Securities, a Negative Rating Event (as defined below) in respect of such Restructuring Event also occurs; and

 

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(B)

an independent financial adviser shall have certified in writing to the Trustee that such Restructuring Event is, in its opinion, materially prejudicial to the interests of the Noteholders (a Negative Certification),

then, unless at any time the Issuer shall have given notice under Condition 5(c) (Redemption at the Option of the Issuer), the holder of each Note will, upon the giving of a Put Event Notice (as defined below), have the option (the Put Option) to require the Issuer to redeem or, at the option of the Issuer, purchase (or procure the purchase of) that Note on the Put Date (as defined below), at its principal amount outstanding together with (or, where purchased, together with an amount equal to) interest (if any) accrued to (but excluding) the Put Date.

A Restructuring Event shall be deemed not to be materially prejudicial to the interests of the Noteholders if, notwithstanding the occurrence of a Rating Downgrade or a Negative Rating Event, the rating assigned to the Rated Securities by any Rating Agency (as defined below) is subsequently increased to, or, as the case may be, there is assigned to the Notes or other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more by any Rating Agency, an investment grade rating (BBB-/Baa3) or their respective equivalents for the time being) or better prior to any Negative Certification being issued.

Any Negative Certification shall be conclusive and binding on the Trustee, the Issuer and the Noteholders. The Issuer may, at any time, with the approval of the Trustee appoint an independent financial adviser for the purposes of this Condition 5(d) (Redemption at the Option of Noteholders). If, within five Business Days following the occurrence of a Rating Downgrade or a Negative Rating Event, as the case may be, in respect of a Restructuring Event, the Issuer shall not have appointed an independent financial adviser for the purposes of Condition 5(d)(i)(b)(B) and (if so required by the Trustee) the Trustee is indemnified and/or prefunded and/or secured by the Issuer to its satisfaction against the costs of such adviser, the Trustee may appoint an independent financial adviser for such purpose following consultation with the Issuer.

 

(ii)

Promptly upon the Issuer becoming aware that a Put Event (as defined below) has occurred, and in any event not later than 14 days after the occurrence of a Put Event, the Issuer shall, give notice (a Put Event Notice) to the Noteholders in accordance with Condition 15 (Notices) specifying the nature of the Put Event and the procedure for exercising the Put Option.

 

(iii)

To exercise the Put Option, the holder of a Note must comply with the provisions of Condition 5(d) (Redemption at the Option of Noteholders). The applicable notice period for the purposes of Condition 5(d) (Redemption at the Option of Noteholders) shall be the period (the Put Period) of 45 days after that on which a Put Event Notice is given. Subject to the relevant Noteholder having complied with Condition 5(d) (Redemption at the Option of Noteholders), the Issuer shall redeem or, at the option of the Issuer, purchase (or procure the purchase of) the relevant Note on the fifteenth day after the date of expiry of the Put Period (the Put Date) unless previously redeemed or purchased.

 

(iv)

For the purposes of these Conditions:

 

(a)

Distribution Licence means an electricity distribution licence granted under section 6(1)(c) of the Electricity Act 1989 (as amended by section 30 of the Utilities Act 2000 and from time to time).

 

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(b)

Distribution Services Area means, in respect of any Distribution Company, the area specified as such in the relevant Distribution Licence granted to it on 1 October 2001, as of the date of such Distribution Licence.

 

(c)

A Negative Rating Event shall be deemed to have occurred if (1) the Issuer does not, either prior to or not later than 14 days after the date of the relevant Restructuring Event, seek, and thereupon use all reasonable endeavours to obtain, a rating of the Notes or any other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more from a Rating Agency or (2) if it does so seek and use such endeavours, it is unable, as a result of such Restructuring Event, to obtain such a rating of at least investment grade (BBB-/Baa3, or their respective equivalents for the time being).

 

(d)

A Put Event occurs on the date of the last to occur of (1) a Restructuring Event, (2) either a Rating Downgrade or, as the case may be, a Negative Rating Event and (3) the relevant Negative Certification.

 

(e)

Rating Agency means Standard & Poor’s Credit Market Services Europe Limited or any of its subsidiaries and their successors (Standard & Poor’s) or Moody’s Investors Service Ltd. or any of its subsidiaries and their successors (Moody’s) or any rating agency substituted for any of them (or any permitted substitute of them) by the Issuer from time to time with the prior written approval of the Trustee.

 

(f)

A Rating Downgrade shall be deemed to have occurred in respect of a Restructuring Event if the then current rating assigned to the Rated Securities by any Rating Agency (or any other rating provided by a rating agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced from an investment grade rating (BBB-/Baa3), or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Bal), or their respective equivalents for the time being, or worse) or, if the rating agency shall then have already rated the Rated Securities below investment grade (as described above), the rating is lowered one full rating category or more.

 

(g)

Rated Securities means the Notes, if at any time and for so long as they have a rating from a Rating Agency, and otherwise any other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more which is rated by a rating agency;

 

(h)

Restructuring Event means the occurrence of any one or more of the following events:

 

		(A)		(i)		the Secretary of State for Business, Innovation and Skills (or any successor) giving any of the Distribution Companies a written notice of any revocation of its Distribution Licence; or

 

(ii)

any of the Distribution Companies agreeing in writing with the Secretary of State for Business, Innovation and Skills (or any successor) to any revocation or surrender of its Distribution Licence; or

 

(iii)

any legislation (whether primary or subordinate) being enacted which terminates or revokes the Distribution Licence of any of the Distribution Companies;

 

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except, in each such case, in circumstances where a licence or licences on substantially no less favourable terms is or are granted to the Issuer or a wholly-owned subsidiary of the Issuer; or

 

(B)

any modification (other than a modification which is of a formal, minor or technical nature or to correct a manifest error) being made to the terms and conditions upon which a Distribution Company is authorised and empowered under relevant legislation to distribute electricity in the Distribution Services Area unless two directors of such Distribution Company have certified to the Trustee that the modified terms and conditions are not materially less favourable to the business of that Distribution Company; or

 

(C)

any legislation (whether primary or subordinate) is enacted which removes, qualifies or amends (other than an amendment which is of a formal, minor or technical nature or to correct a manifest error) the duties of the Secretary of State for Business, Innovation and Skills (or any successor) and/or the Gas and Electricity Markets Authority (or any successor) under section 3A of the Electricity Act 1989 (as amended by the Utilities Act 2000) (as this may be amended from time to time) unless two directors of each Distribution Company have certified in good faith to the Trustee that such removal, qualification or amendment does not have a materially adverse effect on the financial condition of such Distribution Company; or

 

(D)

the Issuer ceases to be a direct or indirect subsidiary of PPL Corporation.

 

(i)

Restructuring Period means:

 

(A)

if at the time a Restructuring Event occurs there are Rated Securities, the period of 90 days starting from and including the day on which that Restructuring Event occurs; or

 

(B)

if at the time a Restructuring Event occurs there are no Rated Securities, the period starting from and including the day on which that Restructuring Event occurs and ending on the day 90 days following the later of (aa) the date (if any) on which the Issuer shall seek to obtain a rating as contemplated by the definition of Negative Rating Event; (bb) the expiry of the 14 days referred to in the definition of Negative Rating Event and (cc) the date on which a Negative Certification shall have been given to the Trustee in respect of that Restructuring Event.

 

(j)

A Rating Downgrade or a Negative Rating Event or a non-investment grade rating shall be deemed not to have occurred as a result or in respect of a Restructuring Event if the Rating Agency making the relevant reduction in rating or, where applicable, refusal to assign a rating of at least investment grade as provided in this Condition 5(d) (Redemption at the Option of Noteholders), does not announce or publicly confirm or inform the Issuer in writing at its request (which it shall make as set out in the following paragraph) that the reduction or, where applicable, declining to assign a rating of at least investment grade, was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event.

The Issuer undertakes to contact the relevant Rating Agency immediately following that reduction, or, where applicable the refusal to assign a rating of at least investment grade, to confirm whether that reduction or refusal to assign a rating of at least investment grade was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event. The Issuer shall notify the Trustee immediately upon receipt of any such confirmation from the relevant Rating Agency.

 

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(e)	Redemption on disposal of a Distribution Company:

If a Disposal Event (as defined below) occurs, the Issuer shall, on giving not less than 15 nor more than 30 days’ irrevocable notice to the Trustee and the Noteholders redeem all of the Notes. Any such redemption of the Notes shall be at the Early Redemption Amount together with interest accrued up to (and including) the date fixed for redemption.

For the purposes of these Conditions:

 

(i)

Disposal means the Issuer ceasing directly or indirectly to:

 

(A)

own more than 51 per cent. of the economic rights of any Distribution Company;

 

(B)

have the right to cast more than 51 per cent. of the votes capable of being cast in general meetings of any Distribution Company; or

 

(C)

have the ability to determine the composition of the majority of the board of directors or equivalent body of any Distribution Company.

 

(ii)

Disposal Event means the occurrence of (i) a Disposal and (ii) during the Disposal Period, a Rating Downgrade.

 

(iii)

Disposal Period means the period of 90 days starting from and including the day on which that Disposal occurs.

 

(iv)

A Rating Downgrade shall be deemed to have occurred in respect of a Disposal if the then current rating assigned to the Notes by any Rating Agency (or any other rating provided by a rating agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced from an investment grade rating (BBB-/Baa3), or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Bal), or their respective equivalents for the time being, or worse) or, if the rating agency shall then have already rated the Notes below investment grade (as described above), the rating is lowered one full rating category or more.

 

(f)	Purchases:

The Issuer or its subsidiaries may at any time purchase Notes (provided that all unmatured Coupons are attached thereto or surrendered therewith) in the open market or otherwise at any price.

 

(g)	Cancellation:

All Notes purchased by or on behalf of the Issuer or its subsidiaries may be surrendered for cancellation by surrendering each such Note together with all unmatured Coupons to the Principal Paying Agent and, in each case, if so surrendered, shall, together with all Notes redeemed by the Issuer, be cancelled forthwith (together with all unmatured Coupons attached thereto or surrendered therewith). Any Notes so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer in respect of any such Notes shall be discharged.

 

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6.

Payments

Payments of principal and interest in respect of the Notes shall, subject as mentioned below, be made against presentation and surrender of the relevant Notes (in the case of all payments of principal and, in the case of interest, as specified in Condition 6(c)(ii) (Unmatured Coupons)) or Coupons (in the case of interest, save as specified in Condition 6(c)(ii) (Unmatured Coupons)), as the case may be, at the specified office of any Paying Agent outside the United States by a transfer to an account denominated in such currency with, a bank in London.

 

(a)	Payments subject to Fiscal Laws:

All payments are subject in all cases to (i) any applicable fiscal or other laws, regulations and directives in the place of payment, but without prejudice to the provisions of Condition 7 (Taxation) and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the Code) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or (without prejudice to Condition 7 (Taxation)) any law implementing an intergovernmental approach thereto. No commission or expenses shall be charged to the Noteholders or Couponholders in respect of such payments.

 

(b)	Appointment of Agents:

The Principal Paying Agent and the Paying Agents initially appointed by the Issuer are listed in the Agency Agreement. The Principal Paying Agent and the Paying Agents act solely as agents of the Issuer and do not assume any obligation or relationship of agency or trust for or with any Noteholder or Couponholder. The Issuer reserves the right at any time with the approval of the Trustee to vary or terminate the appointment of the Principal Paying Agent or any other Paying Agent and to appoint additional or other Paying Agents provided that the Issuer shall at all times maintain (i) a Principal Paying Agent, (ii) such other agents as may be required by any other stock exchange on which the Notes may be listed in each case, as approved by the Trustee and (iii) a Paying Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC.

Notice of any such change or any change of any specified office shall promptly be given to the Noteholders.

 

(c)	Unmatured Coupons:

 

(i)

Upon the due date for redemption of the Notes, the Notes should be surrendered for payment together with all unmatured Coupons (if any) relating thereto, failing which an amount equal to the face value of each missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the amount of such missing unmatured Coupon that the sum of principal so paid bears to the total principal due) shall be deducted from the principal amount outstanding, Early Redemption Amount or Optional Redemption Amount, as the case may be, due for payment. Any amount so deducted shall be paid in the manner mentioned above against surrender of such missing Coupon within a period of 10 years from the Relevant Date for the payment of such principal (whether or not such Coupon has become void pursuant to Condition 8 (Prescription)).

 

(ii)

If the due date for redemption of any Note is not a due date for payment of interest, interest accrued from the preceding Interest Payment Date or the Issue Date, as the case may be, shall only be payable against presentation (and surrender if appropriate) of the relevant Note.

 

(d)	Non-Business Days:

If any date for payment in respect of any Note or Coupon is not a business day, the holder shall not be entitled to payment until the next following business day nor to any interest or other sum in respect of such postponed payment. In this paragraph, business day means a day (other than a Saturday or a Sunday) on which banks are open for presentation and payment of debt securities and for dealings in foreign currency in the relevant place of presentation in London.

 

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7.

Taxation

All payments of principal and interest by or on behalf of the Issuer in respect of the Notes, and the Coupons shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the United Kingdom or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as shall result in receipt by the Noteholders and Couponholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable with respect to any Note or Coupon:

 

(a)

Other connection:

to, or to a third party on behalf of, a holder who is liable for such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of his having some connection with the United Kingdom other than the mere holding of the Note or Coupon; or

 

(b)

Lawful avoidance of withholding:

to, or to a third party on behalf of, a holder who could lawfully avoid (but has not so avoided) such deduction or withholding by complying or procuring that any third party complies with any reasonable written request of the Issuer or the Principal Paying Agent or any other Paying Agent addressed to the Noteholders and made at least 30 days before any such deduction or withholding would be payable to comply with any statutory requirements or make or procure that any third party makes a declaration of non-residence or other similar claim for exemption to any tax authority in the place where the relevant Note or Coupon is presented for payment; or

 

(c)

Presentation more than 30 days after the Relevant Date:

presented or surrendered for payment more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such additional amounts on presenting it for payment on the thirtieth day; or

 

(d)

Payment to individuals:

where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or

 

(e)

Payment by another Paying Agent:

presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union.

As used in these Conditions, Relevant Date in respect of any Note or Coupon means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the Noteholders that, upon further presentation of the Note or Coupon being made in accordance with the Conditions, such payment will be made, provided that payment is in fact made upon such presentation. References in these Conditions to (i) principal shall be deemed to include any premium payable in respect of the Notes Early Redemption Amounts, and all other amounts in the nature of principal payable pursuant to Condition 5 (Redemption, Purchase and Options) or any amendment or supplement to it, (ii) interest shall be deemed to include all Interest Amounts and all other amounts payable pursuant to Condition 4 (Interest and other Calculations) or any amendment

 

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or supplement to it and (iii) principal and/or interest shall be deemed to include any additional amounts that may be payable under this Condition or any undertaking given in addition to or in substitution for it under the Trust Deed.

 

8.	Prescription

Claims against the Issuer for payment in respect of the Notes and Coupons shall be prescribed and become void unless made within 10 years (in the case of principal) or five years (in the case of interest) from the appropriate Relevant Date in respect of them.

 

9.	Events of Default

If any of the following events (Events of Default) occurs and is continuing, the Trustee at its discretion may, and if so requested by holders of at least one-quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution and if indemnified and/or prefunded and/or secured to its satisfaction shall, give notice to the Issuer that the Notes are, and they shall immediately become, due and payable at their outstanding principal amount together (if applicable) with accrued interest:

 

(i)

Non-Payment:

if default is made in the payment of any principal or interest due in respect of the Notes or any of them and the default continues for a period of 14 days in the case of principal and 21 days in the case of interest or, where relevant, the Issuer, having become obliged to redeem, purchase or procure the purchase of (as the case may be) any Notes pursuant to Condition 5 (Redemption, Purchase and Options) fails to do so within a period of 14 days of having become so obliged; or

 

(ii)

Breach of Other Obligations:

the Issuer does not perform, observe or comply with any one or more of its other obligations, covenants, conditions or provisions under the Notes or the Trust Deed and (except where the Trustee shall have certified to the Issuer in writing that it considers such failure to be incapable of remedy in which case no such notice or continuation as is hereinafter mentioned will be required) the failure continues for the period of 30 days next following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or

 

(iii)

Cross-default and Cross-acceleration:

if (A) any indebtedness of the Issuer or any Distribution Company becomes due and repayable prior to its stated maturity by reason of a default or (B) any such indebtedness of the Issuer is not paid when due or, as the case may be, within any applicable grace period (as originally provided) or (C) the Issuer fails to pay when due (or, as the case may be, within any originally applicable grace period) any amount payable by it under any present or future guarantee for, or indemnity in respect of, any indebtedness of any person, provided that the aggregate amount of the relevant indebtedness in respect of which any one or more of the events mentioned above in this paragraph (iii) has or have occurred equals or exceeds £20,000,000;

For the purposes of these Conditions:

“indebtedness” means (i) money borrowed, (ii) liabilities under or in respect of any acceptance or acceptance credit or (iii) any notes, bonds, debentures, debenture stock, loan stock or other securities offered, issued or distributed whether by way of public offer, private placing, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash.

 

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(iv)

Enforcement Proceedings:

a distress, attachment, execution or other legal process is levied, enforced or sued out on or against any substantial part of the property, assets or revenues of the Issuer and is not discharged or stayed within 90 days; or

 

(v)

Insolvency:

the Issuer is (or is, or could be, deemed by law or a court to be) insolvent or bankrupt or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of its debts generally or a material part of a particular type of its debts, proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is agreed or declared or comes into effect in respect of or affecting its debts generally or any part of a particular type of the debts of the Issuer; or

 

(vi)

Winding-up:

(A) an administrator or liquidator is appointed in relation to the Issuer (and, in each case, not discharged within 90 days) or (B) an order is made or an effective resolution passed for the winding-up or dissolution or administration of the Issuer, or (C) the Issuer shall apply or petition for a winding-up or administration order in respect of itself or (D) the Issuer ceases or threatens to cease to carry on all or substantially all of its business or operations, in each case ((A) to (D) inclusive) except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation on terms approved by the Trustee or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders; or

 

(vii)

Nationalisation:

any step is taken by any person with a view to the seizure, compulsory acquisition, expropriation or nationalisation of all or a material part of the assets of the Issuer; or

 

(viii)

Illegality:

it is or will become unlawful for the Issuer to perform or comply with any one or more of its obligations under any of the Notes or the Trust Deed,

provided that in the case of paragraph (ii) the Trustee shall have certified (without liability on its part) that in its opinion such event is materially prejudicial to the interests of the Noteholders.

 

10.	Meetings of Noteholders, Modification, Waiver and Substitution

 

(a)	Meetings of Noteholders:

The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution (as defined in the Trust Deed) of a modification of any of these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by Noteholders holding not less than 10 per cent. in aggregate principal amount of the Notes for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution shall be two or more persons holding or representing not less than 50 per cent. in aggregate principal amount of the Notes for the time being outstanding, or at any adjourned meeting one or more persons being or representing Noteholders whatever the aggregate principal amount of the Notes held or represented, unless the business of such meeting includes consideration of proposals:

 

(i)

to amend the dates of maturity or redemption of the Notes or any date for payment of interest or Interest Amounts on the Notes;

 

(ii)

to reduce or cancel the principal amount of, or any premium payable on redemption of, the Notes;

 

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(iii)

to reduce the rate or rates or amount of interest in respect of the Notes or to vary the method or basis of calculating the rate or rates or amount of interest or the basis for calculating any Interest Amount in respect of the Notes;

 

(iv)

to vary any method of, or basis for, calculating the Early Redemption Amount;

 

(v)

to vary the currency or currencies of payment or denomination of the Notes;

 

(vi)

to sanction the exchange or substitution for the Notes of, or the conversion of the Notes into, shares, bonds or other obligations or securities of the Issuer, whether or not those rights arise under the Trust Deed;

 

(vii)

to amend the definition of Reserved Matter; or

 

(viii)

to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass the Extraordinary Resolution,

(each a Reserved Matter)

in which case the necessary quorum shall be two or more persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in aggregate principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on all Noteholders (whether or not they were present at the meeting at which such resolution was passed) and on all Couponholders.

The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 75 per cent. in principal amount of the Notes outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

 

(b)	Modification of the Trust Deed:

The Trustee may agree, without the consent of the Noteholders or Couponholders, (i) to any modification of any of the provisions of the Trust Deed or the Notes, or Coupons or these Conditions that is of a formal, minor or technical nature or is made to correct a manifest error, or (ii) if in the opinion of the Trustee the interests of the Noteholders will not be materially prejudiced thereby, to any other modification (except in relation to a Reserved Matter), and any waiver or authorisation of any breach or proposed breach of any of the provisions of the Trust Deed or the Notes, or Coupons or these Conditions, or determine that any Event of Default shall not be treated as such. Any such modification, authorisation or waiver shall be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such modification shall be notified to the Noteholders as soon as practicable.

 

(c)	Substitution:

The Trust Deed contains provisions for the substitution of the Issuer. The Trustee may agree, subject to the execution of a deed or undertaking supplemental to the Trust Deed in form and manner satisfactory to the Trustee and such other conditions as the Trustee may require, but without the consent of the Noteholders or the Couponholders, to the substitution of the Issuer’s successor in business in place of the Issuer or of any previous substituted company, as principal debtor under the Trust Deed and the Notes. In the case of such a substitution the Trustee may agree, without the consent of the Noteholders or the Couponholders, to a change of the law governing the Notes, the Coupons, and/or the Trust Deed provided that such change would not in the opinion of the Trustee be materially prejudicial to the interests of the Noteholders.

 

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(d)	Entitlement of the Trustee:

In connection with the exercise of its functions (including but not limited to those referred to in this Condition) the Trustee shall have regard to the interests of the Noteholders as a class and shall not have regard to the consequences of such exercise for individual Noteholders or Couponholders and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders.

 

11.	Enforcement

At any time after the occurrence of an Event of Default which is continuing, and, in the case of paragraph (ii) of Condition 9 (Events of Default) where the Trustee has certified (without liability on its part) that in its opinion such event is materially prejudicial to the interests of the Noteholders, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed, the Notes and the Coupons, but it need not take any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least one-quarter in principal amount of the Notes outstanding, and (b) it shall have been indemnified and/or secured and/or prefunded to its satisfaction. No Noteholder or Couponholder may proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

 

12.	Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility. The Trustee is entitled to enter into business transactions with the Issuer and any entity related to the Issuer without accounting for any profit.

The Trustee may rely without liability on a report, confirmation or certificate or any advice of any accountants, financial advisers, financial institution or any other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation or certificate or advice and such report, confirmation or certificate or advice shall be binding on the Issuer, the Trustee and the Noteholders.

 

13.	Replacement of Notes and Coupons

If a Note or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws, regulations and stock exchange or other relevant authority regulations, at the specified office of the Principal Paying Agent in London or such other Paying Agent as the case may be, as may from time to time be designated by the Issuer for the purpose and notice of whose designation is given to Noteholders, in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence, security and indemnity (which may provide, inter alia, that if the allegedly lost, stolen or destroyed Note or Coupon is subsequently presented for payment, there shall be paid to the Issuer on demand the amount payable by the Issuer in respect of such Notes or Coupons) and otherwise as the Issuer may require. Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.

 

14.	Further Issues

The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects save for the Issue Date, interest commencement date and issue price) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes) or upon such different terms as the Issuer may determine at the time of their issue. References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the

 

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Notes. Any further issues may be constituted by the Trust Deed or any deed supplemental to it. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides.

 

15.

Notices

 Notices to the holders of Notes shall be valid if published in a daily newspaper of general circulation in London (which is expected to be the Financial Times). If in the sole opinion of the Trustee any such publication is not practicable, notice shall be validly given if published in another leading daily English language newspaper with general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which publication is made, as provided above.

Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the holders of Notes in accordance with this Condition.

 

16.	Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

 

17.	Governing Law and Jurisdiction

 

(a)	Governing Law:

The Trust Deed, the Notes and the Coupons and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, English law.

 

(b)	Jurisdiction:

The Courts of England are to have jurisdiction to settle any disputes that may arise out of or in connection with any Notes or Coupons and accordingly any legal action or proceedings arising out of or in connection with any Notes or Coupons may be brought in such courts. The Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of such courts.

 

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PROVISIONS RELATING TO THE NOTES

WHILE REPRESENTED BY THE GLOBAL NOTES

 

1.

Exchange

The Notes will initially be issued in the form of the Temporary Global Note which will be deposited on or around the Closing Date with the Common Safekeeper for Euroclear and Clearstream, Luxembourg.

The Notes will be issued in new global note (NGN) form. On 13 June 2006 the European Central Bank (the ECB) announced that Notes in NGN form are in compliance with the “Standards for the use of EU securities settlement systems in ESCB credit operations” of the central banking system for the euro (the Eurosystem), provided that certain other criteria are fulfilled. At the same time the ECB also announced that arrangements for Notes in NGN form will be offered by Euroclear and Clearstream, Luxembourg as of 30 June 2006 and that debt securities in global bearer form issued through Euroclear and Clearstream, Luxembourg after 31 December 2006 will only be eligible as collateral for Eurosystem operations if the NGN form is used.

The Notes are intended to be held in a manner which would allow Eurosystem eligibility – that is, in a manner which would allow the Notes to be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria.

The Temporary Global Note will be exchangeable in whole or in part for interests in the Permanent Global Note not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. No payments will be made under the Temporary Global Note unless exchange for interests in the Permanent Global Note is improperly withheld or refused. In addition, interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.

The Permanent Global Note will become exchangeable in whole, but not in part, for Notes in definitive form (Definitive Notes) in denominations of GBP 100,000 and integral multiples of GBP 1,000 each in excess thereof, up to and including GBP 199,000 at the request of the bearer of the Permanent Global Note against presentation and surrender of the Permanent Global Note to the Principal Paying Agent if (each, an Exchange Event) (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or (b) any of the circumstances described in Condition 9 (Events of Default) occurs.

So long as the Notes are represented by a Temporary Global Note or a Permanent Global Note and the relevant clearing system(s) so permit, the Notes will be tradeable only in the minimum authorised denomination of GBP 100,000 and higher integral multiples of GBP 1,000, notwithstanding that no Definitive Notes will be issued with a denomination above GBP 199,000.

Whenever the Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons attached, in an aggregate principal amount equal to the principal amount of the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note to or to the order of the Principal Paying Agent within 30 days of the occurrence of the relevant Exchange Event.

 

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In addition, the Temporary Global Note and the Permanent Global Note will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Temporary Global Note and the Permanent Global Note. The following is a summary of certain of those provisions:

 

2.

Payments

All payments in respect of the Temporary Global Note and the Permanent Global Note will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Temporary Global Note or (as the case may be) the Permanent Global Note to or to the order of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Notes. On each occasion on which a payment of principal or interest is made in respect of the Temporary Global Note or (as the case may be) the Permanent Global Note, the Issuer shall procure that the payment is entered pro rata in the records of Euroclear and Clearstream, Luxembourg.

 

3.	Payments on business days

In the case of all payments made in respect of the Temporary Global Note and the Permanent Global Note “business day” means any day which is a day on which dealings in foreign currencies may be carried on in the United Kingdom.

 

4.	Exercise of put option

In order to exercise the option contained in Condition 5(d) (Redemption at the Option of Noteholders) the bearer of the Permanent Global Note must, within the period specified in the Conditions for the deposit of the relevant Note and Put Event Notice, give written notice of such exercise to the Principal Paying Agent specifying the principal amount of Notes in respect of which such option is being exercised. Any such notice will be irrevocable and may not be withdrawn.

 

5.	Partial exercise of call option

In connection with an exercise of the option contained in Condition 5(c) (Redemption at the Option of the Issuer) in relation to some only of the Notes, the Permanent Global Note may be redeemed in part in the principal amount specified by the Issuer in accordance with the Conditions and the Notes to be redeemed in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg (to be reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor or a reduction in principal amount, at their discretion), not more than 30 days prior to the date fixed for redemption.

 

6.

Notices

Notwithstanding Condition 15 (Notices), while all the Notes are represented by the Permanent Global Note (or by the Permanent Global Note and/or the Temporary Global Note) and the Permanent Global Note is (or the Permanent Global Note and/or the Temporary Global Note are) deposited with a Common Safekeeper, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with Condition 15 (Notices) on the date of delivery to Euroclear and Clearstream, Luxembourg.

 

7.	Prescription

Claims against the Issuer in respect of principal, premium and interest on the Notes represented by a Global Note will be prescribed after ten years from the appropriate payment date (in the case of principal and premium) and five years from the relevant Interest Payment Date (in the case of interest).

 

8.	Cancellation

Cancellation of any Note represented by a Global Note and required by the Conditions of the Notes to be cancelled following its redemption or purchase will be effected by endorsement by or on behalf of the Principal Paying Agent of the reduction in the principal amount of the relevant Global Note on the relevant part of the schedule thereto.

 

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9.	Euroclear and Clearstream, Luxembourg

References in the Global Notes and this summary to Euroclear and/or Clearstream, Luxembourg shall be deemed to include references to any other clearing system approved by the Trustee.

 

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TAX CONSIDERATIONS

UK TAXATION

The following applies only to persons who are the absolute beneficial owners of Notes and is a summary of the Issuer’s understanding of current law and HM Revenue & Customs (HMRC) practice in the United Kingdom relating to certain aspects of the taxation of interest in respect of the Notes. It does not necessarily apply where income is deemed for tax purposes to be the income of any other person. Some aspects do not apply to certain classes of person to whom special rules may apply and it is not intended to be exhaustive. It does not deal with any other United Kingdom taxation implications of acquiring, holding or disposing of the Notes. The United Kingdom tax treatment of prospective Noteholders depends on their individual circumstances and may be subject to change in the future. Prospective Noteholders who may be subject to tax in a jurisdiction other than the United Kingdom or who may be unsure as to their tax position should seek their own professional advice.

Interest on the Notes

The Notes issued will constitute “quoted Eurobonds” within the meaning of Section 987 of the Income Tax Act 2007 provided they are and continue to be listed on a recognised stock exchange, within the meaning of section 1005 of the Income Tax Act 2007. The London Stock Exchange is a recognised stock exchange for these purposes. Under HMRC published practice, securities will be treated as listed on the London Stock Exchange if they are admitted to the Official List (within the meaning of, and in accordance with, the provisions of Part 6 of the Financial Services and Markets Act 2000) and are admitted to trading on the London Stock Exchange. HMRC have confirmed that securities that are admitted to trading on the Market satisfy the condition of being admitted to trading on the London Stock Exchange. Whilst the Notes are and continue to be quoted Eurobonds, payments of interest on the Notes may be made without withholding or deduction on account of United Kingdom tax.

Interest on the Notes may also be paid without withholding or deduction on account of United Kingdom tax where interest on the Notes is paid by a company and, at the time the payment is made, the Issuer reasonably believes (and any person by or through whom interest on the Notes is paid reasonably believes) that the beneficial owner is within the charge to United Kingdom corporation tax as regards the payment of interest, provided that HMRC has not given a direction (in circumstances where it has reasonable grounds to believe that the above exemption is not available in respect of such payment of interest at the time the payment is made) that the interest should be paid under deduction of tax.

In other cases, an amount must generally be withheld from payments of interest on the Notes on account of United Kingdom income tax at the basic rate (currently 20 per cent.), subject to the availability of other reliefs or to any direction to the contrary to make payments free of or at a reduced rate of withholding by HMRC under an applicable double taxation treaty.

Information Reporting Requirements

HMRC has powers to obtain information and documents relating to the Notes, including in relation to issues of and other transactions in the Notes, interest, payments treated as interest and other payments derived from the Notes. This may include details of the beneficial owners of the Notes, of the persons for whom the Notes are held and of the persons to whom payments derived from the Notes are or may be paid. Information may be obtained from a range of persons including persons who effect or are a party to such transactions on behalf of others, registrars and administrators of such transactions, the registered holders of the Notes, persons who make, receive or are entitled to receive payments derived from the Notes and persons by or through whom interest and payments treated as interest are paid or credited. Information relating to the Notes may also be required to be provided automatically to HMRC by “financial institutions” under regulations made under section 222 of the Finance Act 2013, which implement the requirements of various automatic information exchange programmes, including FATCA, Council Directive 2011/16/EU on

 

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Administrative Cooperation in the field of Taxation (as amended), the Global Standard released by the Organisation for Economic Co-operation and Development in July 2014, and arrangements between the United Kingdom and its overseas territories and crown dependencies.

Information obtained by HMRC may be provided to tax authorities in other jurisdictions.

Further United Kingdom Income Tax Issues

Interest on the Notes that constitutes United Kingdom source income for tax purposes may, as such, be subject to income tax by direct assessment even where paid without withholding.

However, interest with a United Kingdom source received without deduction or withholding on account of United Kingdom tax will not be chargeable to United Kingdom tax in the hands of a Noteholder (other than certain trustees) who is not resident for tax purposes in the United Kingdom unless that Noteholder carries on a trade, profession or vocation in the United Kingdom through a United Kingdom branch or agency in connection with which the interest is received or to which the Notes are attributable (and where that Noteholder is a company, unless that Noteholder carries on a trade in the United Kingdom through a permanent establishment in connection with which the interest is received or to which the Notes are attributable). There are exemptions for interest received by certain categories of agent (such as some brokers and investment managers). The provisions of an applicable double taxation treaty may also be relevant for Noteholders.

The proposed financial transactions tax (FTT)

On 14 February 2013, the European Commission published a proposal (the Commission’s Proposal) for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States).

The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in the Notes (including secondary market transactions) in certain circumstances.

Under the Commission’s Proposal the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.

Joint statements issued by participating Member States indicate an intention to implement the FTT by 1 January 2016.

However, the FTT proposal remains subject to negotiation between the participating Member States and the scope of any such tax is uncertain. Additional EU Member States may decide to participate.

Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.

FATCA DISCLOSURE

Foreign Account Tax Compliance Act

Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986 (FATCA) impose a new reporting regime and potentially a 30 per cent. withholding tax with respect to certain payments to (i) any non-U.S. financial institution (a foreign financial institution, or FFI (as defined by FATCA)) that does not become a Participating FFI by entering into an agreement with the U.S. Internal Revenue Service (IRS) to provide the IRS with certain information in respect of its account holders and investors or is not otherwise exempt from or in deemed compliance with FATCA and (ii) any investor (unless otherwise exempt from FATCA) that does not provide information sufficient to determine whether the investor is a U.S. person or should otherwise be treated as holding a “United States account” of the Issuer (a Recalcitrant Holder). The Issuer does not expect to be classified as an FFI.

 

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The new withholding regime is now in effect for payments from sources within the United States and will apply to foreign passthru payments (a term not yet defined) no earlier than 1 January 2019. This withholding would potentially apply to payments in respect of (i) any Notes characterised as debt (or which are not otherwise characterised as equity and have a fixed term) for U.S. federal tax purposes that are issued after the grandfathering date, which is the date that is six months after the date on which final U.S. Treasury regulations defining the term foreign passthru payment are filed with the Federal Register, or which are materially modified after the grandfathering date and (ii) any Notes characterised as equity or which do not have a fixed term for U.S. federal tax purposes, whenever issued. If Notes are issued on or before the grandfathering date, and additional Notes of the same series are issued after that date, the additional Notes may not be treated as grandfathered, which may have negative consequences for the existing Notes, including a negative impact on market price.

The United States and a number of other jurisdictions have entered into intergovernmental agreements to facilitate the implementation of FATCA (each, an IGA). Pursuant to FATCA and the “Model 1” and “Model 2” IGAs released by the United States, an FFI in an IGA signatory country could be treated as a Reporting FI not subject to withholding under FATCA on any payments it receives. Further, an FFI in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA (or any law implementing an IGA) (any such withholding being FATCA Withholding) from payments it makes. Under each Model IGA, a Reporting FI would still be required to report certain information in respect of its account holders and investors to its home government or to the IRS.

If the Issuer is treated as a Reporting FI pursuant to the US-UK IGA it does not anticipate that it will be obliged to deduct any FATCA Withholding on payments it makes. There can be no assurance, however, that the Issuer will be treated as a Reporting FI, or that it would in the future not be required to deduct FATCA Withholding from payments it makes. The Issuer and financial institutions through which payments on the Notes are made may be required to withhold FATCA Withholding if (i) any FFI through or to which payment on such Notes is made is not a Participating FFI, a Reporting FI, or otherwise exempt from or in deemed compliance with FATCA or (ii) an investor is a Recalcitrant Holder.

Whilst the Notes are in global form and held within the ICSDs, it is expected that FATCA will not affect the amount of any payments made under, or in respect of, the Notes by the Issuer, any paying agent and the Common Safekeeper, given that each of the entities in the payment chain between the Issuer and the participants in the ICSDs is a major financial institution whose business is dependent on compliance with FATCA and that any alternative approach introduced under an IGA will be unlikely to affect the Notes. The documentation expressly contemplates the possibility that the Notes may go into definitive form and therefore that they may be taken out of the ICSDs. If this were to happen, then a non-FATCA compliant holder could be subject to FATCA Withholding. However, definitive Notes will only be printed in remote circumstances.

FATCA is particularly complex and its application is uncertain at this time. The above description is based in part on regulations, official guidance and model IGAs, all of which are subject to change or may be implemented in a materially different form. Prospective investors should consult their tax advisers on how these rules may apply to the Issuer and to payments they may receive in connection with the Notes.

EU Savings Directive

Under Council Directive 2003/48/EC on the taxation of savings income (the Savings Directive), EU Member States are required to provide to the tax authorities of other EU Member States details of certain payments of interest or similar income paid or secured by a person established in an EU Member State to or for the benefit of an individual resident in another EU Member State or certain limited types of entities established in another EU Member State.

 

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For a transitional period, Austria is instead required (unless during that period it elects otherwise) to operate a withholding system in relation to such payments (subject to a procedure whereby, on meeting certain conditions, the beneficial owner of the interest or other income may request that no tax be withheld). The end of the transitional period is dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries. A number of non-EU countries and territories have adopted similar measures and the EU Member States have adopted similar measures with certain dependent or associated territories of certain EU Member States.

On 24 March 2014, the Council of the European Union adopted a Council Directive (the Amending Directive) amending and broadening the scope of the requirements described above. The Amending Directive requires EU Member States to apply these new requirements from 1 January 2017 and if they were to take effect the changes would expand the range of payments covered by the Savings Directive, in particular to include additional types of income payable on securities. They would also expand the circumstances in which payments must be reported or subject to withholding. This approach would apply to payments made to, or secured for, persons, entities or legal arrangements (including trusts) where certain conditions are satisfied, and may in some cases apply where the person, entity or arrangement is established or effectively managed outside of the European Union.

However, the European Commission has proposed the repeal of the Savings Directive from 1 January 2017 in the case of Austria and from 1 January 2016 in the case of all other EU Member States (subject to ongoing requirements to fulfil administrative obligations such as the reporting and exchange of information relating to, and accounting for withholding taxes on, payments made before those dates). This is to prevent overlap between the Savings Directive and a new automatic exchange of information regime to be implemented under Council Directive 2011/16/EU on Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU). The new regime under Council Directive 2011/16/EU (as amended) is in accordance with the Global Standard released by the Organisation for Economic Cooperation and Development in July 2014. Council Directive 2011/16/EU (as amended) is generally broader in scope than the Savings Directive, although it does not impose withholding taxes. The proposal also provides that, if it proceeds, EU Member States will not be required to apply the new requirements of the Amending Directive.

 

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SUBSCRIPTION AND SALE

Banco Santander, S.A., Barclays Bank PLC, Lloyds Bank plc and RBC Europe Limited (together, the “Joint Lead Managers”), HSBC Bank plc, MUFG, Mizuho International plc and The Royal Bank of Scotland plc (together the “Co-Lead Managers”, and together with the Joint Lead Managers, the “Managers”) have, in a subscription agreement dated 3 November 2015 (the “Subscription Agreement”) and made between the Issuer and the Managers upon the terms and subject to the conditions contained therein, jointly and severally agreed to subscribe for the Notes at their issue price of 99.581 per cent. of their principal amount plus any accrued interest in respect thereof. The Issuer has agreed to pay a combined management and underwriting commission in respect of the Notes. The Issuer has also agreed to reimburse the Managers for certain of their expenses incurred in connection with the management of the issue of the Notes. The Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Notes.

United States

The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and Treasury regulations promulgated thereunder.

Each Manager has represented and agreed, that it will not offer, sell or deliver Notes (a) as part of their distribution at any time or (b) otherwise until 40 days after the later of the commencement of the offering and the issue date of the Notes, within the United States or to, or for the account or benefit of, U.S. persons. Each Manager has further agreed, that it will send to each dealer to which it sells any Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

Until 40 days after the commencement of the offering of the Notes, an offer or sale of such Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with an available exemption from registration under the Securities Act.

United Kingdom

Each Manager has represented and agreed, that:

 

(a)

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

 

(b)	it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.

 

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General

Each Manager has agreed that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes this Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Issuer, the Trustee nor any of the other Managers shall have any responsibility therefor.

None of the Issuer, the Trustee and the Managers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.

 

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GENERAL INFORMATION

Authorisation

The creation and issuance of the Notes has been authorised by a resolution of the Issuer’s Board of Directors, dated 27 October 2015.

Listing

Application has been made to the UKLA for the Notes to be admitted to the Official List and to the London Stock Exchange for the Notes to be admitted to trading on the Market. The Issuer estimates the expenses relating to the admission of the Notes to trading to be approximately £3,850.

Clearing Information

The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The appropriate temporary ISIN for this issue is XS1315962602 and the temporary Common Code is 131596260.

The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy L-1855 Luxembourg.

Legal information

The Issuer (registered number 09223384), with its registered office at Avonbank, Feeder Road, Bristol BS2 0TB, was incorporated in England on 17 September 2014. The Issuer can be contacted by calling +44 (0) 117 933 2000.

As of the date of this Prospectus, the Issuer’s issued ordinary share capital is 1,657,592,372 ordinary shares of a par value of £1 each, held by PPL WPD Limited.

The rights of the holders of the common shares in the Issuer are contained in the Articles of Association of the Issuer, and the Issuer will be managed by its directors in accordance with those articles and in accordance with the laws of England and Wales.

No Significant Change or Litigation

There has been no material adverse change in the prospects of the Issuer and its subsidiaries since 31 March 2015, and no significant change in the financial or trading position of the Issuer and its subsidiaries since 31 March 2015.

There are no governmental, legal or arbitration proceedings that may have or had in the 12 months before the date of this Prospectus, a significant effect on the financial position or profitability of the Issuer and its subsidiaries. The Issuer is not aware that any such proceedings are pending or threatened.

Auditors

The consolidated financial statements as at and for the year ended 31 March 2015 set out in full in the Appendix to this Prospectus have been audited by Ernst Young LLP, The Paragon, Counterslip, Bristol BS1 6BX statutory auditors to the Issuer.

Documents Available

For the period of 12 months following the date of this Prospectus, copies of the following documents will, when published, be available for inspection at the registered office of the Issuer and from the specified offices of the Paying Agents for the time being in London:

 

(a)	the memorandum and Articles of Association of the Issuer;

 

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(b)

the consolidated audited financial statements of the Issuer in respect of the financial year ended 31 March 2015 together with the audit report prepared in connection therewith (as set out in full in the Appendix to this Prospectus. The Issuer currently prepares audited consolidated accounts on an annual basis;

 

(c)	the Trust Deed, the Agency Agreement and the forms of the Global Notes, the Notes in definitive form and the Coupons;

 

(d)	a copy of this Prospectus; and

 

(e)	the Subscription Agreement.

In addition, this Prospectus is also available at the website of the Regulatory News Service operated by the London Stock Exchange at http://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.

Yield

The yield of the Notes is 3.686 per cent. per annum calculated on the basis of the Issue Price and as at the date of this Prospectus.

Third party information

Third party information referred to in the section entitled “Description of the Issuer and its Principal Subsidiaries” has been accurately reproduced and as far as the Issuer is aware and able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. The Issuer has not independently verified the information included herein from third parties and such information may not be up to date.

Managers transacting with the Issuer

Certain of the Managers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer, other members of the WPD Group and their affiliates in the ordinary course of business. In addition, in the ordinary course of their business activities, the Managers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or its affiliates. Certain of the Managers or their affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically, such Managers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in securities, including potentially the Notes. Any such short positions could adversely affect future trading prices of Notes. The Managers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

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APPENDIX – CONSOLIDATED AUDITED FINANCIAL STATEMENTS OF THE ISSUER

 

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Registered Number:    9223384

 

WESTERN POWER DISTRIBUTION PLC

AND SUBSIDIARY UNDERTAKINGS

ANNUAL REPORT AND FINANCIAL STATEMENTS

For the year ended 31 March 2015

 

 

 

 

 

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Contents
		Page
Strategic report			1
Directors’ report			20
Statement of directors’ responsibilities			23
Independent auditors’ report to the members of Western Power Distribution plc			24
Group Financial Statements:
Group income statement			26
Group statement of comprehensive income			27
Group statement of changes in equity			27
Group balance sheet			28
Group cash flow statement			29
Notes to the Group financial statements			30
Company Financial Statements:
Company balance sheet			83
Notes to the Company financial statements			84

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Strategic report

For the year ended 31 March 2015

The directors present their annual report and the audited financial statements of Western Power Distribution plc (“WPD” or the “Company”) and its subsidiary undertakings (the “WPD Group”) for the year ended 31 March 2015. These are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). The financial statements of the parent Company have been prepared in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”).

The Company was incorporated on 17 September 2014 as a private limited company and re-registered as a public limited company on 24 June 2015. In October 2014, as part of an intra-group corporate reorganisation, the Company became the parent of substantially all of the subsidiaries and assets and liabilities previously reported by the PPL WW Holdings Limited Group (“PPL WW Group”) and PPL WEM Holdings Limited Group (“PPL WEM Group”). The Company has elected to present the consolidated financial statements as if the subsidiaries and assets and liabilities of the PPL WW Group and PPL WEM Group acquired had been owned by the Company throughout the current and comparative accounting year in accordance with the pooling of interests principles for business combinations of entities under common control.

The Company is the UK parent of the WPD Group whose principal operating activity is conducted by Western Power Distribution (South West) plc (“WPD South West”), Western Power Distribution (South Wales) plc (“WPD South Wales”), Western Power Distribution (East Midlands) plc (“WPD East Midlands”), and Western Power Distribution (West Midlands) plc (“WPD West Midlands”).

Prior to the reorganisation, the operations of WPD South West and WPD South Wales were reported as part of the PPL WW Group and the operations of WPD East Midlands and WPD West Midlands were reported as part of the PPL WEM Group.

Ownership

The Company is owned by PPL Corporation, an electricity utility of Allentown, Pennsylvania, United States of America.

Business model

What we do

WPD South West, WPD South Wales, WPD East Midlands and WPD West Midlands are all electricity Distribution Network Operators (“DNOs”). The four WPD DNOs distribute electricity to a total of approximately 7.8 million end users over the following regions:

 

		End users		Area				Region
		(million)		(sq km)
WPD South West		1.6			14,400			South West of England
WPD South Wales		1.1			11,800			South Wales
WPD East Midlands		2.6			16,000			East Midlands of England
WPD West Midlands		2.5			13,300			West Midlands of England
		7.8			55,500

What we do is simple and comprises 4 key tasks:

- we operate our network assets effectively to ‘keep the lights on’;

- we maintain our assets so that they are in a condition to remain reliable;

- we fix our assets if they get damaged or if they are faulty;

- we upgrade the existing networks or build new ones to provide additional electricity supplies or capacity to our customers.

The 7.8 million end users are registered with licensed electricity suppliers, who in turn pay the WPD Group for using its network. Our costs make up around 16% of a domestic customer’s bill.

WPD’s network comprises approximately:

 

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business model (continued)

 

Regulation

WPD South West, WPD South Wales, WPD East Midlands and WPD West Midlands are monopolies regulated by the Gas and Electricity Markets Authority (known as “Ofgem”). The operations are regulated under the distribution licence under which income is generated subject to a price cap regulatory framework that provides economic incentives to minimise operating, capital and financial costs.

The charges made for the use of the distribution network are regulated on the basis of the Retail Price Index (“RPI”) plus/minus X formula where RPI is a measure of inflation and X is an efficiency factor established by the regulator following review. Until 31 March 2015, Ofgem set the distribution price control formula for five year periods.

The five year electricity distribution price control review just ended, which commenced on 1 April 2010 (“DPCR5”), broadly focused on environment, customer and networks, which fits closely with our own business strategy. WPD South West has been allowed to increase its prices by an average 7.5%, WPD South Wales by 6.2%, WPD East Midlands by 4.7% and WPD West Midlands by 4.3% all plus inflation, in each of the five years of DPCR5. In return for the increased revenue they have been allowed to earn in this period, Ofgem introduced from 1 April 2010 new obligations in areas such as connection performance together with incentives to innovate and reduce both the number of interruptions that our customers suffer and the average length of interruptions.

Ofgem have introduced a new approach for sustainable network regulation, to be delivered by the “RIIO” model where Revenues=Incentives+Innovation+Outputs. WPD’s next price review (known as RIIO-ED1) is effective from 1 April 2015 and will apply for eight years. Under the RIIO model there is a much greater emphasis on companies playing a full role in developing a more sustainable energy sector and delivering value for money network services for customers. A key feature of the RIIO model is that the setting of outputs that network companies are expected to deliver will be much more extensive with the outputs embedded within the overall business plan and act as a “contract” between the network companies and their customers.

In July 2013, WPD submitted an outputs based Business Plan for the RIIO-ED1 period 2015-2023. In February 2014 and following a detailed assessment and consultation process, Ofgem announced that WPD’s Business Plan had been accepted as “well justified” and could therefore “fast-track” all four WPD licensed areas, ahead of the other five licensed distributor groups. On 28 March 2014, Ofgem published WPD’s modified licences which took effect from 1 April 2015.

Business review

WPD’s business objectives are simple. They are:

- to minimise the safety risks associated with WPD’s distribution network;

- to improve the reliability of electricity supplies and to make the distribution network more resilient;

- to reduce WPD’s impact on the environment and to facilitate low carbon technology;

- to consistently deliver outstanding customer service;

- to meet the needs of vulnerable customers;

- to engage with our stakeholders;

- to be efficient, effective and innovative in everything we do;

- to make a return for the shareholder.

In summary the main objective of the business is to deliver frontier levels of performance at an efficient level of cost.

Long term strategy

WPD’s long term strategy is to deliver our business objectives through an efficient and scalable organisational structure that can evolve to accommodate the challenges of the future.

Efficient organisational structure

The current flat organisational structure with locally based teams of in-sourced labour has been the foundation of WPD’s success. It gives responsibility to front line staff to deliver work programmes and the absence of multiple layers of management minimises costs.

There are no plans to change this successful business model.

One of the big advantages of the geographical team structure is scalability. More staff can be added to an individual team where increases in future work cluster together or additional teams can be created where there are more widespread increases in workload. These changes can be achieved quickly.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Long term strategy (continued)

 

Self-sufficiency

WPD’s resourcing strategy is to use in-sourced labour. This ensures that knowledge is retained, allows greater flexibility to redeploy staff where needed and builds a strong culture with staff motivated to deliver business objectives.

The development of in-house apprentice schemes, training facilities, technical knowledge, operational capability and bespoke systems increases the self-sufficiency. This allows the business to respond quickly to new requirements and obligations and have better control over succession planning.

Investment in technology and innovation

Developing better ways of doing things is encouraged throughout the business. Innovative ideas are captured, tested and rolled-out into the business on a regular basis.

Technology can provide benefits of improved performance or efficiency. The deployment of technologies is carried out in a way to ensure that compatibility is maintained. This applies equally to IT equipment, communications infrastructure and the roll out of new innovative network management techniques. This keeps costs low as fewer interfaces are required.

Understanding the long term needs of the network

Network monitoring, independent information sources and modelling techniques are used to predict investment requirements into the long term.

Asset replacement forecasts show that in the future more investment will be required to replace an ageing cable population. Monitoring of fault rates and analysis of causes will enable targeted investment programmes to be established. An example of practice where this already exists is in the replacement of Consac cables that were installed in the 1970s but have since been found to have a greater than average fault rate.

The Department for Energy and Climate Change (“DECC”) Low Carbon Technology forecasts suggest that there will be extensive requirements for network reinforcement growing exponentially into RIIO-ED2. Smart solutions are being trialled utilising innovation funding to develop lower cost ways of providing network capacity.

Doing more than the legal minimum

As a minimum the activities carried out aim to comply with licence obligations and the Electricity Act. Where identified as being in line with our business objectives, additional activities will be carried out to provide better service or provide additional network capacity. This approach ensures that our incremental investment above legal requirement is made to bring about clearly identified benefits to our customers, stakeholders and our business.

Completing work programmes

WPD does not delay work programmes. Whilst short term savings would provide a financial benefit under the regulatory efficiency incentive, such action is not commensurate with providing a longer term reliable network for customers. Unless objectives change, work programmes are completed.

Adapting the network for climate change

We engage with DECC and the industry to identify common climate change impacts and set about implementing changes to ensure that our networks remain reliable into the long term future.

We have used available projected climate data to assess risks resulting from three priority areas - increased lightning activity, flooding and the impact of temperature rise on overhead lines.

Lightning activity is predicted to increase across the whole WPD area. By the end of the RIIO-ED1 period we expect activity to increase by up to 11% in the South West and East Midlands areas. The effects are being mitigated by adding lightning protection devices to the network.

Site specific flood risk assessments are used to identify the most prudent flood prevention method to adopt to protect equipment. Mitigation measures include protection of individual items, protection of buildings, protection of the site as a whole or in extreme cases site relocation.

Predicted increases in ambient temperatures not only mean that thermal expansion will affect overhead line clearances but also thermal loading limits will be reached more quickly. As a result, we have introduced new overhead design requirements to increase ground clearance and have prepared new conductor ratings for overhead lines.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Long term strategy (continued)

 

Stakeholder engagement

WPD regularly engage with stakeholders to ensure that our business objectives and strategy are in line with their needs and so that we can learn from our customers first hand. True improvements in customer service and business delivery come from understanding the areas where we can do better.

We use a range of engagement methods, including:

- stakeholder workshops;

- customer panel meetings;

- focus groups with domestic customers;

- ‘willingness to pay stated preference’ interviews with domestic and business customers;

- connections and distributed generation surgeries;

- distributed generation customer interviews.

Following stakeholder workshops we publish reports detailing all of the feedback received, as well as a WPD response outlining the conclusions we have reached and how this will impact on our plans.

Business review

The focus for the business during the year has been to continue to concentrate on the key five goals of safety, network reliability, customer service, environment and business efficiency.

Key performance indicators (“KPIs”)

 

		WPD South West						WPD South Wales
		2014/15		2013/14		2012/13		2014/15		2013/14		2012/13
Non-Financial
Safety:
Lost time accidents		1		1		1		2		1		0
Non lost time accidents		15		17		24		5		8		6
Network reliability:
Customer minutes lost		38.9		40.9		46.3		30.4		31.2		29.8
Customer interruptions (per 100 customers)		51.3		52.8		60.6		56.5		49.5		48.4
Financial
Total expenditure*		£386.0m		£367.1m		£361.7m		£276.5m		£239.4m		£227.2m
Debt to Regulatory Asset Value (“RAV”)		56.1%		58.6%		62.3%		61.4%		59.2%		57.7%
Interest cover		6.8		6.3		5.2		5.1		5.4		4.7
		WPD East Midlands						WPD West Midlands
		2014/15		2013/14		2012/13		2014/15		2013/14		2012/13
Non-Financial
Safety:
Lost time accidents		1		0		2		0		0		6
Non lost time accidents		22		23		35		29		32		57
Network reliability:
Customer minutes lost		22.9		26.0		30.2		34.2		38.6		44.8
Customer interruptions (per 100 customers)		46.0		49.8		48.1		69.7		75.8		81.4
Financial
Total expenditure*		£613.9m		£537.3m		£491.3m		£548.1m		£492.3m		£428.2m
Debt to Regulatory Asset Value (“RAV”)		63.7%		64.8%		63.7%		63.6%		61.7%		57.7%
Interest cover		5.0		4.8		5.5		4.1		4.8		5.0

* Operating costs plus capital expenditure (not including customer contributions).

Each of the five key goals are discussed in more detail in the following sections.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Safety

The safety of our staff, customers and members of the public continues to be a core value at the heart of all our business operations. Maintaining a practical and pragmatic safety culture from the “top down” remains an imperative. WPD staff continue to play an active role in many national committees and steering groups which concentrate on the future of safety and training policies across the industry.

During 2014/15 the Safety Team continued to provide support to all areas of the business with particular focus on the following areas of work:

- Review of existing managers’ safety training records and delivery of an internal accredited Institute of Occupational Safety and Health ‘Managing Safely’ management training course to update their qualifications.

- Review of policy and procedures relating to site safety visits and the provision of assistance with the development of suitable skills training courses for supervisors who conduct site safety visits to improve the quality and consistency of their visits.

- Development of an audit programme for a sample of contractors who provide work for WPD and the establishment of a conference forum for them to encourage their sharing of best practice and promotion of safe methods of working.

- Provision of assistance to staff and the update of company directives associated with the introduction of iPad tablets for use to record on-site risk assessments.

- Introduction of a new WPD directive and the provision of suitable training resources to integrate the WPD procedures relating to carrying out work in confined spaces.

- Development of a behavioural safety training course programme for all staff for implementation during 2015.

The Safety Team actively supported WPD Team Managers and Distribution Managers with their safety responsibilities and provided assistance to enable them to maintain a clear focus on safety.

During the autumn of 2014 the Safety team engaged the services of nationally recognised provider ‘Crash Course’ to deliver a series of roadshows to all WPD staff at sites across the whole WPD region about the impact of vehicle accidents as part of the 2014 ‘Safety Week’ programme.

In January 2015 a formal audit was commenced to confirm that the combined Safety Management Systems conform to OHSAS 18001:2007.

During 2014/15 there was 1 lost time accident in WPD South West, 2 in WPD South Wales, 1 in WPD East Midlands and none in WPD West Midlands. This compares with 1, 1, 0 and 0 respectively in 2013/14.

The number of non lost time accidents reported in 2014/15 was 15 in WPD South West, 5 in WPD South Wales, 22 in WPD East Midlands and 29 in WPD West Midlands. This compares with 17, 8, 23 and 32 respectively in 2013/14.

The total number of accidents to staff across WPD as a whole reduced from 82 in 2013/14 to 75 in 2014/15.

Network performance

Performance of the distribution network is measured in two key ways:

Security - the number of supply interruptions recorded per 100 connected customers (“CI”); and

Availability - the number of customer minutes lost per connected customer (“CML”).

All licensees who operate a distribution system are required to report annually to Ofgem on their performance in maintaining system Security and Availability. The Quality of Service incentive scheme, also known as the Information and Incentives Scheme (“IIS”) which was introduced by Ofgem in April 2002, financially incentivises all licensees including WPD with respect to both the Security and Availability of supply delivered to customers. In addition Ofgem incentivises the quality of telephone response customers receive when they contact the licensee. This is assessed by a customer survey carried out on a monthly basis.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Network performance (continued)

 

Network performance reported to Ofgem for the year was as follows:

 

		WPD South West								WPD South Wales								WPD East Midlands								WPD West Midlands
		Actual				Target				Actual				Target				Actual				Target				Actual				Target
CML 2014/15			38.9								32.0								24.1								35.0
Excluded events			-								(1.6)								(1.2)								(0.8)
IIS 2014/15			38.9				51.0				30.4				44.6				22.9				67.4				34.2				94.9
IIS 2013/14			40.9				51.0				31.2				44.6				26.0				67.8				38.6				94.9
CI 2014/15			51.3								60.0								47.4								71.0
Excluded events			-								(3.5)								(1.4)								(1.3)
IIS 2014/15			51.3				73.6				56.5				79.5				46.0				75.7				69.7				109.9
IIS 2013/14			52.8				73.6				49.5				79.5				49.8				75.7				75.8				109.9

The figures above cover all reportable interruptions longer than three minutes in duration occurring on the WPD networks including those caused by bad weather and other faults together with 50% of CI and CML due to pre-arranged shutdowns for maintenance and construction. The 11kV network is the principal driver of customer minutes lost, with faults on overhead lines being the major contributor. In addition to the performance reported under IIS above, 84.2% of customers in the WPD South West, 88.3% for WPD South Wales, 91.0% for WPD East Midlands and 91.5% for WPD West Midlands off supply as the result of a high voltage (“HV”) fault were restored within one hour of the fault occurring.

Under the IIS scheme, performance is targeted at an underlying level of improvement. DNOs are thus permitted to claim an adjustment for events during the year which they believe were exceptional and had a significant impact on the total reported performance. An exceptional event can either be caused by a large number of weather related faults or be due to a one-off event which is outside of the DNO’s control. In either case, the event must meet prescribed thresholds in terms of the numbers of faults experienced or, for a one-off event, in terms of either the number of customers affected or the duration of the incident. If an event meets these prescribed thresholds, the DNO must notify Ofgem who will conduct an audit to determine the impact of the event. As part of the audit process the DNO must demonstrate that it mitigated against the impact of the event to the best of its ability before Ofgem will exclude the CI and CML incurred. WPD South West reported no exceptional events to Ofgem during the year, while WPD South Wales and WPD East Midlands reported one each and WPD West Midlands reported two.

Subject to Ofgem confirmation, the customer minutes lost and interruptions per 100 customers for the year detailed above are within the targets set. The outperformance relative to the DPCR5 targets set by Ofgem for WPD South west and WPD South Wales is particularly gratifying as the targets broadly reflect DPCR4 (2005-2010) performance and are therefore particularly tough for these DNOs whose operational performance during this period is acknowledged by Ofgem as being a frontier performer. WPD East Midlands and WPD West Midlands were only acquired by WPD in 2011. WPD will continue with those initiatives that have clearly demonstrated good improvements to quality of supply to date, and will seek new opportunities and initiatives for the future.

Customer service

We are committed to providing excellent customer service at all times and strongly believe that customer satisfaction is the key to the future success of the business. When dealing with customers our policy is to get it right “first time, every time”. On the occasions when we fail to meet this standard, staff are encouraged to take personal responsibility for customer issues, to follow the problem through to the end, and to adopt our golden rule – “treat customers the way that we would like to be treated”.

If customers are not happy with our efforts to resolve their complaint, they are able to ask The Energy Ombudsman (“Ombudsman”) to review the matter. WPD South West and WPD South Wales are the only network companies during the first six years of the statutory Energy Ombudsman Scheme to have zero customer complaints. WPD East Midlands and WPD West Midlands achieved a third year of the statutory Energy Ombudsman Scheme with zero customer complaints. Regular meetings between WPD and the Ombudsman have resulted in a number of initiatives to improve our overall service to customers and drive standards up.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Customer service (continued)

 

Stakeholder Engagement

WPD has been rated as the top performing DNO group in the Stakeholder Engagement Incentive Award Scheme (which is a key element of Ofgem’s new Broad Measure of Customer Satisfaction) since its introduction in 2011/12. Most recently in 2013/14 WPD was awarded the highest score of 8.05 out of 10 for the overall submission, which included a question and answer session with an Ofgem-appointed judging panel of experts.

DNOs submit evidence split into two parts. The first part is a demonstration that there is a robust engagement strategy in place and shows how feedback from engagement is incorporated into our business plans and decisions. This includes showing an understanding of who our stakeholders are and how best to engage with them. Part two of the submission is evidence of the outcomes of the engagement process. Ofgem’s feedback confirmed that WPD were assessed as first place in both elements.

Broad Measure of Customer Satisfaction

As part of Ofgem’s Broad Measure of Customer Satisfaction Incentive, a research agency undertakes a monthly satisfaction survey of DNO customers who contact their DNO to report loss of supply, have a general enquiry or request a new connection. Each licence area has around 350 customers surveyed per month, so for WPD’s four licence areas around 16,800 customers are surveyed per year. For the regulatory year 2013/14, WPD’s four areas ranked in positions one to four in the league table of all 14 DNO licence areas.

Ofgem also compared the speed of response that a DNO call centre provides and WPD are consistently identified as the top performer with an average speed of response below 2 seconds compared to a national average of over 20 seconds.

National Customer Service Excellence Standard

WPD’s excellent customer service is demonstrated by its continued accreditation to the national Customer Service Excellence (“CSE”) Standard.

WPD undergo a stringent external assessment of our engagement activities every year. The CSE standard seeks to ensure we are providing services that are efficient, effective, equitable and have the customer at the heart of everything we do. There is a strong focus on the quality of our engagement methods and in particular the steps we take to develop customer insight, understand users’ experiences, robustly capture their feedback and measure satisfaction. The standard assesses WPD’s delivery, timeliness, information, professionalism and staff attitudes.

WPD have held the charter mark of best practice since 1992 - the only energy company in the UK to do so. The assessor visits a number of locations across WPD every year.

An external auditor undertakes an annual two day visit. WPD are assessed against 57 elements and have full compliance against every one. As an established holder of the charter mark, WPD are assessed as part of a three year rolling programme, where one third of the standards are reviewed annually. There are four potential outcomes ranging from ‘non-compliance’ to ‘compliance plus’ (the highest level possible, indicating best practice across all sectors). In 2014 WPD were successfully reaccredited, and demonstrated that significant improvements had again been made by achieving compliance plus in almost every element recently assessed.

Our status currently stands as 21 compliance plus and 36 full compliance, with zero partial or non-compliances.

At the most recent audit, the assessor reviewed WPD’s Stakeholder Engagement programme including our workshops and actions taken since, our performance in the Broad Measure of Customer Satisfaction, our attainment of the British Standard Institute’s vulnerable customer standard and various initiatives to improve communication such as projects targeting General Practitioners and Members of Parliament. They also reviewed WPD’s social obligations programme, connections improvement plan and an overview of the improvement actions taken following severe storms in 2013/14.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Customer service (continued)

 

British Standard for Inclusive Service Provision

In 2014, WPD became the first company in the UK to be externally assessed as fully compliant with the BS18477:2010 British Standard for inclusive service provision. In 2015, we retained full compliance with this standard. BS18477 was recommended by Ofgem as part of their Vulnerable Customer Strategy review discussions. The assessment adds considerable endorsement to WPD’s new social obligations programme and the services we offer to our Priority Service Register customers. WPD was assessed during a two day audit to review the accessibility of our services, literature and website, as well as WPD’s social obligations programme and vulnerable customer strategy, all associated systems and processes, Contact Centre operations and the new connections process. WPD was assessed as fully compliant in over 36 audit elements.

In 2015 the auditor stated: “Strategy, objectives, reviews and surveys are all co-ordinated with a view to the identification of actions resulting in the implementation of continual improvement. The observations identified at the previous BSI Audit have been reviewed and actions implemented. The complaint procedure is effective in identifying resulting actions and effective communication to consumers. Where feedback from the regulator results in a score of less than 3, this is treated as a complaint and investigated accordingly.”

“The senior management demonstrated a high level of commitment to a consumer focussed approach in all aspects of the operation. A culture of ownership and continual improvement is promoted at all levels of the organisation, which was consistently demonstrated throughout the audit. This is a forward looking organisation which is constantly striving to improve the consumer experience through regular consultation with stakeholders and responding quickly to any opportunity.”

Customer Panel and Stakeholder Workshops

The WPD Customer Panel was introduced in 2011. The panel meets four times a year and members, who represent a wide range of customers and key stakeholder groups, help us keep up to speed with the issues affecting our customers. Members include representatives from the British Red Cross, Major Energy Users Council, local parish councils, Sainsbury’s, B&Q, Energy Saving Trust, Severn Trent Water and National Grid. Through the Panel, we proactively seek honest and challenging customer views about the way we operate and our future plans. It plays an important role in helping WPD develop its business plans and outputs for the RIIO price control. The Panel is attended by WPD’s Chief Executive and other senior managers, demonstrating the commitment at every level to proactively engage with customers.

In January 2015 WPD hosted our latest round of annual stakeholder workshops in various locations including Birmingham, Milton Keynes, Gloucester, Newport, Bristol and Plymouth. The six events were attended by 232 stakeholders from a range of different backgrounds including domestic, business, local authorities, developers/connections, environmental, energy/utility, regulatory/government and voluntary sectors. WPD have subsequently identified 18 improvement actions that WPD will be taking in order to address the stakeholder feedback received.

Since 2010 WPD has held a number of stakeholder workshops and more than 4,500 people have been engaged to help us build our Business Plan - the vast majority face-to-face. Now that WPD’s Business Plan has been agreed, WPD has maintained its relationship with stakeholders and shifted the focus on to delivery and also identifying long-term strategic priorities that may change the way networks operate in the future.

Deaf Awareness Chartermark

WPD holds the Action on Hearing Loss (formerly RNID) ‘Louder Than Words’ accreditation, which assesses and endorses the accessibility of WPD’s services for deaf and hard of hearing people. We are the only DNO group to have held the accreditation for 5 and 7 years respectively for WPD South Wales/WPD South West and WPD East Midlands/WPD West Midlands.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Environment

WPD is ISO14001 certified and is committed to conducting its business as a responsible steward of the environment. WPD plan new routes so as to minimise, as far as economically possible, their impact on the environment.

Every member of staff is made aware of WPD’s environmental commitment to abide by environmental laws, regulations and corporate environmental policies, and their responsibilities for reporting any concerns on potential environmental compliance issues so that appropriate action can be taken.

WPD South West and WPD South Wales were the first DNOs to gain independent accreditation (by Lloyd’s Register) against Publicly Available Standard PAS55 - Asset Management (2004). A recertification audit to PAS55 – Asset Management (2008) of WPD’s asset management system occurred in August 2012 and all four WPD DNOs passed. Whilst an asset management specification, PAS55 encompasses risk management, setting of and adherence to policies and procedures, and thus has relevance to control of environmental risk.

Fluid filled cables

The design of very high voltage underground cables has evolved over many years and our new cables all use a solid plastic like insulation. Old designs of 33kV and higher voltage cables used an insulating oil in ducts inside the cable. Whilst these cables are normally very reliable, in the event of a fault, or commonly damage by third parties digging the street, this oil may leak out, sometimes many hundreds of litres. In common with other DNOs, WPD works to an operating code agreed with the Environment Agency, and assesses both the condition and the environmental risk posed by the fluid filled cables which the WPD Group owns. The losses from the WPD Group’s fluid filled cables can vary from year to year dependent on the number of small leaks at disparate locations rather than high volume single events, often caused by third parties.

 

		Fluid losses (litres)
		WPD Group
2014/15			25,131
2013/14			16,061
2012/13			39,123

The use of Perfluorocarbon Trace (“PFT”) technology within WPD reduces the effect on the total annual fluid losses. WPD continues to provide the Environment Agency with a monthly leak report as required under the joint agreement between the Environment Agency and Energy Networks (ENA) Fluid Filled Cables Group. A single major cable leak in the East Midlands accounted for over 10,000 litres of the 2012/13 total.

SF6 gas

Sulphur hexafluoride (SF6) is a man-made gas which has had widespread use such as in double glazing, tennis balls and training shoes as well as a number of industrial applications including high voltage switchgear. Unfortunately it is also a strong greenhouse gas, with a global warming potential 23,900 times greater than carbon dioxide (CO2).

WPD carefully monitors its SF6 equipment and employs the external ENA Engineering Recommendation S38 methodology for the reporting of SF6 banks, emissions and recoveries. That ENA document, initially drafted by WPD, employs approaches set out by The Intergovernmental Panel on Climate Change (“IPCC”), set up by the World Meteorological Organisation and the United Nations Environmental Programme.

The losses from SF6 equipment in WPD South West and WPD South Wales during 2014/15 amounted to 270kg, representing 0.97% of its bank. Losses from SF6 equipment in WPD East Midlands and WPD West Midlands during the year amounted to 31kg, representing 0.1% of its bank.

WPD has been listed in the Fluorinated Greenhouse Gas Regulation 2009 as a Recognised Certification and Evaluation Body (HV Switchgear) under Regulation 33, and has now certified relevant WPD staff.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Environment (continued)

 

Electric and magnetic fields (“EMFs”)

Concerns have been expressed by some members of the public regarding potential health effects of power frequency EMFs, which are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Government officials in the US and the UK have reviewed this issue. The US National Institute of Environmental Health Sciences concluded in 2002 that, for most health outcomes, there is no evidence of EMFs causing adverse effects. The agency further noted that there is some epidemiological evidence of an association with childhood leukaemia, but that this evidence is difficult to interpret without supporting laboratory evidence. The UK National Radiological Protection Board (part of the UK Health Protection Agency) concluded in 2004 that, while the research on EMFs does not provide a basis to find that EMFs cause any illness, there is a basis to consider precautionary measures beyond existing exposure guidelines.

SAGE (Stakeholder Advisory Group on Extremely Low Frequency EMF), a group set up by the UK Government, has issued two reports, one in April 2007 and another in June 2010, describing options for reducing public exposure to EMF. The UK Government agreed to implement some of the recommendations within the first report, including applying optimal phasing to dual circuit transmission lines to reduce EMF emissions, where this can be carried out at low cost. The UK Government is currently considering the second SAGE report which concentrates on EMF exposure from distribution systems.

PPL Corporation and its subsidiaries, including WPD, believe the current efforts to determine whether EMFs cause adverse health affects should continue and are taking steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities.

General

WPD provides support to communities across the network area with the aim of encouraging energy conservation, promoting recycling initiatives and enhancing the landscape for wildlife. ‘Keen to be Green’ is the umbrella brand of community environmental activities and enables a range of groups, charities and schools to benefit from cash awarded by WPD. As part of this scheme, WPD plant in the region of 7,000 native trees annually across our network area.

WPD also work with a range of nationally recognised charities including the Centre for Sustainable Energy, The Wildlife Trusts, The Conservation Volunteers and Silvanus Trust.

Business efficiency

Profit before income tax increased by £246.3m compared to the previous year. Operating profit at £972.7m was £239.8m higher. This is after an impairment charge of £72.0m (2014: £248.4m) in respect of the goodwill intangible asset. The impairment has largely arisen as a result of changes to the short-term inflation assumption which has reduced both the operating cash flows and the terminal value used in the discounted cash flow model, and the growth in the carrying amount of the cash-generating units (“CGU’s”) in the year exceeding the underlying growth in their recoverable amount. These factors are partly offset by higher than previously anticipated levels of capital expenditure in the current year which has increased both the future operating cash flows and terminal value used in the discounted cash flow model, and a reduction to the discount rate. Excluding this, operating profit was £63.4m higher with revenue up by £46.1m and operating costs down by £12.9m. Revenue was impacted by the increase in tariffs and the timing of the recovery of regulated income.

Excluding the goodwill impairment, total expenditure (‘totex’) increased by £62.5m. Operating expenses decreased by £12.9m and capital expenditure increased by £75.4m. The capital work programme has continued to increase in line with the business plan. Totex is a key feature in the business plan submission to Ofgem as part of the price review process as it underpins the allowed revenue set; thus actual performance against the business plan is subject to close scrutiny as we are incentivised to stay within the business plan.

Total net assets at 31 March 2015 were £2,883.2m, an increase of £279.9m on the previous year. Property, plant and equipment increased by £816.7m reflecting the fact that capital expenditure exceeds the historical cost depreciation charge. The retirement benefit obligation increased by £81.2m. Debt, net of financial investments and cash, increased by £420.8m. The value of derivatives showed a positive increase of £100.1m

Debt to RAV

Asset cover (total net debt to RAV) is part of the rolling credit facility covenants for several of the WPD companies and is used as a key internal measure. As part of the regulatory process, Ofgem determine what they consider an appropriate debt/equity split to optimise the cost of capital and to ensure that the volume of debt in relation to RAV does not threaten the liquidity of the licensee.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Business efficiency (continued)

 

Interest cover

The ratio of earnings before interest, tax, depreciation and amortisation (EBITDA) to interest payable is part of the rolling credit facility covenants for several of the WPD companies. It is also used as a key internal measure of the financial health of the DNOs. The interest cover ratios are at an acceptable level and show that the DNOs are generating more than enough profits to cover interest payments.

Capital investment

Capital investment (before customers’ contributions) during the year was £1,076.0m (2014: £1,000.6m) across the four DNO regions within the WPD Group and included the replacement of both lines and switchgear together with the introduction of new technology.

A number of significant projects were undertaken during the year including:

In the WPD South West area:

- 132kV bulk SF6 circuit breaker replacements. A £1.35m 3 year programme to replace 9 132kV bulk SF6 circuit breakers at Bridgwater supergrid substation was completed. Each of these circuit breakers contained approximately 300kg of SF6 gas and in 2007 it was estimated that the SF6 leakage from this site alone accounted for 91% of the total SF6 leakage in the South West.

- 132kV connections to solar and wind generation sites. In August the Projects South West team made four new 132kV connections to new generation sites. These sites were all in North Cornwall and North Devon, connected onto a double circuit 132kV line which runs between Alverdiscott and Indian Queens supergrid substations. Two of the sites are for solar and two are for wind generation. The work at each site involved changing towers and turning the existing line into the new generation substations plus erecting the switchgear and metering circuit breakers to connect onto the generator’s private apparatus. Connecting this number of 132kV sites in such a short period of time is unprecedented within WPD’s history. Together the combined output of the sites will be approximately 110MW.

- 33kV connections to new generation sites. The drive to connect new large generation sites in the south west continues unabated and indeed accelerated ahead of the removal of the Renewable Obligation Certificate (ROCs) subsidy in March 2015. As the network becomes more saturated, particularly in Cornwall and Devon, many of these connections are becoming more complicated, often involving building new 33kV circuit breaker bays at substations and/or long circuits to make the new connection. As an example East Youlstone wind farm was connected in November 2014. Connecting this 5 MW generator involved constructing a new 33kV circuit bay at Stratton 33/11kV substation and building a new 7.5 mile long 33kV circuit from Stratton to a new intake substation at the customer’s site. The new circuit consisted of a 126 pole overhead section and 800 metres of underground cable. This was all completed on time in order to meet the customer’s expectations.

In the WPD South Wales area:

- New 33/11kV transformer units at Llandovery 33kV substation. Work has concluded on the installation of two new 33/11kV transformer units. The driver for this work was network reinforcement which was required to allow a wider range of voltage regulation on the local 11kV bus-bar. This will provide a significantly wider voltage tapping range providing more system flexibility, which in turn will facilitate connection of third party embedded generation connections on to the wider 33kV system in and around Llandovery.

- Re-building Bridell Primary in West Wales. A major scheme was concluded in early November 2014 which has resulted in the entire primary substation being re-built. This included two new 33/11kV transformers along with installation of a new 33kV bus section circuit breaker, isolators and all associated voltage control and protection equipment. Additionally the existing 33kV line entry arrangements were modified to create a conventional busbar and the removal of a non-standard tee-in arrangement will now improve switching capability. This in turn will significantly improve security of supply to 11kV customers at Nevern and Bridell for a 33kV line fault. The works will also provide improved capability in dealing with embedded generation in the area by providing a wider voltage tapping range on the 33/11kV transformers.

In the WPD East Midlands area:

- Rugby 132kV substation. This substation has just completed a two year major refurbishment. The substation was first constructed in the 1940s. It is a four switch mesh substation, with four incoming lines, and four grid transformers. The work was being carried out for a combination of load related, fault level and asset replacement reasons. The scope of works was to replace the four 132kV oil circuit breakers (OCBs) with gas circuit breakers (GCBs), install new busbars and busbar supports, and replace the two 12/24 MVA 33/11kV transformers with two new 30MVA 132/11kV transformers. In addition, two small sections of fluid filled cable were replaced. The work was effectively completed in two halves during 2013 and 2014.

- Lincoln 132kV substation. This substation has just completed a three year major refurbishment. The substation is a single busbar arrangement with five grid transformers, one of which is a dedicated supply to a foundry. The works included installing one new grid transformer, replacing and altering the 132kV substation to a three switch mesh arrangement, and replacing the existing OCBs with three new 132kV GCBs. The works were completed over a three year period. In 2012 the installation of the grid transformer was completed. Then subsequently the 132kV substation was completely demolished in stages and rebuilt, at all times maintaining supplies to the foundry and the surrounding area.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Business review (continued)

 

Capital investment (continued)

 

In the WPD West Midlands area:

- Nechells to Summer Lane No2 cable replacement. This circuit is a strategic 132kV circuit feeding into Birmingham city centre. The circuit was originally a gas compression type circuit installed in 1958 and is 6km in length. During its service, the cable had suffered numerous faults and had become less reliable over time resulting in it being down-rated to 40 MVA. The West Midlands Projects team installed and commissioned a replacement cable in April 2014 at a cost of £3m and this circuit is now rated at 110MVA. A key technical aspect of the replacement was to utilise the pipeline the existing cable was originally installed in and this gave a significant reduction in route length (around 4 km) when compared to all other viable alternatives.

- Grid transformer replacement. West Midlands Projects team have replaced six grid transformers in 2014 – Meaford GT1/GT2, Stourport GT1, Hinksford GT2B, Solihull GT2, and Bentley GT1. The first three of these projects were to replace old assets which had become unreliable and the final three were as a consequence of units failing in service.

- Hereford Grid to Ledbury 66kV overhead line replacement. As part of the network improvements to reinforce the Hereford 66kV network, Hereford and Ludlow distribution area have rebuilt and uprated 26km of the 66kV overhead line circuit from Hereford to Ledbury built in 1955. The work was completed in September 2014 and this has increased the capacity and network security to the area.

Future developments

See page 2 for details of our long term strategy.

RIIO-ED1

Ofgem has published formal confirmation that all four WPD DNOs have been fast-tracked for RIIO-ED1, the eight year price control starting 1 April 2015. Fast tracking affords several benefits, including the ability to collect additional revenue equivalent to 2.5% of total annual expenditures (approximately £25m per year across WPD), greater revenue certainty and a higher level of cost saving retention. No other DNOs have been selected for the fast track process and they were required to resubmit their Business Plans to Ofgem. Ofgem made final determinations of the other DNOs Business Plans in February 2015. In March 2015 a request was made to refer the other DNOs price control final determinations to the UK Competition Authority. Consequently their Plans will not be finalised until late 2015.

Future Networks – Research, Innovation and Low Carbon Networks

As part of DPCR5, Ofgem introduced the Low Carbon Network (“LCN”) fund. It was set up to encourage DNOs to test new technology and commercial arrangements to support the UK’s low carbon transition and climate change objectives.

The LCN fund, totalling £500m over the period 2010-2015, was made available through an annual Ofgem led competition for “flagship” demonstration projects (termed “Tier 2” projects). There was also an annual allowance allocated to each DNO (called “Tier 1” with £21m over the five years for WPD) to enable smaller demonstration projects to be developed with less regulatory oversight. WPD also has an active research and development programme focused on emerging technologies. This is supported by Ofgem’s Innovation Funding Incentive (“IFI”) scheme (with an allowance of up to £28m over the five years for WPD).

After five years of operation WPD has secured funding for six Tier 2 flagship projects, worth approximately £65m, more than any other DNO group, making WPD a clear leader in network innovation. The first of these projects, Network Templates, was completed during 2013 with significant new learning which will lead to technical policy changes. The Lincolnshire Low Carbon Hub completed in February 2015; as a result 48MVA of additional capacity has been released to new generation customers. The other four projects are making good progress with valuable learning emerging as we try new solutions.

- 2011 – Network Templates for a Low Carbon Future – Based on LV data collected from the most extensively monitored distributed network in Europe (800 substations in South Wales and a further 3,600 network monitors in customer premises), the project has developed a new suite of customer consumption profiles that will enable us to improve our utilisation of network assets without impacting customer supply security. We also identified that about 20% more solar panels can be connected to the grid than previously estimated. Further we have identified potential to better exploit the allowed voltage variation around the nominal 230V supply.

- 2011 – The Lincolnshire Low Carbon Hub – The project built a 33kV renewable generation ready “hub” across a large part of the East Midlands coastal region. After several technical network design challenges and a shift in government policy towards onshore wind, the project completed in February 2015. A number of commercial offers for customer generation connections have been issued using newly developed policies and charging methodologies.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Future developments (continued)

 

Future Networks – Research, Innovation and Low Carbon Networks (continued)

 

- 2012 – Flexible and Low Carbon Optimised Networks (“FALCON”) – The project has developed a fully interactive 11kV power flow nodal model for the city of Milton Keynes. The model (called a “SIM” – Scenario Investment Model) will be populated by data on the real time state of the local grid, together with feedback from a suite of smarter grid demonstration techniques across the city. It will allow DNOs to automatically develop optimised investment plans based on a range of future energy scenarios. During 2015 data from the completed engineering trials will be consolidated into the SIM and results will be shared.

- 2012 – SoLa BRISTOL – The project is demonstrating the concept of coordinating disparate energy controllers located at customer premises to maintain substations within capacity. The project will provide valuable control logic for future despatch and control of virtual power plants and electric vehicle charging. In this project the remote energy is stored in battery systems charged from PV (photovoltaic solar panel) systems on customer roofs. The project also includes the conversion of some customer internal systems from alternating to direct current (AC to DC) to improve energy efficiency. System installations within schools, offices and homes are now completed, system trialling and knowledge capture will now continue through 2015.

- 2013 – FlexDGrid – The transition of the UK energy system from one of centralised energy generation to one where distributed generation plays a greater role is leading to new network challenges. In particular the introduction of CHP (combined heat and power) in urban environments is leading to a significant increase in electrical short circuit potential currents (called the “Fault Level”). This project is demonstrating innovative means of modelling, measuring and controlling fault current (short circuit current) in 10 primary substations serving the central business district of Birmingham, Britain’s second largest city. The project will be in the ‘build’ phase throughout 2015.

- 2015 – Network Equilibrium – This project will investigate the problems associated with further demand and generation integration on rural networks through a better understanding of voltage profiles and power flows. Optimising voltage profiles at a system level and balancing power flows through the innovative use of power electronics, the existing network capacity can be fully utilised allowing an increased level of distributed generation and demand to connect to the existing network more quickly and cost effectively. Three methods will be trialled through the project: Enhanced Voltage Assessment (EVA), System Voltage Optimisation (SVO) and Flexible Power Links (FPL). The project kicked off early 2015 and the procurement stage is currently underway.

WPD has also registered twelve Tier 1 projects with Ofgem covering a broad range of topics, including such themes as wireless charging of electric vehicles and supporting community based energy initiatives. Nine of these are now complete. The research and development programme consists of approximately 30 projects, in addition to several national programmes where WPD collaborates with other industry organisations.

The RIIO-ED1 arrangements differ from those in DPCR5. The remaining three Tier 1 projects transitioned to the new NIA (Network Innovation Allowance) regulatory mechanism from April 2015.

Principal risks and uncertainties

WPD views the following risk categories as those that are the most significant in relation to its businesses.

Regulatory risk

The substantial part of WPD’s revenue is regulated and is subject to a review every five years (eight years for RIIO-ED1). DPCR5 became effective on 1 April 2010 and continued to 31 March 2015. RIIO-ED1 commenced 1 April 2015 and continues to 31 March 2023.

Under the review, Ofgem assesses the revenue and capital expenditure plans of each regulated company and determines what they consider an efficient level of that expenditure. Ofgem also considers the required cost of capital sufficient to encourage the required investment in the network, and determines customer service targets.

WPD’s management invests considerable resources in the review process and has been proactive in working with Ofgem to establish better measures of cost recording to inform future reviews.

If a licensee feels that, as a result of a review it would financially be unable to continue to operate and to meet its obligations under the licence, then it has the right to refer the matter to the UK Competition Authority for a determination.

WPD’s regulated income and also the RAV are to some extent linked to movements in the RPI. Reductions in the RPI would adversely impact revenues and the debt/RAV ratio.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Principal risks and uncertainties (continued)

 

Network disruption

Disruption to the network could reduce profitability both directly through the lower units delivered on which income is charged, and also through the system of penalties and rewards that Ofgem has in place relating to customer service levels (discussed under ‘Network performance’ above).

There are economic restrictions on the level of capital expenditure that can be incurred to make the network totally reliable. A certain level of risk must be accepted and this is recognised by Ofgem in its regulatory review. However, WPD believes that its networks are robust. It targets capital expenditure on schemes which are assessed to have the greatest improvement in customer service levels. It also spends considerable sums on routine maintenance, including tree cutting to keep trees away from lines both for safety reasons and as trees have been proven to be a major cause of network interruptions. WPD has met Ofgem’s targets for customer service.

Reliance on suppliers

WPD relies on a limited number of suppliers for cable laying and tree cutting services, and for the supply of cables, plant and machinery. However WPD considers that there are sufficient alternative suppliers such that, should an existing supplier be unable to continue to make supplies, then there will be no significant long-term impact on WPD’s ability to operate the network.

Most of the electricity which enters WPD’s network is carried on the national grid and enters WPD’s network at a limited number of grid supply points. WPD is dependent on the national grid. However, this is also an activity regulated by Ofgem and thus the risk of a major failure is considered very remote.

Environment

Certain environmental issues are discussed in the Corporate and Social Responsibility section. There is always the risk that changes in legislation relating to environmental and other matters, including those imposed on the UK by the European Union, could result in considerable costs being incurred by WPD with no guarantee that Ofgem would allow them to be recovered through regulated income.

Interest rate risk

The WPD Group has had both short-term and long-term external debt during the year, at floating and fixed rates of interest, respectively. An element of the long-term debt is index linked which creates a natural hedge against the WPD Group’s regulated income, which is also index linked.

Credit rate risk

WPD South West, WPD South Wales, WPD East Midlands and WPD West Midlands are required by their distribution licences to maintain investment grade ratings, which they have done. All four WPD DNOs have the following long-term corporate credit ratings: Moody’s Baa1 and Standard & Poor’s A-.

Cash deposits are made with third parties with a high credit rating (not below a long-term rating of A/A2/A and a short-term rating of A1/P1/F1 by Standard & Poor’s, Moody’s and Fitch, respectively) and within strict limits imposed by the appropriate Board.

Exchange rate risk

The WPD Group’s assets are principally sterling denominated; however, the WPD Group has access to various international debt capital markets and raises foreign currency denominated debt. Where long-term debt is denominated in a currency which is not sterling, the WPD Group’s policy is to swap 100% of the foreign currency denominated principal and interest cash flows into sterling through the use of cross-currency swaps.

WPD holds an investment of $200m 2018 6.42% Eurobonds issued by PPL UK Resources Limited which were acquired at a premium of $21m. It also has short-term borrowings of $200m under a related committed credit facility. At 31 March 2015, the WPD Group was exposed to movements on exchange rates of $9.5m.

Creditworthiness of customers

Most of WPD’s income is for the delivery of electricity to end-users and thus its customers are the suppliers to those end-users. It is a requirement that all licensed electricity distributors and suppliers become parties to the Distribution Connection and Use of System Agreement. This agreement sets out how creditworthiness will be determined and, as a result, whether the supplier needs to provide collateral. The risk of a significant bad debt is thus considered low.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Principal risks and uncertainties (continued)

 

Pensions

Most employees are members of a defined benefit pension scheme, which also has a considerable number of members who are either retired or have deferred benefits. There are risks associated with the financial performance of the assets within the scheme and with the estimate of the liabilities of the scheme including longevity of members. Currently, ongoing service costs and a proportion of the deficit costs are recoverable through regulated income.

With very limited exceptions, WPD’s defined benefit pension plans are closed to new members. A defined contribution scheme is offered to new employees instead. As time elapses, this will reduce WPD’s exposure associated with defined benefit pension plans.

Insurance arrangements

WPD has a wholly-owned captive insurance company, Aztec Insurance Limited (“Aztec”), based in Guernsey. Depending on the nature of the risk, WPD operating subsidiaries carry all or an element of the risk itself (“self insured”) or underwrite insurance with a combination of Aztec and external insurers. Insurance arrangements are reviewed in detail annually.

Insurance arrangements for the year ending 31 March 2015 relating to WPD’s key risks were as follows:

- the distribution network is self insured.

- offices and depots including their contents and stock are self insured up to £500,000 for each claim and externally insured above that, subject to a maximum of £50.0m.

- combined liability covers employer’s liability, public and product liability, and professional indemnity. The first £10,000 of each claim is self insured, Aztec cover the next part of the claim up to £1.0m per claim and £6.0m in total, claims exceeding these limits are externally insured subject to certain limits.

- on motor related claims, damage to own vehicles is self insured if not recoverable from a third party, as is the first £5,000 of each third party claim. Aztec cover the next part of the claim up to £1.0m for any claim and £2.3m in aggregate; claims exceeding these limits are externally insured subject to certain limits.

- claims relating to death or injury to employees whilst on WPD business or travelling on business are externally insured subject to various limits.

- external insurance is also in place (subject to limits) for loss of money, securities or property through dishonest acts by employees and for wrongful acts by pension scheme trustees.

- insurance in respect of directors and officers is maintained by WPD’s US parent, PPL Corporation.

- external insurance is also in place (subject to limits) for cyber liability (costs for security/privacy breaches, defence costs in relation to regulatory breaches and other breaches) and is maintained by WPD’s US parent, PPL Corporation.

Internal control environment

PPL’s Audit Committee has ultimate oversight to monitor the effectiveness of WPD’s internal controls through the requirements of Section 404 (see below). They also review and monitor the independence of the external auditor; as part of this process PPL, including WPD, are currently tendering for the audit services. The responsibility to monitor the financial reporting process and statutory audit of these financial statements is assumed by the UK Board. The WPD plc Board comprises UK based executive directors and non-executive directors from PPL. The DNO Boards comprise the same executive directors, one non-executive director from PPL and two independent directors.

The directors of WPD have overall responsibility for the system of internal controls and for reviewing the effectiveness of the system. The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives. In pursuing these objectives, internal control can only provide reasonable and not absolute assurance against material mis-statement or loss.

There are many cultural features in WPD that contribute directly to the success of WPD and the results that it has achieved. These include:

-  good definition and communication of short-term business objectives and targets.

-  commitment to achievement of objectives and targets.

-  speedy decision-making.

-  business environment that empowers managers.

-  an uncomplicated management structure that aids the flow of information both ways through the organisation.

In order for this success to occur, the control environment is one which empowers those with direct responsibility to take decisions within a clearly defined control framework. The control mechanisms have to be sufficient to limit risk but appropriate to WPD’s ability to react quickly and effectively to events, therefore enabling WPD to deliver results over a sustained period of time.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Internal control environment (continued)

 

It is important for an organisation to have a clearly defined structure of control expectations. The controls start at director level and make it clear to everyone concerned how the business should be conducted (policy) and how far each person can go in conducting that business (authority levels). This information is communicated effectively to all levels of staff.

As WPD is owned by a US publicly quoted company, it is subject to the requirements of the US Sarbanes-Oxley Act of 2002. There are two main components of the Act, SOX302 and SOX404.

Under Section 302 of this Act, senior managers affirm quarterly that disclosure controls have been evaluated and are operating effectively, that there are no material internal control issues or, if there are, that they have been reported to PPL’s Audit Committee.

Section 404 is an annual process which includes the evaluation of internal controls for financial reporting. WPD comply with these requirements via a two stage approach.

Firstly, WPD entity level controls which are pervasive across WPD are documented and tested. The controls cover the COSO elements of effective internal control and the 17 principles set out in the COSO 2013 integrated framework. These encompass:

-  control environment

-  risk assessment

-  information and communication

-  control activities

-  monitoring.

Secondly, all the major financial processes have been documented with specific detail on the controls in place. This includes the Information Technology environment which supports the financial processes. Management monitor these controls on an ongoing basis. In addition, the controls are reviewed and tested by the Internal Audit department and any issues identified are communicated back to management and the process owners to enable improvement to the controls.

Annually, WPD’s compliance with the Act is also reviewed in detail by WPD’s external auditors. Good controls together with appropriate documentation must be maintained, and this is subject to testing by both internal and external auditors on an annual basis. Since inception of the Act, no significant deficiencies nor material weaknesses have been identified in WPD’s financial control environment.

Corporate and social responsibility

Social and community issues

The three themes of education, safety and the environment continue to form the bedrock of our support activity, and during 2014/15 we assisted over 300 separate charitable and non-charitable organisations across WPD.

While maintaining these core themes, we have also continued to tailor our support to align, where appropriate, with the feedback from our stakeholder and customer opinion research. In particular, we have sought to establish and develop customer initiatives – like our Community Chest partnership with the Centre for Sustainable Energy (“CSE”) – which helps ‘fuel poor’ customers reduce their energy consumption.

We have also continued to promote WPD’s Priority Service Register with roadshows and events involving local radio stations and organisations like Age UK, Plymouth Highbury Trust, Wales Council for the Blind, Action on Hearing Loss, Age Cymru, Framework (the Midlands housing charity) and Derbyshire Sight Support.

Highlights during the year have included:

- Phase 3 of our Community Chest grant scheme saw 59 awards made as part of a £50,000 initiative. The environmental result was 63.07 tonnes/year carbon dioxide saved by the scheme – the equivalent of the heating and electricity carbon dioxide emissions from around 12 average households.

- Working with seven Wildlife Trusts to provide over 4,000 children with an environmental/educational hands-on experience. WPD Apprentices supported community challenges with Somerset Wildlife as part of their induction training. A further 800 children benefited from our environmental programme with Avon Wildlife Trust for 12 primary schools in South Gloucestershire and over 400 children from deprived areas of South Wales. Over 7,000 native trees and shrubs were planted as part of our partnership with The Conservation Volunteers (formerly BTCV) and the Silvanus Trust.

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Corporate and social responsibility (continued)

 

Social and community issues (continued)

 

- Taking part in 250 safety/education events reaching around 50,000 schoolchildren. These included school visits, crucial crew and lifeskills initiatives across all WPD regions. In addition, education sponsorships included Big Bang science events organised by STEM (the Science, Technology, Engineering, Maths Network) across all WPD regions and support for the ‘Alarming Electrics’ education project across Welsh schools in conjunction with Techniquest, the science and technology based organisation.

- Initiating the mail out and associated publicity to customers of 7.8m fridge magnets to publicise our new, single emergency number. A number of magnets in braille were also distributed.

- Investing £75,000 to support over 100 community groups and schools as part of three Cash for the Community campaigns delivered through newspaper groups across Devon, South West Wales and Derbyshire. The initiative provides cash support for charities, schools and not-for-profit organisations.

- Backing Age Cymru’s Doorstep Crime and Spread the Warmth initiatives which target vulnerable and fuel poor customers, and the ‘Wicked’ bullying campaign in association with the Wales Millennium Centre.

- Providing 1,500 Power Cut Advice and Priority Service Register leaflets to Midlands housing charity Framework to be included in its service users’ ‘Move In Packs’ across Nottinghamshire and Lincolnshire. A further 500 leaflets were provided to Derbyshire Sight Support.

- Supported one Welsh language activity for youngsters – the National Eisteddfod’s Science Show ‘Flash Bang’ at Llanelli.

- Supported three major agricultural shows (Bath & West, Malvern and the Royal Welsh) promoting farm safety messages, our new emergency telephone number and our Priority Service Register.

Environmental matters

See the Environmental section on page 9.

Greenhouse gas emissions

Our greenhouse gas reporting year is to 31 March. Emissions were from:

 

tCO₂e = tonnes of carbon dioxide equivalent

WPD’s chosen intensity measurement is tonnes of carbon dioxide equivalent per employee.

The methodology used to calculate our emissions is based on the current guidance provided from DECC and the Department for Environment, Food and Rural Affairs (“DEFRA”) Green House Gas Reporting Requirements and the UK Government conversion factors for Company Reporting (expiry 31 May 2014).

 

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Strategic report (continued)

For the year ended 31 March 2015

 

Corporate and social responsibility (continued)

 

Employees

The average number of employees during the year was 6,414 (2014: 6,223).

WPD is committed to equality of opportunity in employment and this is reflected in its equal opportunities policy and employment practices. Employees are selected, treated, and promoted according to their abilities and merits and to the requirements of the job. Applications for employment by people with disabilities are fully considered, and in the event of members of staff becoming disabled, every effort is made to ensure that their employment with WPD continues by way of making adjustments to their role and/or working environment or through retraining arranged as appropriate. It is the policy of WPD that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

WPD places considerable value on the involvement of its employees in its affairs. Staff are kept informed of WPD’s aims, objectives, performance and plans, and their effect on them as employees through newsletters, regular team briefings and other meetings, Performance and Development Reviews, as well as through WPD’s in-house journal. Formal meetings are held regularly between senior managers and representatives of staff and their unions to discuss matters of common interest. A series of road show presentations by the directors each year ensure that all staff are aware of, and can contribute to, WPD’s corporate goals.

Human rights issues

WPD is dedicated to conducting its business with honesty, integrity and fairness. It is committed to the highest ethical standards. In support of these principles, it is WPD’s policy to observe all domestic and applicable foreign laws and regulations.

In addition to conserving the human rights of its employees, WPD also considers those in relation to customers. Two specific customer groups whose needs are targeted by WPD are vulnerable customers and those in fuel poverty.

Vulnerable customers

WPD is required to hold a Priority Services Register (“PSR”) that records details about vulnerable customers so that additional support can be provided when the customer contacts WPD or when their supply is interrupted. Bespoke services are provided by understanding the special needs of the customers.

WPD has established a dedicated team of people to proactively contact customers and check the detail held about them. This is a process that will be repeated every two years to ensure that the register remains up to date. This will be supplemented by sharing data with other service centred organisations that hold information about vulnerable customers, provided customers give their consent and data protection allows.

Links have been established with many organisations such as the Royal Voluntary Service (formerly WRVS) and British Red Cross to improve the understanding of the needs of vulnerable customers. These partners work with WPD to improve the services that are provided and we will continue to work with them.

Help is provided for vulnerable customers during power cuts and where possible advice is provided to enable them to be prepared should a power cut occur.

Fuel poverty and energy affordability

Some customers on low incomes cannot afford to use electricity to effectively heat their properties. There is growing concern that customers will suffer as economic growth remains uncertain and austerity measures affect fuel poor customers further. Whilst WPD does not have a direct obligation to provide energy efficiency advice/support, in 2013 we introduced a social obligations strategy that is updated and reviewed by our Chief Executive annually, and includes actions WPD will take to address fuel poverty by helping customers to access information and key support. In recent years we have worked with expert partners such as the Centre for Sustainable Energy and the charity National Energy Action and with the Energy Saving Trust to provide information for our customers on the causes of and solutions for fuel poverty.

In 2014 WPD teamed up with the Coventry Citizens’ Advice Bureau (CAB) to establish an innovative fuel poverty referral scheme called ‘Power Up’. Initially as a one year pilot, the project helped customers in Coventry, Warwickshire and Birmingham by offering income and energy efficiency advice, such as benefits advice and energy saving tariffs and schemes. The service offered free, independent, confidential and impartial advice. The project works by Coventry CAB taking referrals directly from WPD (following calls proactively made to vulnerable customers as part of WPD’s update of the Priority Service Register). The scheme supported 694 fuel poor customers in 2014, leading to a range of positive interventions including saving customers a total of £33,000 a year.

 

Western Power Distribution plc		18

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Strategic report (continued)

For the year ended 31 March 2015

 

Corporate and social responsibility (continued)

 

Human rights issues (continued)

 

Fuel poverty and energy affordability (continued)

 

Building on this successful model we have replicated this project in 2015 and now have three ‘Power Up’ referral schemes – one in the Midlands, one in the South Wales and one in South West, working with Coventry CAB, Energy Saving Trust and Centre for Sustainable Energy respectively. From January 2015 every customer contacted as part of WPD’s PSR data cleanse is given the opportunity to be onwardly referred to a partner for support. Every project has the capacity to deliver all of the following interventions, in line with the customer’s need:

1. Income maximisation (e.g. debt management)

2. Tariffs (e.g. switching tariff)

3. Energy efficiency (e.g. loft/cavity wall insulation schemes)

4. Affordable warmth (e.g. boiler replacement schemes)

5. Behavioural changes (e.g. more effectively managing heating/hot water systems).

In the first two months, the schemes handled over 1,000 customer referrals, with a recorded outcome for every referral.

By Order of the Board

RA Symons

Chief Executive Officer

16 July 2015

Western Power Distribution plc

Avonbank

Feeder Road

Bristol

BS2 0TB

 

Western Power Distribution plc		19

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Directors’ report

For the year ended 31 March 2015

Results and dividends

The WPD Group reports a profit for the financial year of £551.9m (2014: £392.8m). Profit on ordinary activities before tax is £696.3m (2014: £450.0m).

The Company has not paid any dividends from the date of its incorporation on 17 September 2014 to 31 March 2015. As a result of applying the principles of pooling, dividends or equivalent distributions of £94.3m (2014: £162.0m) are reflected for the year in these financial statements, being the amount paid outside the pooled group of companies by entities consolidated into the group.

On 30 October 2014 the Company issued 2,086,500,000 ordinary shares of £1 each at par to PPL UK Distribution Holdings Limited as part of an intra-group corporate reorganisation.

On 31 October 2014 the Company issued 571,092,371 ordinary shares of £1 each at par to PPL UK Distribution Holdings Limited as part of an intra-group corporate reorganisation.

On 18 March 2015 the Company reduced its issued share capital from £2,657,592,372 to £1,657,592,372 by cancelling and extinguishing 1,000,000,000 ordinary shares of £1 each with the balance being credited to distributable reserves.

Political donations and expenditure

WPD is a politically neutral organisation and, during the year, made no political donations.

Financial risk management objectives and policies

WPD does not undertake transactions in financial derivative instruments for speculative purposes.

For further details of risks in relation to treasury operations see the principal risks and uncertainties section of the strategic report.

Liquidity and going concern

On a day-to-day basis, WPD South West provides liquidity to WPD. It has borrowing arrangements in place with a range of third parties with high credit ratings. At 31 March 2015, WPD South West had committed borrowing facilities available in respect of which all conditions precedent had been met at that date of £245m maturing July 2019 all of which was undrawn. In addition, it had uncommitted facilities of £45m of which £4.5m was drawn as at 31 March 2015.

In addition, at 31 March 2015 the WPD Group’s parent, Western Power Distribution plc, had a £210m committed borrowing facility that expires in December 2016 of which all conditions precedent had been met at that date; at 31 March 2015, it had drawn £133.9m against this facility and thus had £76.1m undrawn. The drawdown was utilised to part fund the purchase of $200m Eurobonds (issued by the Company’s UK parent) at a premium of $21m from a US based fellow subsidiary of PPL.

At 31 March 2015, both WPD East Midlands and WPD West Midlands had committed borrowing facilities available, in respect of which all conditions precedent had been met at that date, of £300m each, maturing July 2019. Under this facility both WPD East Midlands and WPD West Midlands have the ability to request the lenders to issue up to £80m of letters of credit in lieu of borrowing. At 31 March 2015, WPD West Midlands had borrowed nothing against the facility, while WPD East Midlands had borrowed £146m, and no letters of credit issued on behalf of either DNO.

The four WPD DNOs also have access to an uncommitted facility from which any DNO can draw but which in aggregate cannot exceed £20m. No borrowings have been drawn against this facility as at 31 March 2015.

As at 31 March 2015 the WPD DNOs had the following levels of debt:

 

 

Western Power Distribution plc		20

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Directors’ report (continued)

For the year ended 31 March 2015

 

Financial risk management objectives and policies (continued)

 

Liquidity and going concern (continued)

 

After consideration, the directors of the WPD Group have concluded that the WPD Group has sufficient resources available to enable it to continue in existence for the foreseeable future and at least for a period of 12 months from the date of signing the accounts and have therefore continued to adopt the going concern basis in preparing the financial statements. This consideration included the availability of facilities as set out above, the relatively stable and regulated nature of the business, the forecast long term business plan, and the anticipated ability of the WPD Group to be able to raise additional long term debt in the future.

Dividend policy

The WPD Group is structured such that a proportion of the WPD Group’s debt is issued by holding company WPD plc. Interest payments on this debt, together with other items, are funded primarily through dividend payments from WPD South West, WPD South Wales, WPD East Midlands and WPD West Midlands.

Strategic report

The following information required in the directors’ report has been included in the strategic report:

- an indication of future developments in the business - see page 2;

- an indication of activities of the Company in the field of research and development - see page 12;

- a statement on the policy for disabled employees - see page 18;

- employee policies - see page 18;

- greenhouse gas (carbon) emissions - see page 17.

Directors and their interests

The directors who served during the period were as follows:

RA Symons, Chief Executive

DCS Oosthuizen, Finance Director

PG Allen, Resources and External Affairs Director (deceased 9 February 2015)

P Swift, Operations Director

IR Williams, Resources and External Affairs Director (appointed 9 March 2015)

V Sorgi

RL Klingensmith

AJ Torok

MF Wilten

SK Breininger, alternate director to V Sorgi

Alternate directors have the right to attend Board meetings but can only vote if the person for whom they are the alternate is not present.

During and at the end of the financial year, no director was materially interested in any contract of significance in relation to the WPD Group’s business other than service contracts.

Insurance in respect of directors and officers is maintained by the WPD Group parent, PPL Corporation. The insurance is subject to the conditions set out in the Companies Acts and remains in force at the date of signing the Directors’ report.

Regulatory financial statements

As a condition of its Electricity Distribution Licence, each licensee is required to prepare and publish separate financial statements for its distribution business for each year ending 31 March. WPD South West, WPD South Wales, WPD East Midlands and WPD West Midlands will publish information on the WPD website and this information will also be available from the Company’s registered office as shown below.

Statement of disclosure to independent auditors

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the Company’s auditor, each director has taken all the steps that he is obliged to take as a director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information.

 

Western Power Distribution plc		21

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Directors’ report (continued)

For the year ended 31 March 2015

 

Responsibility statements under the Disclosure and Transparency Rules

Each of the directors listed above confirm to the best of their knowledge:

(a)  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

(b) the Strategic report and the Directors’ report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Independent auditors

The auditors, Ernst & Young LLP, have expressed their willingness to continue in office and, subject to the result of a current tender exercise in respect of PPL’s audit services, a resolution proposing their re-appointment will be put before the Annual General Meeting.

 

By Order of the Board,
RA Symons
Chief Executive
16 July 2015
Western Power Distribution plc		Registered Number: 9223384
Avonbank
Feeder Road
Bristol BS2 0TB

 

Western Power Distribution plc		22

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Statement of directors’ responsibilities

The directors are responsible for preparing the Annual Report and Financial Statements, including the WPD Group financial statements and the Company financial statements, the Strategic report and the Directors’ report in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year that give a true and fair view of the financial position of the Company on a consolidated and individual basis and of the financial performance and cashflows of the Company on a consolidated and individual basis for that period. Under that law the directors have elected to prepare the WPD Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applicable UK Law. Further they have elected to prepare the Company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom generally accepted accounting practice, UK GAAP).

Under company law the directors must not approve the financial statements unless they are satisfied that they are a true and fair view of the Group and Company and of the profit or loss of the Group for that period.

In preparing the Group financial statements, the directors are required to:

 

§		select suitable accounting policies in accordance with IAS 8 “Accounting policies, changes in accounting estimates and errors” and then apply them consistently;
§		present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
§		provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and
§		state that the Group has complied with IFRS subject to any material departures disclosed and explained in the financial statements.

In preparing the Company financial statements, the directors are required to:

 

§		select suitable accounting policies and apply them consistently;
§		make judgements and estimates that are reasonable and prudent;
§		state whether applicable UK accounting standards have been followed subject to any material departures disclosed and explained in the financial statements; and
§		prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors confirm that the financial statements comply with the above requirements.

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 on a consolidated and individual basis, and to enable them to ensure that the individual and consolidated financial statements comply with the Companies Act 2006 and with regards to the group financial statements, article 4 of the IAS regulation. They are also responsible for the system of internal control for safeguarding the assets of the Company and its subsidiaries 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. Information published on the Company’s website is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Western Power Distribution plc		23

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Independent auditors’ report

to the members of Western Power Distribution plc

We have audited the Group financial statements of Western Power Distribution plc for the year ended 31 March 2015 which comprise the Group income statement, the Group statement of comprehensive income, the Group statement of changes in equity, Group balance sheet, the Group cash flow statement, and the related notes 1 to 29, and the parent Company balance sheet and the related notes 1 to 7. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

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.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors’ responsibilities (set out on page 23), the directors are responsible for the preparation of the Group and parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in performing our audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion:

 

§		the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 March 2015 and of the Group’s profit for the year then ended;
§		the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
§		the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
§		the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic report and Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.

 

Western Power Distribution plc		24

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Independent auditors’ report

to the members of Western Power Distribution plc

 

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

 

§

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; or

 

§

certain disclosures of directors’ remuneration specified by law are not made; or

 

§

we have not received all the information and explanations we require for our audit.

 

 

Christabel Cowling, Senior statutory auditor

For and on behalf of Ernst & Young LLP, Statutory Auditors

Bristol

17 July 2015

 

 

Notes:

1. The maintenance and integrity of the Western Power Distribution plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Western Power Distribution plc		25

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Western Power Distribution plc Group income statement

For the year ended 31 March 2015

 

		Note		2015 £m				2014  £m
Revenue		2			1,620.1				1,574.0
Operating costs		3			(576.9)				(589.8)
Other operating income		4			2.2				2.4
Other operating expense		4			(0.7)				(5.3)
Impairment of intangible assets		12			(72.0)				(248.4)
Operating profit		3,4			972.7				732.9
Finance income		5			7.8				8.3
Finance costs		5			(259.9)				(267.7)
Net finance expense relating to pensions and other post-retirement benefits		22			(24.3)				(23.5)
Profit before income tax					696.3				450.0
Income tax expense		8			(144.4)				(57.2)
Profit for the year attributable to equity holders of the parent					551.9				392.8

All operations are continuing.

The accompanying notes are an integral part of these financial statements.

 

Western Power Distribution plc		26

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Western Power Distribution plc Group statement of comprehensive income

For the year ended 31 March 2015

 

		Note		2015 £m						2014  £m
Profit for the year					551.9						392.8
Other comprehensive loss:
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Profits/(losses) arising on cash flow hedges during the year					97.6						(56.9)
Reclassification adjustments for gains/(losses) on cash flow hedges included in profit or loss (finance costs)					(93.1)						76.7
Income tax effect		8			(0.9)						(4.7)
					3.6						15.1
Other comprehensive loss not to be reclassified to profit or loss in subsequent periods:
Re-measurement losses on defined benefit pension plan		22			(230.0)						(63.3)
Income tax effect:
Impact of tax rate change		8			-						(29.0)
Other		8			48.7						8.2
					(181.3)						(84.1)
Other comprehensive loss for the year, net of tax					(177.7)						(69.0)
Total comprehensive income for the year, net of tax attributable to equity holders of the parent					374.2						323.8

Western Power Distribution plc Group statement of changes in equity

For the year ended 31 March 2015

 

		Share capital £m				Merger reserve £m				Hedging reserve £m				Retained earnings £m				Total   equity   £m
At 1 April 2013			-				1,694.5				(20.3	)			767.3				2,441.5
Profit for the year			-				-				-				392.8				392.8
Other comprehensive income/(loss)			-				-				15.1				(84.1	)			(69.0)
Total comprehensive income for the year			-				-				15.1				308.7				323.8
Equity dividends paid			-				-				-				(162.0	)			(162.0)
At 31 March 2014			-				1,694.5				(5.2	)			914.0				2,603.3
Profit for the year			-				-				-				551.9				551.9
Other comprehensive income/(loss)			-				-				3.6				(181.3	)			(177.7)
Total comprehensive income for the year			-				-				3.6				370.6				374.2
Issue of new shares			2,657.6				(2,657.6	)			-				-				-
Capital reduction			(1,000.0	)			-				-				1,000.0				-
Equity dividends paid			-				-				-				(94.3	)			(94.3)
At 31 March 2015			1,657.6				(963.1	)			(1.6	)			2,190.3				2,883.2

 

Western Power Distribution plc		27

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Western Power Distribution plc Group balance sheet

As at 31 March 2015

 

		Note		2015 £m				2014  £m
ASSETS
Property, plant and equipment		10			9,690.5				8,873.8
Investment property		11			39.7				40.4
Intangible assets		12			1,266.6				1,337.9
Held-to-maturity investments		13			141.1				127.4
Trade and other receivables		15			66.4				70.1
Derivative financial instruments		20			66.5				-
Non-current assets					11,270.8				10,449.6
Inventories		14			18.3				19.4
Trade and other receivables		15			310.2				305.7
Derivative financial instruments		20			1.9				-
Cash and cash equivalents		16			297.4				453.9
Current assets					627.8				779.0
Total assets		2			11,898.6				11,228.6
LIABILITIES
Loans and other borrowings		18			286.3				106.6
Derivative financial instruments		20			0.5				3.6
Trade and other payables		17			782.1				821.2
Current tax liabilities					42.9				51.9
Provisions		23			16.4				19.7
Current liabilities					1,128.2				1,003.0
Loans and other borrowings		18			4,723.2				4,624.9
Derivative financial instruments		20			-				28.6
Deferred income tax liabilities		21			362.0				356.6
Retirement benefit obligations		22			813.0				731.8
Trade and other payables		17			1,942.1				1,826.0
Provisions		23			46.9				54.4
Non-current liabilities					7,887.2				7,622.3
Total liabilities		2			9,015.4				8,625.3
Net assets					2,883.2				2,603.3
EQUITY
Share capital		24			1,657.6				-
Merger reserve		25			(963.1)				1,694.5
Hedging reserve		25			(1.6)				(5.2)
Retained earnings		25			2,190.3				914.0
Total equity					2,883.2				2,603.3

The financial statements on pages 26 to 82 were approved by the Board of Directors on 16 July 2015 and signed on its behalf by:

 

 

R A Symons		D C S Oosthuizen
Chief Executive		Finance Director

 

Western Power Distribution plc		28

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Western Power Distribution plc Group cash flow statement

For the year ended 31 March 2015

 

		Note				2015 £m				2014  £m
Operating activities - continuing operations
Profit for the year							551.9				392.8
Adjustments to reconcile profit for the year to net cash flow from operating activities:
Tax expense							144.4				57.2
Finance costs							284.2				291.2
Finance revenue							(7.8)				(8.3)
Depreciation of property, plant and equipment							224.5				230.0
Amortisation of customers’ contributions							(42.8)				(42.5)
Amortisation of intangible assets							3.3				2.6
Impairment of intangible assets							72.0				248.4
Gain on disposal of property, plant and equipment							(1.7)				(2.4)
(Gain)/loss on disposal of investment property							(0.1)				0.1
Fair value gains on investment properties							(0.2)				-
Fair value losses on investment properties							0.7				5.3
Difference between pension contributions paid and amounts recognised in the income statement							(174.5)				(37.8)
Decrease in provisions							(10.8)				(16.9)
Working capital adjustments:
Decrease in inventories							1.1				2.5
Decrease/(increase) in trade and other receivables							3.0				(21.5)
Increase/(decrease) in trade and other payables							25.4				(5.1)
Interest paid							(255.9)				(220.5)
Interest received							8.4				11.5
Income taxes paid							(100.7)				(99.2)
Net cash from operating activities							724.4				787.4
Investing activities
Purchase of property, plant and equipment							(1,040.0)				(958.3)
Customers’ contributions received							185.2				142.0
Proceeds from sale of property, plant and equipment							2.1				4.0
Proceeds from sale of investment properties							0.3				-
Purchase of intangible assets							(4.0)				(3.2)
Net cash used in investing activities							(856.4)				(815.5)
Financing activities
Net increase/(decrease) in short-term borrowings							169.5				(38.4)
Proceeds from long-term borrowings							-				460.9
Issue costs of long-term borrowings							-				(2.7)
Loan repaid to affiliate							(97.1)				-
Dividends or equivalent distributions paid							(94.3)				(162.0)
Net cash (used in)/from financing activities							(21.9)				257.8
Net (decrease)/increase in cash and cash equivalents							(153.9)				229.7
Cash and cash equivalents at beginning of year			16				445.7				216.0
Cash and cash equivalents at end of year			16				291.8				445.7

 

Western Power Distribution plc		29

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

1. Significant accounting policies, judgements, estimates and assumptions

The financial statements of Western Power Distribution plc (the “Company”) and its subsidiaries (the “WPD Group”) for the year ended 31 March 2015 were authorised for issue by the Board of Directors on 16 July 2015 and the balance sheet was signed on the Board’s behalf by R A Symons and D C S Oosthuizen. The Company is a public limited company incorporated and domiciled in England and Wales. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union (‘EU’) and in accordance with the provisions of the UK Companies Act 2006. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the International Accounting Standards Board (“IASB”), however, the differences have no impact on the WPD Group’s consolidated financial statements for the years presented. The significant accounting policies and critical accounting judgements, estimates and assumptions of the WPD Group are set out below.

Basis of preparation

The consolidated financial statements have been prepared in accordance with EU IFRS and IFRS Interpretations Committee (‘IFRIC’) interpretations issued and effective for the year ended 31 March 2015. The accounting policies that follow have been consistently applied to all years presented.

These consolidated financial statements are presented in sterling and all values are rounded to the nearest hundred thousand pounds except when otherwise indicated.

Going concern

The directors have prepared the financial statements on a going concern basis as they have a reasonable expectation that the WPD Group has adequate resources to continue in operational existence for the foreseeable future due to the strength of its balance sheet. This is discussed further under ‘financial risk management objectives and policies’ within the Directors’ report.

Basis of consolidation

The WPD Group financial statements consolidate the financial statements of the Company and the entities it controls (its subsidiaries) drawn up to 31 March each year. Control of an investee exists when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To have power over an investee, the investor must have existing rights that give it the current ability to direct the relevant activities of the investee. Subsidiaries, other than those acquired under common control transactions, are consolidated from the date of their acquisition, being the date on which the group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting policies. Intercompany balances and transactions, including unrealised profits arising from intragroup transactions, have been eliminated. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the assets transferred.

The Company was incorporated on 17 September 2014 as a private limited company and re-registered as a public limited company on 24 June 2015. In October 2014, as part of an intra-group corporate reorganisation, the Company became the parent of substantially all of the subsidiaries and assets and liabilities previously reported by the PPL WW Holdings Limited Group (“PPL WW Group”) and PPL WEM Holdings Limited Group (“PPL WEM Group”). The Company has elected to present the consolidated financial statements as if the subsidiaries and assets and liabilities acquired from the PPL WW Group and PPL WEM Group had been owned by the Company throughout the current and comparative accounting year in accordance with the pooling of interests principles for business combinations of entities under common control.

Under the pooling of interest method:

(i) The assets and liabilities of the combining entities are reflected at their carrying amounts. No adjustments are made to reflect fair values, or recognise any new assets or liabilities, at the date of the combination that would otherwise be done under the acquisition method. The only adjustments that are made are to harmonise accounting policies.

(ii) No ‘new’ goodwill is recognised as a result of the combination. The only goodwill that is recognised is any existing goodwill relating to the combining entities. Any difference between the consideration paid/transferred and the equity ‘acquired’ is reflected within equity.

(iii) The income statement reflects the results of the combining entities for the full year, irrespective of when the combination took place.

 

Western Power Distribution plc		30

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Impact of new International Financial Reporting Standards

There are no new or amended standards or interpretations adopted during the year that have a significant impact on the financial statements.

Not yet adopted

The following pronouncements from the IASB will become effective for future financial reporting periods and have not yet been adopted by the WPD Group.

The IASB issued IFRS 15 ‘Revenue from Contracts with Customers’, which provides a single model for accounting for revenue arising from contracts with customers and is effective for annual periods beginning on or after 1 January 2017. IFRS 15 will supersede IAS 18 ‘Revenue’.

The IASB has also issued IFRS 9 ‘Financial Instruments’, which will supersede IAS 39 ‘Financial Instruments: Recognition and Measurement’ and is effective for annual periods beginning on or after 1 January 2018. IFRS 9 covers classification and measurement of financial assets and financial liabilities, impairment methodology and hedge accounting.

The WPD Group has not yet decided the date of adoption for the group for IFRS 15 and IFRS 9 and has not yet completed its evaluation of the effect of adoption.

There are no other standards and interpretations in issue but not yet adopted that the directors anticipate will have a material effect on the reported income or net assets of the group.

Significant accounting policies: use of judgements, estimates and assumptions

The preparation of financial statements in conformity with IFRS requires the use of accounting estimates and assumptions. It also requires management to exercise its judgement in the process of applying the WPD Group’s accounting policies. Estimates, assumptions and judgements are continually evaluated based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates. The areas involving a higher degree of judgement or complexity are described below.

Goodwill

The WPD Group records all assets and liabilities acquired in purchase acquisitions, including goodwill, at fair value. Goodwill is not amortised but is subject, at a minimum, to annual tests for impairment. The initial goodwill recorded and subsequent impairment analysis require management to make subjective judgements concerning the fair value of cash-generating units. Estimates of fair value are consistent with market information and the WPD Group’s plans and forecasts.

Carrying value of long-lived assets

The estimated useful lives of property, plant and equipment (“PP&E”) are based on management’s judgement and experience. When management identifies that actual useful lives differ materially from the estimate used to calculate depreciation, that charge is adjusted prospectively. Due to the significance of PP&E investment to the WPD Group, variations between actual and estimated useful lives could impact operating results both positively and negatively.

The WPD Group is required to evaluate the carrying value of PP&E for impairment whenever circumstances indicate, in management’s judgement, that the carrying value of such assets may not be recoverable. An impairment review requires management to make subjective judgements concerning the cash flows, growth rates and discount rates of the cash-generating units under review.

Pension obligations

The WPD Group has a commitment, mainly through the Electricity Supply Pension Scheme (“ESPS”), to pay pension benefits. The cost of these benefits and the present value of the WPD Group’s pension liabilities depend on such factors as the life expectancy of the members, the salary progression of current employees, the return that the pension fund assets will generate in the time before they are used to fund the pension payments and the discount rate at which the future pension payments are discounted. Based on advice from external actuaries, WPD uses estimates for all these factors in determining the pension costs and liabilities incorporated in the financial statements. The assumptions reflect historical experience and management’s judgement regarding future expectations.

Deferred tax

Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular, judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income.

 

Western Power Distribution plc		31

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Significant accounting policies: use of judgements, estimates and assumptions (continued)

 

Income tax

The actual income tax charged on profits is determined according to complex tax laws and regulations. Where the effect of these laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on past profits which is recognised in the financial statements. The estimates, assumptions and judgements can involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the financial statements.

Financial instruments

Certain financial instruments are carried on the balance sheet at fair value. Fair values are estimated by reference, in part, to published price quotations and in part by using valuation techniques.

Investment properties

Investment properties are carried on the balance sheet at fair value. These valuations are prepared in accordance with IFRS and the appraisal and valuation manual issued by the Royal Institution of Chartered Surveyors. Valuations are carried out having regard to comparable market evidence. In assessing fair value, current and potential future income (after deduction of non-recoverable outgoings) is capitalised using yields derived from market evidence.

Business combinations and goodwill

Business combinations, other than the combination of businesses under common control, are accounted for using the acquisition method. The identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed and included in distribution and administration expenses.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the amount recognized for any non-controlling interest and the acquisition-date fair values of any previously held interest in the acquiree over the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date.

At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units, or groups of cash-generating units, expected to benefit from the combination’s synergies.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Foreign currencies

Transactions in foreign currencies are initially recorded in the entity’s functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the WPD Group and that the revenue can be reliably measured. Revenue comprises primarily use of energy system income.

Revenue includes an assessment of the volume of unbilled energy distributed to customers between the date of the last meter reading and the year end.

Where revenue received or receivable exceeds the maximum amount permitted by regulatory agreement and adjustments will be made to future prices to reflect this over-recovery, no liability is recognised as such an adjustment to future prices relates to the provision of future services. Similarly no asset is recognised where a regulatory agreement permits adjustments to be made to future prices in respect of an under-recovery.

Finance revenue comprises interest receivable on funds invested and returns on pension scheme assets that are recognised in the income statement. Interest income is recognised in the income statement as it accrues, on an effective rate basis.

Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease term.

 

Western Power Distribution plc		32

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Other operating income and expense

Other operating income and expense includes movements in the fair value of investment properties and gains and losses arising on the disposal of properties by the WPD Group’s property management business which is considered to be part of the normal recurring operating activities of the WPD Group.

Contributions

Contributions receivable in respect of property, plant and equipment are treated as deferred income, which is credited to the income statement over the estimated weighted life of the related assets of 69 years. Prior to 1 December 2014, an estimated weighted life of 55 years was assumed.

Finance costs

Finance expenses comprise interest payable on borrowings, the release of discount on provisions, and interest on pension scheme liabilities. Interest charges are recognised in the income statement as they accrue, on an effective rate basis.

Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

WPD Group as a lessee

Leases where the lessor retains a significant portion of the risks and benefits of ownership of the assets are classified as operating leases and rentals payable are charged to the income statement on a straight line basis over the lease term.

WPD Group as a lessor

With the exception of investment properties, assets leased out under operating leases are included in property, plant and equipment and depreciated over their estimated useful lives. Rental income, including the effect of lease incentives, is recognised on a straight line basis over the term of the lease.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and impairments. Borrowing costs directly attributable to assets under construction and which meet the recognition criteria in IAS 23 are capitalised as part of the cost of that asset.

Expenditure on electricity infrastructure assets relating to increases in capacity or enhancements of the network including qualifying replacement expenditure are treated as additions. Other costs incurred in maintaining the operating capability of the network in accordance with defined standards of service are expensed in the year in which the expenditure is incurred.

Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended. Employee costs incurred in implementing the capital schemes of the WPD Group are capitalised within infrastructure assets together with the cost of materials and an appropriate proportion of production overheads.

Contributions received towards the cost of property, plant and equipment which include low carbon network funding are included in trade and other payables as deferred income and credited on a straight-line basis to the income statement over the estimated economic useful lives of the assets to which they relate.

 

Western Power Distribution plc		33

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Property, plant and equipment (continued)

 

Depreciation is provided on all property, plant and equipment, other than land, on a straight-line basis over its expected useful life as follows:

 

		Years
Distribution network assets:
Overhead lines and poles		65
Underground cables		85
Plant and machinery (transformers and switchgear)		55
Meters		3
Other (towers and substation buildings)		Up to 80
Buildings - freehold		Up to 60
Buildings - long leasehold		Up to 60
Fixtures and equipment		Up to 20
Vehicles and mobile plant		Up to 10

The assumed useful economic lives of distribution network assets were changed from 1 December 2014 to those set out above.

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the income statement in the period of derecognition.

Investment property

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date and the highest and best use. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period in which they arise.

Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the WPD Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

 

Western Power Distribution plc		34

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Intangible assets

Intangible assets, other than goodwill, include customer contracts and computer software and are stated at the amount initially recognized, less accumulated amortization and accumulated impairment losses.

Intangible assets acquired separately from a business are carried initially at cost. The initial cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. An intangible asset acquired as part of a business combination is measured at fair value at the date of acquisition and is recognized separately from goodwill if the asset is separable or arises from contractual or other legal rights.

Intangible assets with a finite life are amortized on a straight-line basis over their expected useful lives.

The expected useful lives of assets are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively.

Contracts

The value recognised for customer contracts relating to acquired telecommunications activities is amortised over the period of the contracts. It is subject to an impairment test at least on an annual basis. It is written off if the activity is sold.

Computer software

Costs directly associated with the development of computer software for internal use are capitalised where technical feasibility can be demonstrated, the WPD Group is satisfied that future economic benefits will flow to the WPD Group and the cost can be separately identified and reliably measured. Software is measured initially at cost and amortised on a straight-line basis over its estimated useful life. Carrying amount is reduced by any provision for impairment where necessary. The estimated useful life assigned to computer software is up to five years.

Impairment of property, plant and equipment, intangible assets, and goodwill

The WPD Group assesses goodwill for impairment annually and assets or groups of assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any such indication of impairment exists, the group makes an estimate of the asset’s recoverable amount. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. An asset group’s recoverable amount is the higher of its fair value less costs of disposal and its value in use. Where the carrying amount of an asset group exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount.

The business plan, which is approved on an annual basis by senior management, is the primary source of information for the determination of value in use. In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset group and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money.

Fair value less costs of disposal is the price that would be received to sell the asset in an orderly transaction between market participants and does not reflect the effects of factors that may be specific to the entity and not applicable to entities in general.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate the recoverable amount of the group of cash-generating units (‘CGUs’) to which the goodwill relates should be assessed. In assessing whether goodwill has been impaired, the carrying amount of the group of CGUs (including goodwill) is compared with their recoverable amount. The recoverable amount of a group of CGUs to which goodwill is allocated is the higher of value in use and fair value less costs of disposal. Where the recoverable amount of the group of CGUs to which goodwill has been allocated is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

 

Western Power Distribution plc		35

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. It excludes borrowing costs.

Taxation

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:

 

§

where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;

 

§

in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

 

§

deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date. Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the WPD Group to make a single net payment.

Income tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive income. Similarly, income tax is charged or credited directly to equity if it relates to items that are credited or charged directly to equity. Otherwise income tax is recognised in the income statement.

Pension benefits

The WPD Group operates four defined benefit pension plans, all of which require contributions to be made to separately administered funds. The larger plans are the two unitised sections of the industry-wide Electricity Supply Pension Scheme (‘ESPS’). The ESPS scheme is, with very limited exception, closed to new members. A defined contribution plan is offered to new employees. The final two plans, which are also closed to new members and have no active employees, are the Western Power Utilities Pension Scheme (‘WPUPS’) and the much smaller Infralec 1992 Scheme.

The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs, resulting from either a plan amendment or a curtailment (a reduction in future obligations as a result of a material reduction in the plan membership), are recognised immediately when the WPD Group becomes committed to a change.

Net interest expense related to pension benefits represents the net change in the present value of plan obligations and the value of plan assets resulting from the passage of time, and is determined by applying the discount rate to the present value of the benefit obligation at the start of the year and to the fair value of plan assets at the start of the year, taking into account expected changes in the obligation or plan assets during the year. Net interest expense relating to pension benefits is recognised in the income statement.

Remeasurements of the net defined benefit liability or asset, comprising actuarial gains or losses, and the return on plan assets (excluding amounts included in net interest described above) are recognised with other comprehensive income in the period in which they occur.

 

Western Power Distribution plc		36

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Pension benefits (continued)

 

The defined benefit pension plan surplus or deficit in the balance sheet comprises the total of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and in the case of quoted securities is the published bid price.

Contributions to defined contribution schemes are recognised in the income statement or capital expenditure as appropriate in the year in which they become payable.

Share-based payments

The cost of cash-settled transactions is measured at fair value using an appropriate option pricing model. Fair value is established at each balance sheet date from grant date until the awards are settled. During the vesting period a liability is recognised representing the product of the fair value of the award and the portion of the vesting period expired as at the balance sheet date. From the end of the vesting period until settlement, the liability represents the full fair value of the award as at the balance sheet date. Changes in the carrying amount of the liability are recognised in profit or loss for the year.

Provisions

A provision is recognised when the WPD Group has a legal or constructive obligation as a result of a past event; it is probable that an outflow of economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. If the effect is material, expected future cash flows are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.

Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the WPD Group’s financial statements in the year in which the dividends are approved by the Company’s directors.

Financial assets

Financial assets are classified as loans and receivables; financial assets at fair value through profit or loss; derivatives designated as hedging instruments in an effective hedge; held-to-maturity financial assets; or as available-for-sale financial assets, as appropriate. Financial assets include cash and cash equivalents, trade receivables, other receivables, loans, other investments, and derivative financial instruments. The WPD Group determines the classification of its financial assets at initial recognition. Financial assets are recognised initially at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

The subsequent measurement of financial assets depends on their classification, as follows:

Loans and receivables

Loans and receivables are carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process. This category of financial assets includes trade and other receivables. Cash and cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risk of changes in value and have a maturity of three months or less from the date of acquisition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried on the balance sheet at fair value with gains or losses recognised in the income statement. Derivatives, other than those designated as effective hedging instruments, are classified as held for trading and are included in this category.

Derivatives designated as hedging instruments in an effective hedge

These derivatives are carried on the balance sheet at fair value. The treatment of gains and losses arising from revaluation is described below in the accounting policy for derivative financial instruments and hedging activities.

Held-to-maturity investments

Held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment.

Available-for-sale financial assets

After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised within other comprehensive income, except for impairment losses, and, for available-for-sale debt instruments, foreign exchange gains or losses and any changes in fair value arising from revised estimates of future cash flows, which are recognised in profit or loss.

 

Western Power Distribution plc		37

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Impairment of loans and receivables

The WPD Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced, with the amount of the loss recognised in the income statement.

Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profit or loss; derivatives designated as hedging instruments in an effective hedge; or as financial liabilities measured at amortized cost, as appropriate. Financial liabilities include trade and other payables, accruals, most items of finance debt and derivative financial instruments. The group determines the classification of its financial liabilities at initial recognition. The measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are carried on the balance sheet at fair value with gains or losses recognised in the income statement. Derivatives, other than those designated as effective hedging instruments, are classified as held for trading and are included in this category.

Derivatives designated as hedging instruments in an effective hedge

These derivatives are carried on the balance sheet at fair value. The treatment of gains and losses arising from revaluation is described below in the accounting policy for derivative financial instruments and hedging activities.

Financial liabilities measured at amortised cost

All other financial liabilities are initially recognised at fair value. For interest-bearing loans and borrowings this is the fair value of the proceeds received net of issue costs associated with the borrowing.

After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognized respectively in interest and other income and finance costs.

This category of financial liabilities includes trade and other payables and finance debt.

Derivative financial instruments and hedging activities

The WPD Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Gains or losses arising from changes in the fair value of derivatives that are not designated as effective hedging instruments are recognised in the income statement.

For the purpose of hedge accounting, hedges are classified as:

§ Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised  asset or liability or a highly probable forecast transaction; or

§ Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.

 

Western Power Distribution plc		38

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

1. Significant accounting policies, judgements, estimates and assumptions (continued)

 

Derivative financial instruments and hedging activities (continued)

 

Hedge relationships are formally designated and documented at inception, together with the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, and how the entity will assess the hedging instrument effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected at inception to be highly effective in achieving offsetting changes in fair value or cash flows. Hedges meeting the criteria for hedge accounting are accounted for as follows:

Cash flow hedges

For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the net unrealised gains reserve, while the ineffective portion is recognised in profit or loss. Amounts taken to other comprehensive income are transferred to the income statement when the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If a forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in other comprehensive income remain in equity until the forecast transaction occurs and are transferred to the income statement or to the initial carrying amount of a non-financial asset or liability as above. If the related transaction is not expected to occur, the amount is taken to profit or loss.

Fair value hedges

The WPD Group did not have any fair value hedges during the years presented in these financial statements.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The group categorizes assets and liabilities measured at fair value into one of three levels depending on the ability to observe inputs employed in their measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs that are observable, either directly or indirectly, other than quoted prices included within level 1 for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability reflecting significant modifications to observable related market data or the WPD Group’s assumptions about pricing by market participants.

Offsetting of financial assets and liabilities

Financial assets and liabilities are presented gross in the balance sheet unless both of the following criteria are met: the group currently has a legally enforceable right to set off the recognized amounts; and the group intends to either settle on a net basis or realize the asset and settle the liability simultaneously. A right of set off is the group’s legal right to settle an amount payable to a creditor by applying against it an amount receivable from the same counterparty. The relevant legal jurisdiction and laws applicable to the relationships between the parties are considered when assessing whether a current legally enforceable right to set off exists.

Finance costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

 

Western Power Distribution plc		39

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

2. Operating segment information

The WPD Group’s operating segments are those used internally by the Board of Directors to run the business, allocate resources and make strategic decisions. The WPD Group’s reportable segments are the regulated distribution of electricity in the South West, East Midlands and West Midlands of England and South Wales, and other businesses. Distribution involves the delivery of electricity across the WPD Group’s distribution network. Other businesses relate to non-regulated activities including telecommunications, property management and helicopter operations which principally support the main business, and metering.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that, within the financial statements for those businesses, pension expense for each operating segment is recognised and measured on the basis of cash payments to the pension plan.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss on the same basis as in the consolidated financial statements. However, WPD Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers are eliminated on consolidation.

Analysis of revenue, operating profit, and assets and liabilities by segment is provided below. Substantially all revenues and profit before tax arise from operations within the UK.

 

a) Revenues		Total revenue								Inter-segment revenue								External revenue
		2015  £m				2014  £m				2015  £m				2014  £m				2015  £m				2014  £m
Distribution network systems
South West			372.3				368.5				(1.0)				(1.0)				371.3				367.5
South Wales			279.0				277.0				(0.2)				(0.1)				278.8				276.9
East Midlands			469.0				441.7				-				-				469.0				441.7
West Midlands			477.3				465.1				-				-				477.3				465.1
			1,597.6				1,552.3				(1.2)				(1.1)				1,596.4				1,551.2
Other businesses			59.8				52.0				(36.1)				(29.2)				23.7				22.8
			1,657.4				1,604.3				(37.3)				(30.3)				1,620.1				1,574.0
Information about major customers Revenues from five customers amounted to £256.0m, £252.9m, £245.8m, £236.6m and £220.4m (2014: £313.9m, £310.6m, £289.1m, £291.1m and £264.6m), respectively arising from sales reported in the South West, South Wales, East Midlands and West Midlands segments.
b) Profit														2015  £m								2014  £m
Distribution network systems
South West															248.3								237.2
South Wales															185.6								180.0
East Midlands															296.1								264.8
West Midlands															315.9								309.2
Impairment of intangible assets **															(72.0)								(248.4)
															973.9								742.8
Other businesses															16.1								9.7
Corporate and unallocated*															(17.3)								(19.6)
Operating profit															972.7								732.9
Finance revenue															7.8								8.3
Finance costs															(259.9)								(267.7)
Net finance expense relating to pensions and other post-retirement benefits															(24.3)								(23.5)
Profit before tax															696.3								450.0

 

Western Power Distribution plc		40

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

2. Operating segment information (continued)

 

b) Profit (continued)

 

* Corporate and unallocated comprises primarily current service pension costs (net of capitalisation).

** The impairment of intangible assets is allocated £nil (2014: £186.2m) to East Midlands and £72.0m (2014: £62.2m) to West Midlands (Note 12).

 

c) Assets, liabilities, and capital expenditure
		Segment assets (i)								Segment liabilities (ii)								Capital expenditure (iii)
		2015  £m				2014  £m				2015  £m				2014  £m				2015  £m				2014  £m
Distribution network systems
South West			2,185.0				2,032.7				520.4				484.7				205.3				207.1
South Wales			1,656.5				1,551.9				330.0				307.2				146.8				124.8
East Midlands			3,790.1				3,474.6				939.1				868.7				387.4				337.5
West Midlands			3,576.2				3,383.4				627.4				603.1				332.7				310.1
			11,207.8				10,442.6				2,416.9				2,263.7				1,072.2				979.5
Other businesses			222.6				245.8				33.2				26.6				28.1				29.8
Corporate and unallocated			468.2				540.2				6,565.3				6,335.0				(20.3)				(5.5)
			11,898.6				11,228.6				9,015.4				8,625.3				1,080.0				1,003.8
(i) Segment assets consist of property, plant and equipment, investment properties, goodwill, other intangible assets, inventories, receivables and cash. Corporate and unallocated assets includes loan to related party, derivative financial instruments and deposits (including deposits classified as cash). (ii) Segment liabilities consist of deferred customer contributions and operating liabilities. Corporate and unallocated liabilities includes current taxation, corporate borrowings, derivative financial instruments, pension liabilities and deferred taxation. (iii) Capital expenditure consists of additions to property, plant and equipment, intangible assets and investment properties.
d) Depreciation and amortisation										Depreciation on property, plant and equipment (Note 10)								Amortisation of intangible assets (Note 12)
										2015  £m				2014  £m				2015  £m				2014  £m
Distribution network systems
South West											57.2				61.8				1.6				1.3
South Wales											39.0				40.7				0.1				0.1
East Midlands											83.5				82.7				0.4				0.3
West Midlands											67.8				66.4				0.3				0.3
											247.5				251.6				2.4				2.0
Other businesses											11.4				9.3				0.9				0.6
											258.9				260.9				3.3				2.6
Less: recapitalised to property, plant and equipment											(34.4)				(30.9)				-				-
Charged to consolidated income statement											224.5				230.0				3.3				2.6

 

Western Power Distribution plc		41

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

3. Operating costs

WPD Group operating costs can be analysed as follows:

 

		2015  £m				2014  £m
Employee benefit expense (Note 6)			117.5				119.9
Depreciation of property, plant and equipment			224.5				230.0
Property taxes			94.7				93.8
Other operating charges			140.2				146.1
			576.9				589.8
WPD Group operating profit is stated after charging/(crediting) the following items:
		2015  £m				2014  £m
Employee costs (Note 6)			117.5				119.9
Depreciation of property, plant and equipment *			224.5				230.0
Amortisation of intangibles			3.3				2.6
Operating lease rentals:
Plant, machinery and equipment			14.8				20.6
Land and buildings			3.2				2.6
Amortisation of customer contributions			(42.8)				(42.5)
Research and development expenditure **			0.5				0.4
* Depreciation of property, plant and equipment is stated net of depreciation capitalised of £34.4m (2014: £30.9m) in respect of equipment consumed during the construction of the electricity network.   ** Research and development costs above exclude expenditure on Low Carbon Network projects which is capitalised together with associated funding received.   Services provided by the WPD Group’s auditor   During the year the WPD Group obtained the following services from the Company’s auditor and its associates:
		2015  £m				2014  £m
Fees payable to Company’s auditor for the audit of parent company and consolidated financial statements			0.2				0.2
Fees payable to Company’s auditor and its associates for other services:
- The audit of the Company’s subsidiaries pursuant to legislation			0.6				0.7
- Other services pursuant to legislation			0.2				0.1
- All other services			0.1				0.3
			1.1				1.3

 

Western Power Distribution plc		42

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

4. Other operating income and expense		2015  £m				2014  £m
Other operating income
Net gain on disposal of property, plant and equipment			1.8				1.9
Increase in fair value of investment properties			0.2				-
Income from fixed asset investments			0.2				0.5
			2.2				2.4
Other operating expense
Reduction in fair value of investment properties			(0.7)				(5.3)
Net other operating income/(expense)			1.5				(2.9)
5. Net finance costs		2015  £m				2014  £m
Finance revenue
Interest on bank deposits			1.6				2.0
Interest on loan to PPL affiliate (Note 28)			6.2				6.3
Total finance revenue			7.8				8.3
Finance costs
Interest payable on bank loans and overdrafts			(7.4)				(7.6)
Interest payable on other loans			(252.0)				(245.6)
Foreign exchange (loss)/gain on US$ denominated financial assets and liabilities			(89.3)				71.6
Transfers from the hedging reserve in relation to cash flow hedges			93.1				(76.7)
Interest on loan from PPL affiliate (Note 17)			(10.2)				(14.5)
Less: interest capitalised			5.9				5.1
Total finance costs			(259.9)				(267.7)
Net finance costs			(252.1)				(259.4)
6. Employee benefit expense   Employee benefit expense, including directors’ remuneration, was as follows:
		2015  £m				2014  £m
Wages and salaries			299.1				290.3
Severance costs			-				1.0
Social security costs			31.2				30.4
Pension costs (Note 22)			43.3				45.8
			373.6				367.5
Less: amounts capitalised as part of property, plant and equipment			(256.1)				(247.6)
Charged to the income statement			117.5				119.9

 

Western Power Distribution plc		43

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

6. Employee benefit expense (continued)

 

There are no personnel, other than the directors, who as key management have authority and responsibility for planning, directing and controlling the activities, directly or indirectly, of the WPD Group.

The average number of employees during the financial year (including directors) analysed by activity was:

 

						2015  Number								2014  Number
Electricity distribution							6,266							6,079
Other activities							148							144
							6,414							6,223
Share based payments WPD issues to directors and senior employees share appreciation rights (“SARs”) relating to the shares of WPD’s ultimate parent, PPL Corporation. The SARs require WPD to pay the intrinsic value of the SAR to the director or employee at the date of exercise. WPD has recorded liabilities of £0.9m (2014: £1.9m). Fair value of the SARs is determined by using the Black-Scholes option-pricing model using the assumptions noted below. In 2015, WPD recorded total credits of £0.2m (2014: £1.4m charge) allocated roughly equally between WPD South West, WPD South Wales, WPD East Midlands and WPD West Midlands. The total intrinsic value at 31 March 2015 was £0.9m (2014: £2.3m).   The weighted average fair value of options granted during the year was £1.17 (2014: £1.54). The range of exercise prices for options outstanding at the end of the year was £24.14 - £15.38. (2014: £24.14 - £14.64).   The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year.
		2015  No.				2015  WAEP				2014  No.				2014  WAEP
Outstanding as at 1 April			1,112,177				18.98				1,164,767			19.05
Granted during the year			40,211				22.53				111,499			18.85
Exercised/forfeited			(483,557)				18.42				(164,089)			17.93
Outstanding at 31 March			668,831				19.91				1,112,177			18.98
Exercisable at 31 March			448,359				20.29				681,349			19.33
The inputs into the Black-Scholes option-pricing model were:
						2015								2014
Expected volatility							15.90%							15.80%
Expected life (years)							6							6
Risk-free rate							1.620%							1.625%
Expected dividend yield							4.80%							4.80%

The risk-free interest rate reflects the yield for a US Treasury Strip available on the date of grant with constant rate maturity approximating the option’s expected life. Expected life is calculated based on historical exercise behaviour. Volatility over the expected term of the options is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL’s volatility in those prior periods. Management’s expectations for future volatility, considering potential changes to PPL’s business model and other economic conditions, are also reviewed in addition to the historical data to determine the final volatility assumption. The dividend yield is based on several factors, including PPL’s most recent dividend payment, as of the grant date and the forecasted stock price through 2015.

Options become exercisable in equal instalments over a three year service period beginning one year after the date of grant, assuming the individual is still employed by WPD. All options expire no later than ten years from the grant date.

 

Western Power Distribution plc		44

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

7.   Directors’ emoluments

The service contracts for the executive directors are with WPD South West. However, the emoluments detail given in this note represents total emoluments of the directors for all services provided to WPD companies as a whole. The costs are apportioned between WPD South Wales, WPD South West, WPD West Midlands and WPD East Midlands.

 

		Highest paid director      (note i)								Total
		2015				2014				2015				2014
		£000				£000				£000				£000
The emoluments of the executive directors comprised:
Base salary (note ii)			364				720				1,406				1,531
Performance dependent bonus (note iii)			272				607				981				1,268
Pension compensation allowance (note iv)			555				970				555				1,524
Sub-total directors’ remuneration			1,191				2,297				2,942				4,323
Long term incentive plan (note v)			547				803				1,239				1,674
Fees to the independent non executive directors (note vii)			-				-				60				61
			1,738				3,100				4,241				6,058

(i)   In 2014, the highest paid director was the Chief Executive Officer. In 2015, another director was the highest paid.

(ii)   Base salary also includes benefits in kind.

(iii)   The amount of the annual bonus is based on WPD’s financial performance, the reliability of the electricity network, and other factors.

(iv)   In anticipation of the change in tax applicable to UK pensions effective 6 April 2006, the three executive directors at that time resigned as active members of the Electricity Supply Pension Scheme (“ESPS” - Note 22) on 5 April 2006 and elected for enhanced protection. WPD thus no longer contributes for ongoing service to the ESPS in respect of these executive directors, two of whom served in 2015 (2014: three). Instead, WPD pays cash compensation to them individually equivalent to the value of WPD’s contribution in to the ESPS that would have been made had they remained active members (as determined by external actuaries). In 2014 the highest paid director that year received an additional payment to terminate this contractual benefit; this is shown within this line.

(v) Under a long term incentive plan, annually the executive directors are granted phantom stock options (share appreciation rights). The option price is set at the quoted share price of WPD’s parent in the US, PPL Corporation, at the date the phantom options are granted. The options may be exercised during fixed periods and the gain is payable through the payroll. The values above include any payments made to the executive directors in respect of gains in value of phantom options exercised in the year. In 2015, four executive directors were granted options (2014: four) and two executive directors exercised options (2014: five). In addition, the executive directors receive annually a grant of PPL Corporation shares which cannot generally be accessed for 3 years; a number of these shares is dependent on the achievement of certain criteria at PPL. The value of the shares granted in the year is shown within this line.

(vi) During the year, five executive directors (2014: five) were members of the defined benefit ESPS of which three (2014: two) were active members (see (iv) above). At 31 March 2015, the highest paid director that year had accrued annual pension benefits of £184,856. The benefits shown assume that an option to convert an element of the annual benefits to a lump sum payable on retirement is not exercised.

(vii) The two independent UK non executive directors are entitled to fees as determined by the appropriate Board. No emoluments are paid to US based non-executive directors, who are officers of PPL, in respect of their services as directors to WPD.

 

Western Power Distribution plc		45

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

8. Income tax expense

 

The major components of income tax expense are:		2015						2014
		£m						£m
Current tax
Current income tax expense			91.2						103.5
Adjustments in respect of prior years			-						(1.2)
Deferred tax (Note 21)
Relating to the origination and reversal of temporary differences			54.7						39.6
Adjustments in respect of prior years			(1.5)						0.7
Impact of tax rate change			-						(85.4)
			144.4						57.2
The tax on the WPD Group’s profit before tax differs from the theoretical amount that would arise using the standard rate of corporation tax in the UK of 21% (2014: 23%) as follows:
		2015						2014
		£m						£m
Profit before income tax			696.3						450.0
Profit before income tax multiplied by standard rate of corporation tax in the UK of 21% (2014: 23%)			146.2						103.5
Effects of:
Expenses not deductible and income not taxable for tax purposes			(6.4)						(8.0)
Impairment of intangible assets not deductible for tax purposes			15.1						57.2
Adjustments to tax charge in respect of prior years			(1.5)						(0.5)
Group relief received at non-standard rates			(9.0)						(9.6)
Impact of tax rate change			-						(85.4)
Total taxation (continuing operations)			144.4						57.2
Tax relating to items charged or credited to other comprehensive income		2015						2014
		£m						£m
Deferred tax:
Revaluation of cash flow hedges			(0.9)						(4.7)
Deferred tax on defined benefit pension schemes			48.7						(20.8)
			47.8						(25.5)
Change in corporation tax rate The standard rate of corporation tax is 20% with effect from 1 April 2015 as enacted by the Finance Act 2013.   9. Dividends
		2015						2014
		£m						£m
Equity dividends or equivalent distributions *			94.3						162.0

* The Company has not paid any dividends from the date of its incorporation on 17 September 2014 to 31 March 2015. As a result of applying the principles of pooling, the dividends or equivalent distributions above are reflected for the year in these financial statements, being the amount paid by group entities to entities outside the pooled group of companies.

 

Western Power Distribution plc		46

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

10. Property, plant and equipment

 

		Generation				Distribution network				Non-network land & buildings				Fixtures & equipment				Vehicles & mobile plant				Total
		£m				£m				£m				£m				£m				£m
Cost
At 31 March 2013			0.4				9,348.1				92.2				197.8				77.3				9,715.8
Additions			-				918.4				18.8				45.1				18.3				1,000.6
Transfers to investment property			-				-				(1.2)				(0.2)				-				(1.4)
Disposals and retirements			-				(30.2)				(1.4)				(13.4)				(3.1)				(48.1)
At 31 March 2014			0.4				10,236.3				108.4				229.3				92.5				10,666.9
Additions			-				997.5				13.4				49.4				15.7				1,076.0
Transfers			-				-				(0.4)				0.4				-				-
Disposals and retirements			-				(95.5)				-				(34.0)				(3.4)				(132.9)
At 31 March 2015			0.4				11,138.3				121.4				245.1				104.8				11,610.0
Accumulated depreciation
At 31 March 2013			-				1,479.4				7.0				71.8				21.0				1,579.2
Depreciation charge for the year			-				210.8				1.9				41.3				6.9				260.9
Transfers to investment property			-				-				(0.2)				(0.1)				-				(0.3)
Disposals and retirements			-				(30.2)				(0.7)				(13.3)				(2.5)				(46.7)
At 31 March 2014			-				1,660.0				8.0				99.7				25.4				1,793.1
Depreciation charge for the year			-				203.8				1.7				44.4				9.0				258.9
Disposals and retirements			-				(95.5)				-				(34.0)				(3.0)				(132.5)
At 31 March 2015			-				1,768.3				9.7				110.1				31.4				1,919.5
Net book value
At 31 March 2015			0.4				9,370.0				111.7				135.0				73.4				9,690.5
At 31 March 2014			0.4				8,576.3				100.4				129.6				67.1				8,873.8
At 31 March 2013			0.4				7,868.7				85.2				126.0				56.3				8,136.6

Included in distribution network at 31 March 2015 was an amount of £83.9m (2014: £132.1m) relating to expenditure on assets in the course of construction.

The carrying amount of the WPD Group’s distribution network and non-network land and buildings include amounts of £6.1m (2014: £6.1m) and £1.5m (2014: £1.5m), respectively, in respect of long leasehold properties.

During the year the WPD Group reviewed the useful economic lives of its distribution network assets. Effective 1 December 2014, after considering information from Ofgem and other internal and external surveys, the weighted average useful lives of network assets were extended from an average of approximately 55 years to an average of approximately 69 years. The effect of this revision (net of the impact on the amortisation of customer contributions) is a reduction in the charge to profit before tax for the year of approximately £17m.

 

Western Power Distribution plc		47

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

11. Investment property		Retail £m				Office £m				Industrial £m				Total  £m
Fair value
At 31 March 2013			26.6				10.1				8.2				44.9
Valuation losses			(0.8)				(3.8)				(0.7)				(5.3)
Transfers from property, plant & equipment			-				0.5				0.4				0.9
Disposals			-				-				(0.1)				(0.1)
At 31 March 2014			25.8				6.8				7.8				40.4
Valuation gains			-				-				0.2				0.2
Valuation losses			-				(0.4)				(0.3)				(0.7)
Disposals			-				-				(0.2)				(0.2)
At 31 March 2015			25.8				6.4				7.5				39.7

The fair value of investment property is based mostly on valuations by independent valuers (Alder King, Jones Lang Lasalle, Hartnell Taylor Cook, PNB Paribas), who hold recognised and relevant professional qualifications, with the remaining valuations carried out by a qualified surveyor who is an employee of the WPD Group. It is the WPD Group’s policy that all properties are valued independently at least once every five years, with more frequent independent valuations carried out for higher value properties. The valuers all have recent experience in the location and category of the investment property being valued. The properties were valued on the basis of open market value in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors.

The WPD Group’s current use of the properties as investment properties is considered to be their highest and best use.

The amounts recognised in the income statement for rental income from investment property are £3.2m (2014: £3.4m).

Investment properties are let on either full repair and insuring leases, under which all outgoings are the responsibility of the lessee, or under tenancies, where costs are recovered through a service charge levied on tenants during the period of occupation. This service charge amounted to £0.7m (2014: £0.6m) for which a similar amount is included within operating costs.

In determining the appropriate classes of investment property the group has considered the nature, characteristics and risks associated with its properties. As a consequence the group has identified the following classes of assets:

▪  Retail - representing a single investment in a supermarket store in Cwmbran, South Wales occupied by J Sainsbury.

▪  Other retail - representing a portfolio of other retail properties across Wales and the South West of England.

▪  Office - representing a portfolio of office buildings across WPD’s region and one in north west England.

▪  Industrial - representing a portfolio of industrial and storage facilities across WPD’s region.

The tables below show details for the larger properties. Within other assets, recorded at £7.1m (2014: £7.5m), are a further 60 (2014: 63) investment properties with an average value of £120,000 per property (2014: £120,000), valued by the WPD Group’s internal qualified surveyor.

With the exception of specific elements of office space, all of the assets are valued on an Income Capitalisation methodology whereby rents receivable are divided by an appropriate yield. The valuations take into account existing tenancies and where necessary make appropriate assumptions regarding vacancies arising at future rent renewal dates.

The remaining office space is valued based on a market comparison approach which compares the subject of the valuation with other interests that have been recently exchanged or are currently being marketed.

All of the valuations fall within Level 3 of the fair value hierarchy (see Note 19). The table below provides details by class of property of the fair value ascribed to each class of asset, an indication of the key inputs used in deriving the valuation, together with other key features which inform the valuation process. In light of the immaterial nature of the other assets below to the financial statements as a whole, the directors have elected not to provide the equivalent detailed information in respect of these valuations.

The valuations are sensitive to movements in key variables, notably the yields applied to valuations based on income capitalisation which can change due to general market conditions and also an assessment of the quality of the underlying tenant. Broadly, a 0.5% increase/decrease in an assumed yield of 5% will result in a 10% decrease/increase in the value of a property, whilst a 0.5% increase/decrease in an assumed yield of 10% will result in a 5% decrease/increase in the value of a property.

 

Western Power Distribution plc		48

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

11. Investment property (continued)

 

Unobservable and observable inputs used in determination of fair values

Other Key information

Class of property

Carrying Amount/Fair Value   2015   £m

Valuation technique

Input

Range (weighted average)   2015

Range 2015

Retail Level 3

20.0

Income capitalisation

> Length of leases in place (in years) > Yield > Passing rent (per sqm p.a) > Long term vacancy rate

14y   5.37% £201.4 0%

> Age of building > Remaining useful life of building > Square metres

21y   20+   5,308

Other retail Level 3

3.8

Income capitalisation

> Net rent (per sqm p.a)   > Length of leases in place (in years) > Yield   > Passing rent (per sqm p.a)   > Long term vacancy rate

£61 - £257 (£147) 2y - 9y (6.0y) 6.75% - 8.25% £61 - £256 (£153.7) 0%

> Age of building > Remaining useful life of building > Square metres > Actual vacancy rate

50+   19y - 21y   2,175 0%

Office Level 3

5.1

Income capitalisation

> Net rent (per sqm p.a)   > Length of leases in place (in years) > Yield > Passing rent (per sqm p.a) > Long term vacancy rate

£40 - £132 (£88) 0.5y - 8y (3.5y) 9% - 14% £40 - £132 (£88) 0% - 14% (5.5%)

> Age of building > Remaining useful life of building > Square metres > Actual vacancy rate

20y - 30y   21y - 47y   9470 0% - 14% (5%)

Office Level 3

1.0

Market comparison

> Price per square metre

£417

> Age of building > Remaining useful life of building > Square metres

31y   29y   2,280

Industrial Level 3

2.7

Income capitalisation

> Net rent (per sqm p.a)   > Length of leases in place (in years) > Yield > Long term vacancy rate

£4.5 - £5.0 (£4.67) 0.5y - 17y (9y) 8.7% - 14% 0% - 18% (9%)

> Age of building > Remaining useful life of building > Square metres > Actual vacancy rate

30 - 60y   19y -21y   6,966 0%

Total

32.6

Other assets

7.1

Total fair value

39.7

 

Western Power Distribution plc		49

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

11. Investment property (continued)

 

Unobservable and observable inputs used in determination of fair values

Other Key information

Class of property

Carrying Amount/Fair Value   2014   £m

Valuation technique

Input

Range (weighted average) 2014

Range 2014

Retail Level 3

20.0

Income capitalisation

> Length of leases in place (in years) > Yield > Passing rent (per sqm p.a) > Long term vacancy rate

15y   5.37% £201.4 0%

> Age of building > Remaining useful life of building > Square metres

20y   20+   5,308

Other retail Level 3

3.8

Income capitalisation

> Net rent (per sqm p.a)   > Length of leases in place (in years) > Yield   > Passing rent (per sqm p.a)   > Long term vacancy rate

£61 - £257 (£147) 0.5y - 10y (4.1y) 6.75% - 8.25% £61 - £256 (£153.7) 0%

> Age of building > Remaining useful life of building > Square metres > Actual vacancy rate

50+   20y - 22y   2,175 0%

Office Level 3

5.4

Income capitalisation

> Net rent (per sqm p.a)   > Length of leases in place (in years) > Yield > Passing rent (per sqm p.a) > Long term vacancy rate

£40 - £132 (£87.6) 1.5y - 9y (3.5y) 9% - 14% £41 -£132 (£87) 3% - 14% (9%)

> Age of building > Remaining useful life of building > Square metres > Actual vacancy rate

20y - 30y   22y - 48y   9,470 3% - 14% (9%)

Office Level 3

1.0

Market comparison

> Price per square metre

£417

> Age of building > Remaining useful life of building > Square metres

30y   30y   2,280

Industrial Level 3

2.7

Income capitalisation

> Net rent (per sqm p.a)   > Length of leases in place (in years) > Yield > Long term vacancy rate

£4.5 - £5.0 (£4.67) 0.5y - 18y (8.9y) 8.7% - 14% 0% - 18% (9%)

> Age of building > Remaining useful life of building > Square metres > Actual vacancy rate

30 - 60y   20y -22y   6,966 0%

Total

32.9

Other assets

7.5

Total fair value

40.4

 

Western Power Distribution plc		50

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

12. Intangible assets		Goodwill				Computer software				Customer contracts				Total
Cost:		£m				£m				£m				£m
At 31 March 2013			1,574.5				8.5				6.2			1,589.2
Additions			-				3.2				-			3.2
Disposals and retirements			-				(0.9	)			-			(0.9)
At 31 March 2014			1,574.5				10.8				6.2			1,591.5
Additions			-				4.0				-			4.0
Disposals and retirements			-				(0.4	)			-			(0.4)
At 31 March 2015			1,574.5				14.4				6.2			1,595.1
Aggregate amortisation and impairment:
At 31 March 2013			-				2.6				0.9			3.5
Charge for the year			-				2.0				0.6			2.6
Impairment loss			248.4				-				-			248.4
Disposals and retirements			-				(0.9	)			-			(0.9)
At 31 March 2014			248.4				3.7				1.5			253.6
Charge for the year			-				2.5				0.8			3.3
Impairment loss			72.0				-				-			72.0
Disposals and retirements			-				(0.4	)			-			(0.4)
At 31 March 2015			320.4				5.8				2.3			328.5
Carrying amount At 31 March 2015			1,254.1				8.6				3.9			1,266.6
At 31 March 2014			1,326.1				7.1				4.7			1,337.9
At 31 March 2013			1,574.5				5.9				5.3			1,585.7

Goodwill acquired through business combinations has been allocated for impairment testing purposes to three cash-generating units, East Midlands, West Midlands, and South Wales which are also operating segments. These represent the lowest level within the WPD Group at which goodwill is monitored for internal management purposes.

 

Carrying amount of goodwill allocated to cash-generating units (“CGUs”)		2015				2014
		£m				£m
East Midlands			518.8			518.8
West Midlands			614.4			686.4
South Wales			120.9			120.9
Carrying amount of goodwill			1,254.1			1,326.1

In assessing whether goodwill has been impaired, the carrying amount of the CGU (including goodwill) is compared with the recoverable amount of the CGU. The recoverable amount is the higher of fair value less costs to sell and value in use. In the absence of any information about the fair value of a CGU, the recoverable amount is deemed to be the value in use.

The WPD Group calculates the recoverable amount as the value in use using a discounted cash flow model. The key assumptions for the value in use calculations are those regarding the discount rate, expected cash flows arising from revenues, direct costs, and capital expenditure during the period, and the premium applied to the Regulatory Asset Value (“RAV”) at the end of the period.

 

Western Power Distribution plc		51

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

12. Intangible assets (continued)

 

The future cash flows are discounted using a pre-tax rate adjusted for risks specific to the CGU. The discount rate is derived from the WPD Group’s post-tax weighted average cost of capital and is adjusted where applicable to take into account any specific risks relating to the CGU. The key assumptions during the electricity price control period from 1 April 2015 to 31 March 2023 (“RIIO-ED1”) are based on revenues allowed and cost of capital assumptions agreed at the most recent electricity price control review, together with management’s expectation of the related cost and capital expenditure requirements during that period. Assumptions beyond this period are based on management’s expectation of the outcome of future price control reviews. The premium applied to the RAV at the end of the period is 20%. This is based on management’s estimation of the premium to RAV that may be realised at the end of the period taking into account past experience and possible future changes to achievable premiums.

The pre-tax rate used to discount the forecast cash flows is 6.9% (2014: 7.1%).

CGU cash flows are derived from the corporate business plan approved by the Board. For determining the value in use, cash flows for a period of 12 years have been discounted and aggregated with a terminal value, which is based on a premium to the RAV at the end of the period. A period of greater than five years has been used as the period is covered by the corporate business plan and more accurately reflects the timing of cash outflows associated with major capital replacement cycles and their subsequent recovery under regulation.

The WPD Group recognised an impairment loss in respect of goodwill of £72.0m (2014: £248.4m) allocated £nil (2014: £186.2m) to the WPD East Midlands CGU and £72.0m (2014: £62.2m) to the WPD West Midlands CGU. This is presented as a separate line item in the income statement. The recoverable amount of the WPD West Midlands CGU at 31 March 2015 is £2,670.9m. The impairment has largely arisen as a result of changes to the short-term inflation assumption which has reduced both the operating cash flows and the terminal value used in the discounted cash flow model, and the growth in the carrying amount of the WPD West Midlands CGU in the year exceeding the underlying growth in its recoverable amount. These factors are partly offset by higher than previously anticipated levels of capital expenditure in the current year which has increased both the future operating cash flows and terminal value used in the discounted cash flow model, and a reduction to the discount rate. For the East Midlands CGU, the increase in anticipated levels of capital expenditure was such that no overall impairment loss was recognised in the year.

At 31 March 2015, the East Midlands and South Wales recoverable amounts exceed their carrying amounts by £3.8m and £205.7m, respectively.

 

Sensitivity analysis:		East		West		South
		Midlands		Midlands		Wales		Total
		Reduction in Value In Use
		£m		£m		£m		£m
0.1% increase in the discount rate		21.5		21.8		10.6		53.9
1.0% decrease in the premium on the RAV		19.3		19.5		9.7		48.5
A £5.0m real reduction in projected net pre-tax cash flows in each of the 12 years used in the discounted cash flow model		43.2		43.2		43.2		129.6
		Change in assumption required to give rise to an       impairment
		%		%		%
Increase in the discount rate		0.02%		n/a		2.2%
Decrease in the premium on the RAV		0.2%		n/a		21.3%

13.  Investments

 

(a) Held-to-maturity investments		2015				2014
		£m				£m
Investment in PPL affiliate debt			141.1			127.4

In February 2011, the WPD Group purchased $200m nominal at a premium price of $21m from PMDC Chile of the $400M 2018 6.42% USD denominated Eurobond issued by PPL UK Resources Limited.

(b) Details of WPD Group undertakings

A list of investments in subsidiaries, including the name, country of incorporation, and proportion of ownership interest, is given in note 2 to the Company’s separate financial statements.

 

Western Power Distribution plc		52

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

14.  Inventories		2015				2014
		£m				£m
Raw materials			17.1			18.6
Work in progress			1.2			0.8
			18.3			19.4
15.  Trade and other receivables
		2015 £m				2014 £m
Current receivables
Trade receivables			266.2			249.2
Other receivables			2.1			3.1
Prepayments and accrued income			25.7			37.4
Reimbursement agreement re WPUPS (Note 22)			16.2			16.0
Total current receivables			310.2			305.7
Non-current receivables
Other receivables			4.5			9.4
Prepayments and accrued income			1.0			1.0
Reimbursement agreement re WPUPS (Note 22)			60.9			59.7
Total non-current receivables			66.4			70.1
Total trade and other receivables			376.6			375.8

The carrying amount of trade and other receivables and loan to related party is considered to approximate their fair value.

Other receivables relate primarily to insurance claims and the non-current balances that are expected to be recovered over the next three years.

As at 31 March 2015, trade receivables at a nominal value of £1.2m (2014: £1.4m) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows.

 

		2015  £m				2014  £m
At 1 April			1.4			3.0
Provision for receivables impairment			(0.2)			2.8
Amounts written off as uncollectible			(0.9)			(1.3)
Amounts recovered during the year			0.9			(3.1)
At 31 March			1.2			1.4

With limited exception, the WPD Group has provided fully for receivables over 90 days because historical experience is such that receivables that are past due beyond 90 days are generally not recoverable. Trade receivables less than 90 days, where payment is deemed very unlikely, or unobtainable, are also provided for at an appropriate rate.

The WPD Group considers that 100% of its credit risk to be with counterparties in related industries. The maximum credit risk exposure is represented by the carrying value as at the balance sheet date.

 

Western Power Distribution plc		53

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

15.  Trade and other receivables (continued)

 

As at 31 March, the aged analysis of trade receivables is as follows:

 

		Neither past due								Past due but not impaired
		Total				nor impaired				<30 days				30-60 days				60-90 days				90-120 days				>120 days
		£m				£m				£m				£m				£m				£m				£m
2015			266.2				263.7				2.5				-				-				-				-
2014			249.2				245.9				3.0				0.3				-				-				-

Trade receivables that are neither past due nor impaired relate largely to charges made to electricity suppliers for the use of WPD’s distribution network. Credit risk management for these receivables is performed in accordance with industry standards as set out by Ofgem and governed by the credit rules within the Distribution and Connection Use of System Agreement (“DCUSA”).

In order to minimise exposure to debt, the DCUSA requires WPD to monitor electricity suppliers’ (WPD’s customers) indebtedness ratios daily to ensure it does not exceed 85%. The indebtedness ratio is defined as ‘Value at Risk/Credit Limit’ where ‘Value at Risk’ is the suppliers’ current outstanding invoices plus a 15 day estimate of unbilled amounts and ‘Credit Limit’ is calculated by reference to WPD’s RAV, the suppliers’ credit rating from an approved credit referencing agency, and the suppliers’ payment performance history.

Where necessary, suppliers can ensure they are within the 85% indebtedness threshold by providing collateral to increase their ‘Credit Limit’. This can be in the form of a letter of credit or equivalent bank guarantee, an escrow account deposit, a cash deposit, or any other form of collateral agreed between WPD and the supplier. At 31 March 2015, the WPD Group held collateral in relation to trade receivables in the form of cash £1.4m (2014: £0.8m), letters of credit £43.3m (2014: £67.0m), and parent company guarantees £44.4m (2014: £46.0m).

 

16.  Cash and cash equivalents		2015				2014
		£m				£m
Cash at bank			66.9			316.5
Short-term bank deposits			230.5			137.4
Cash and cash equivalents			297.4			453.9

The fair value of cash and short-term deposits is considered to approximate its carrying amount.

Cash at bank earns interest at floating rates based on short-term bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the WPD Group, and earn interest at the respective short-term deposit rates.

At 31 March 2015, the WPD Group had available £775.1m (2014: £955.9m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. All facilities incur commitment fees at market rates. At 31 March 2015, it also had available undrawn uncommitted facilities of £60.6m (2014: £103.0m).

Included in cash and short-term bank deposits are restricted amounts totalling £15.5m (2014: £22.7m) which are not readily available for the general purposes of the WPD Group. The restrictions relate largely to minimum cash balances that are required to be maintained for insurance purposes and cash balances that can only be used for low carbon network fund projects.

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following at 31 March:

 

		2015				2014
		£m				£m
Cash and cash equivalents (from above)			297.4			453.9
Bank overdrafts (Note 18)			(5.6)			(8.2)
Cash and cash equivalents in the cash flow statement			291.8			445.7

Bank overdrafts comprise principally unpresented cheques at the year end.

 

Western Power Distribution plc		54

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

17.  Trade and other payables		2015				2014
		£m				£m
Current payables
Trade payables			51.4			45.8
Social security and other taxes			60.4			52.2
Payments received in advance			148.2			124.0
Other payables			4.9			1.5
Note payable to PPL affiliates			228.6			308.1
Interest on note payable to PPL affiliates			1.5			4.6
Other amounts owed to PPL affiliates			0.6			15.1
Deferred contributions			42.8			42.7
Accruals and deferred income			243.7			227.2
			782.1			821.2
Non-current payables
Deferred contributions			1,942.1			1,826.0
			2,724.2			2,647.2

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. Deferred contributions are those amounts received from customers in respect of new connections to the network.

The carrying amount of trade and other payables is considered to approximate their fair value.

18.  Borrowings

 

		2015 £m				2014  £m
Current
Bank overdrafts (Note 16)			5.6			8.2
Bank borrowings (v)			280.7			98.4
			286.3			106.6
Non-current
5.875% GB£250m bonds due 2027 (iv)			248.1			247.9
5.75% GB£200m bonds due 2040 (iv)			197.0			196.9
9.250% GB£150m bonds due 2020 (iv)			163.9			166.4
4.804% GB£225m bonds due 2037 (i) (iv)			219.8			219.6
5.75% GB£200m bonds due 2040 (iv)			197.1			197.0
6.25% GB£250m bonds due 2040 (iv)			259.1			259.5
5.25% GB£700m bonds due 2023 (iv)			702.2			702.5
6.00% GB£250m bonds due 2025 (iv)			254.9			255.4
5.75% GB£800m bonds due 2032 (iv)			788.5			787.8
3.875% GB£400m bonds due 2024 (iv)			394.7			394.1
3.9% US$460m bonds due 2016			309.2			274.8
5.375% US$500m bonds due 2021			335.0			298.0
7.250% US$100m bonds due 2017			66.0			58.1
7.375% US$202m bonds due 2028			125.7			110.1
1.541% + RPI GB£105m index linked bonds 2053 (ii) (iii)			133.9			132.4
1.541% + RPI GB£120m index linked bonds 2056 (ii) (iii)			153.0			151.3
2.671% + RPI GB£100m index linked bonds 2043 (ii)			109.2			108.0
1.676% + RPI GB£65m index linked bonds 2052 (ii)			65.9			65.1
			4,723.2			4,624.9
Total borrowings			5,009.5			4,731.5

 

Western Power Distribution plc		55

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

18.  Borrowings (continued)

 

The carrying amounts of the WPD Group’s borrowings are denominated in the following currencies:

 

		2015 £m				2014  £m
UK pound			3,892.9			3,892.1
US dollar			1,116.6			839.4
			5,009.5			4,731.5

(i) May be redeemed, in total but not in part, on 21 December 2026, at the greater of the principal value or a value determined by reference to the gross redemption yield on a nominated U.K. Government bond.

(ii) The principal amount of the notes issued by WPD South West and WPD East Midlands is adjusted based on changes in a specified index, as detailed in the terms of the related indentures. The adjustment to the principal amounts in 2015 was an increase of approximately £5.1m resulting from inflation.

(iii) May be redeemed, in total by series, on 1 December 2026, at the greater of the adjusted principal value and a make-whole value determined by reference to the gross real yield on a nominated U.K. government bond.

(iv) May be put by the holders to the issuer for redemption if the long-term credit ratings assigned to the notes are withdrawn by any of the rating agencies (Moody’s or S&P) or reduced to a non-investment grade rating of Ba1 or BB+ in connection with a restructuring event which includes the loss of, or a material adverse change to, the distribution licences under which the issuer operates.

(v) The borrowing facilities contain financial covenants to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortisation and total net debt not in excess of 85% of RAV, calculated in accordance with the credit facility.

None of the outstanding debt securities noted above have sinking fund requirements.

 

Western Power Distribution plc		56

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments

Financial risk management objectives and policies

The WPD Group’s principal financial liabilities, other than derivatives, comprise bank loans and overdrafts, bonds and trade payables. The main purpose of these financial liabilities is to raise finance for the WPD Group’s operations. The WPD Group has various financial assets such as trade receivables and cash and short-term deposits, which arise directly from its operations.

The WPD Group also enters into derivative transactions, principally interest rate and cross currency swaps. The purpose is to manage the interest rate and currency risks arising from the WPD Group’s operations and its sources of finance.

It is, and has been throughout 2015 and 2014, the WPD Group’s policy that no speculative trading in financial instruments shall be undertaken.

The main risks arising from the WPD Group’s financial instruments are fair value interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Market risk

Market risk is the risk that movements in market rates, including foreign exchange rates, interest rates and inflation will affect the WPD Group’s profit. The management of market risk is undertaken with risk limits approved by the Board.

Interest rate risk

The WPD Group has issued debt to finance its operations, which exposes it to interest rate risk. Borrowings issued at variable rates expose the WPD Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the WPD Group to fair value interest rate risk. The WPD Group’s interest rate risk management policy includes achieving the lowest possible cost of debt financing, while managing volatility of interest rates, applying a prudent mix of fixed and floating debt, either directly or through the use of derivative financial instruments affecting a shift in interest rate exposures between fixed and floating, and also matching debt service requirements to projected cash flows. The WPD Group’s policy stipulates that a maximum of 25% of WPD Group borrowings be subject to variable rates of interest.

The WPD Group may use forward-starting interest rate swaps to minimise exposure to cash flow interest rate risk for future forecast issuance of debt.

The net exposure to interest rates at the balance sheet date can be summarised thus:

 

		2015				2014
		Carrying				Carrying
Interest bearing/earning assets and liabilities:		amount				amount
		£m				£m
Fixed			4,052.2			4,072.9
Floating			(11.1)			(347.3)
Index-linked			462.0			456.8
			4,503.1			4,182.4
Represented by:
Cash and cash equivalents			(297.4)			(453.9)
Investment in parent company debt			(141.1)			(127.4)
Derivative financial assets			(68.4)			-
Derivative financial liabilities			0.5			32.2
Loans and borrowings			5,009.5			4,731.5
			4,503.1			4,182.4

 

Western Power Distribution plc		57

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Interest rate sensitivity

The impact of a change in interest rates is dependent on the specific details of the financial asset or liability in question. Changes in fixed rate financial assets and liabilities, which account for the majority of loans and borrowings, are not measured at fair value through the income statement. In addition to this, changes to fixed-to-fixed hedging instruments which are recorded under cash flow hedge accounting also do not impact the income statement. Changes in variable rate instruments are recorded through the income statement. The exposure measured is therefore based on variable rate debt.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on the WPD Group’s profit before tax (through the impact on floating rate borrowings). There is no impact on the WPD Group’s equity.

The sensitivity analysis excludes all non-derivative fixed rate financial instruments carried at amortised cost but includes all non-derivative floating rate financial instruments.

Currency derivatives have not been included in the sensitivity analysis below as they are not considered to be exposed to interest rate risk.

All sensitivity analysis has been prepared on the basis of the proportion of fixed to floating instruments being consistent as at the balance sheet date. The sensitivity analysis is indicative only and it should be noted that the WPD Group’s exposure to such market rate changes is continually changing. The calculation is based on linear extrapolations of rate changes which may not reflect the actual result which would impact upon the WPD Group.

 

		2015								2014
		Income  statement  (before tax) +/- £m				Equity   +/- £m				Income  statement  (before tax) +/- £m				Equity   +/- £m
Interest Rate +/- 100bp			0.1				-				3.5				-

Inflation risk

The WPD Group’s index-linked borrowings and interest liabilities are exposed to a risk of change in the carrying value due to changes in the UK RPI. This form of liability is a good match to the WPD Group’s regulated assets (‘RAV’), which are also linked to RPI due to the price setting mechanism imposed by the regulator, and also the price cap is linked to RPI. By matching liabilities to assets, index-linked debt hedges the exposure to changes in RPI and delivers a cash flow benefit, as compensation for the inflation risk is provided through adjustment to the principal rather than in cash.

The carrying value of index-linked debt held by the WPD Group is as follows:

 

		2015 £m				2014  £m
Index-linked debt			462.0			456.8

 

Western Power Distribution plc		58

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Inflation sensitivity

Assuming sensitivity to the RPI does not take into account any changes to revenue or operating costs that are affected by RPI or inflation generally, the following table shows the illustrative effect on the income statement and items that are recognised directly in equity that would result from reasonably possible movements in changes in RPI before the effects of tax.

 

		2015								2014
		Income  statement  (before tax) +/- £m				Equity  +/- £m				Income  statement  (before tax) +/- £m				Equity   +/- £m
UK Retail Prices Index +/- 1.00%			4.6				(3.5)				4.6				(3.5)

Foreign currency risk

The WPD Group’s assets are principally sterling denominated; however, the WPD Group has access to various international debt capital markets and raises foreign currency denominated debt. Where long-term debt is denominated in a currency which is not sterling, the WPD Group’s policy is to swap 100% of the foreign currency denominated principal and interest cash flows into sterling through the use of cross-currency swaps.

Under a currency swap, the WPD Group agrees with another party to exchange the principal amount of the two currencies, together with interest amounts in the two currencies agreed by reference to a specific interest rate basis and principal amount. The principal of these instruments reflects the extent of the WPD Group’s involvement in the instruments but does not represent its exposure to credit risk, which is assessed by reference to the fair value.

The WPD Group holds an investment of $200m 2018 6.42% Eurobonds issued by PPL UK Resources Limited which were acquired at a premium of $21m. It also has borrowings of $200m under a related committed credit facility. At 31 March 2015, the WPD Group was exposed to movements on exchange rates of $9.5m (2014: $48.4m), being the net of the amortised Eurobond Investment and dollar borrowings under the committed credit facility.

The principal amount of the WPD Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date and the impact of derivative financial instruments used to manage foreign currency risk were as follows:

 

		2015 $m				2014  $m
Investment in parent company Eurobonds			209.5			212.4
Borrowings			(1,462.0)			(1,426.0)
Gross exposure			(1,252.5)			(1,213.6)
Effect of cross-currency swaps			1,262.0			1,262.0
Net exposure			9.5			48.4

 

Western Power Distribution plc		59

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Foreign currency sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in Sterling against the US dollar exchange rate with all other variables held constant, of the WPD Group’s profit before tax and the WPD Group’s equity.

 

		2015								2014
		Income  statement  (before tax) £m				Equity  £m				Income  statement  (before tax) £m				Equity  £m
10% increase in exchange rates			(0.6)				(14.3)				(2.6)				(11.9)
10% decrease in exchange rates			0.7				17.5				3.2				14.6

Credit risk (see also Note 15)

Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due causing financial loss to the WPD Group and arises from cash and cash equivalents, derivative financial instruments and deposits with financial institutions and principally from credit exposures to customers relating to outstanding receivables.

WPD maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria). Depending on the creditworthiness of the counterparty, the WPD Group may require collateral or other credit enhancements such as cash deposits or letters of credit and parent company guarantees.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. At 31 March the maximum exposure to credit risk was as follows:

 

		2015 £m				2014  £m
Cash and short-term deposits			297.4				453.9
Trade receivables			266.2				249.2
Other receivables			6.6				12.5
Held-to-maturity investments			141.1				127.4
Derivative financial instruments			68.4				-
			779.7				843.0

The table above does not take into account collateral held in relation to trade receivables in the form of cash £1.4m (2014: £0.8m), letters of credit £43.3m (2014: £67.0m), and parent company guarantees £44.4m (2014: £46.0m).

WPD has concentrations of customers among electric utilities and other energy marketing and trading companies. These concentrations of counterparties may impact WPD’s overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions.

 

Western Power Distribution plc		60

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Liquidity risk

Liquidity risk is the risk that the WPD Group will not have sufficient funds to meet the obligations or commitments arising from its business operations and its financial liabilities.

Treasury is responsible for managing the banking and liquidity requirements of the WPD Group, risk management relating to interest rate and foreign exchange exposures, and for managing the credit risk relating to the banking counterparties with which it transacts. The department’s operations are governed by policies determined by the Board.

The following credit facilities were in place at 31 March 2015.

 

		Expiration Date				Capacity £m				Borrowed £m				Letters of Credit issued £m				Unused  Capacity  £m
WPD plc - Syndicated Credit Facility			Dec. 2016				210.0				133.9				-				76.1
WPD South West - Syndicated Credit Facility			July 2019				245.0				-				-				245.0
WPD East Midlands - Syndicated Credit Facility			July 2019				300.0				146.0				-				154.0
WPD West Midlands - Syndicated Credit Facility			July 2019				300.0				-				-				300.0
Uncommitted Credit Facilities							65.0				-				4.5				60.5
Total Credit Facilities			-				1,120.0				279.9				4.5				835.6

The WPD Group’s primary source of liquidity is cash generated from its ongoing business operations. The electricity regulator sets a major element of the WPD Group’s revenues, providing both a stable and predictable source of funds. In recognition of the long life of the WPD Group’s assets and anticipated indebtedness, and to create financial efficiencies, the WPD Group’s policy is to arrange that debt maturities are spread over a wide range of dates, thereby ensuring that the WPD Group is not subject to excessive refinancing risk in any one year. The WPD Group has entered into borrowing agreements for periods out to 2056.

The following tables detail the WPD Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the WPD Group can be required to pay. The table includes both interest and principal cash flows.

 

2015		Less than one year £m				One to five years £m				Five to fifteen years £m				Greater than fifteen years £m				Total  £m
Borrowings			531.1				2,164.8				3,982.5				3,328.7				10,007.1
Trade and other payables			530.7				-				-				-				530.7
Total			1,061.8				2,164.8				3,982.5				3,328.7				10,537.8
2014		Less than one year £m				One to five years £m				Five to fifteen years £m				Greater than fifteen years £m				Total  £m
Borrowings			346.5				1,642.8				3,750.6				4,512.6				10,252.5
Trade and other payables			602.3				-				-				-				602.3
Total			948.8				1,642.8				3,750.6				4,512.6				10,854.8

 

Western Power Distribution plc		61

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Liquidity risk (continued)

 

The following table details the WPD Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted gross cash (inflows) and outflows on derivatives that require gross settlement.

 

2015						Less than one year £m				One to five years £m				Five to fifteen years £m				Greater than fifteen years £m				Total  £m
Cross currency derivative payments							43.6				215.9				193.7				-				453.2
Cross currency derivative receipts							(45.1)				(232.8)				(216.3)				-				(494.2)
Total							(1.5)				(16.9)				(22.6)				-				(41.0)
2014						Less than one year £m				One to five years £m				Five to fifteen years £m				Greater than fifteen years £m				Total  £m
Cross currency derivative payments							43.6				242.0				211.4				-				497.0
Cross currency derivative receipts							(40.2)				(230.6)				(209.6)				-				(480.4)
Total							3.4				11.4				1.8				-				16.6
Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts and fair values of all of the WPD Group’s financial instruments that are carried in the financial statements.
2015		Loans and receivables £m				Held-to- maturity investments £m				Derivatives designated in hedge accounting relationships £m				Amortised cost £m				Total book value £m				Fair value  £m
Financial assets
Cash			297.4				-				-				-				297.4				297.4
Held-to-maturity investments			-				141.1				-				-				141.1				145.2
Derivative financial instruments			-				-				68.4				-				68.4				68.4
Trade and other receivables			349.9				-				-				-				349.9				349.9
Financial liabilities
Bank overdraft			-				-				-				(5.6)				(5.6)				(5.6)
Interest-bearing loans and borrowings:
- Floating rate borrowings			-				-				-				(280.7)				(280.7)				(280.7)
- Fixed rate borrowings			-				-				-				(4,261.2)				(4,261.2)				(5,307.5)
- Index linked			-				-				-				(462.0)				(462.0)				(663.8)
Derivative financial instruments			-				-				(0.5)				-				(0.5)				(0.5)
Trade and other payables			-				-				-				(530.7)				(530.7)				(530.7)
			647.3				141.1				67.9				(5,540.2)				(4,683.9)				(5,927.9)

 

Western Power Distribution plc		62

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Fair values of financial assets and financial liabilities (continued)

 

2014		Loans and receivables £m				Held-to- maturity investments £m				Derivatives designated in hedge accounting relationships £m				Amortised cost £m				Total book value £m				Fair value  £m
Financial assets
Cash			453.9				-				-				-				453.9				453.9
Held-to-maturity investments			-				127.4				-				-				127.4				137.0
Trade and other receivables			337.4				-				-				-				337.4				337.4
Financial liabilities
Bank overdraft			-				-				-				(8.2)				(8.2)				(8.2)
Interest-bearing loans and borrowings:
- Floating rate borrowings			-				-				-				(98.4)				(98.4)				(98.4)
- Fixed rate borrowings			-				-				-				(4,168.1)				(4,168.1)				(4,666.3)
- Index linked			-				-				-				(456.8)				(456.8)				(511.9)
Derivative financial instruments			-				-				(32.2)				-				(32.2)				(32.2)
Trade and other payables			-				-				-				(602.3)				(602.3)				(602.3)
			791.3				127.4				(32.2)				(5,333.8)				(4,447.3)				(4,991.0)

The fair value of the WPD Group’s outstanding cross currency swaps is the estimated amount, calculated using discounted cash flow models, that the WPD Group would receive or pay in order to terminate such contracts in an arm’s length transaction taking into account market rates of interest and foreign exchange at the balance sheet date.

The carrying value of the WPD Group’s bank loans and overdrafts approximates their fair value. The fair value of the WPD Group’s other borrowings is estimated using quoted prices or, where these are not available, discounted cash flow analyses based on the WPD Group’s current incremental borrowing rates for similar types and maturities of borrowing: these are classified as level 2 in the fair value hierarchy.

The carrying value of short term receivables and payables are assumed to approximate their fair values where discounting is not material.

 

Western Power Distribution plc		63

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Fair value hierarchy

The WPD Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

 

As at 31 March 2015, the WPD Group held the following financial instruments measured at fair value:

 

2015		Level 1 £m				Level 2 £m				Level 3 £m				Total  £m
Assets measured at fair value
Cross currency swaps			-				68.4				-				68.4
Liabilities measured at fair value
Cross currency swaps			-				(0.5)				-				(0.5)
			-				67.9				-				67.9
2014		Level 1 £m				Level 2 £m				Level 3 £m				Total  £m
Liabilities measured at fair value
Cross currency swaps			-				(32.2)				-				(32.2)
			-				(32.2)				-				(32.2)

During the reporting period ending 31 March 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of the Level 3 fair value measurements.

Hedge counterparties are major banks of high quality credit standing.

Capital risk management

The primary objective of the WPD Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The WPD Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the WPD Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 March 2015 and 31 March 2014.

 

Western Power Distribution plc		64

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

19. Financial instruments (continued)

 

Capital risk management (continued)

 

The WPD Group does not consider the standard gearing ratio of net debt as a percentage of net debt plus net assets shown in the balance sheet as an appropriate capital monitoring measure as it does not reflect the economic value of the assets of the Group’s regulated businesses. Instead, the WPD Group monitors capital using a gearing ratio, which is net debt divided by the RAV. The RAV is a regulatory measure of the regulated business’ asset base required to carry out the regulated activities. Regulated revenues are based on an ‘RPI - X’ formula designed to cover operating costs (including certain replacement expenditure) and capital depreciation, as well as an allowed return on the RAV. The WPD Group’s policy is to maintain a gearing ratio that ensures an investment grade credit rating. The WPD Group includes within net debt borrowings and associated cross currency swaps less cash and cash equivalents and deposits.

 

		2015 £m				2014  £m
Borrowings			5,009.5				4,731.5
Cross currency swaps			(67.9)				32.2
Less cash and cash equivalents			(297.4)				(453.9)
Net debt			4,644.2				4,309.8
Regulatory Asset Value			6,265.8				5,845.7
Gearing ratio			74%				74%

20.  Derivative financial instruments

As at 31 March 2015, the WPD Group held the following derivative financial instruments measured at fair value:

 

		2015												2014
		Assets £m				Liabilities  £m				Total £m				Assets £m				Liabilities  £m				Total  £m
Cross-currency swaps - cash flow hedges
Current			1.9				(0.5)				1.4				-				(3.6)				(3.6)
Non-current			66.5				-				66.5				-				(28.6)				(28.6)
			68.4				(0.5)				67.9				-				(32.2)				(32.2)

The WPD Group entered into cross currency swaps designated as cash flow hedges in order to hedge the currency cash flow risks associated with the future interest and principal payments on the WPD Group’s US dollar borrowings arising from fluctuations in currency rates.

At 31 March 2015, the WPD Group had outstanding cross currency swap agreements in cash flow hedges against borrowings with a total principal amount of $1,262.0m (2014: $1,262.0m) and a swapped notional principal of £771.6m (2014: £771.6m). The hedges were assessed to be highly effective. The cross currency swaps have a remaining term ranging from 1 to 13 years (2014: 2 to 14 years) to match the underlying hedged borrowings consisting of semi-annual interest payments and the repayment of principal amounts. Under the swaps the WPD Group receives US dollar interest at an average fixed rate of 5.3% (2014: 5.3%) and pays sterling interest at an average fixed rate of 5.7% (2014: 5.7%).

 

Western Power Distribution plc		65

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

21.  Deferred tax

The following are the deferred tax liabilities and assets recognised by the WPD Group and movements thereon during the current and prior year:

 

		Accelerated capital allowances £m				Retirement benefit obligations £m				Chargeable gains on sale of assets £m				Other £m				Total  £m
At 31 March 2013			585.3				(162.2)				-				(46.9)				376.2
(Credit)/charge to the income statement			(55.1)				(6.3)				-				16.3				(45.1)
Credit to equity			-				20.8				-				4.7				25.5
At 31 March 2014			530.2				(147.7)				-				(25.9)				356.6
(Credit)/charge to the income statement			24.4				33.8				-				(5.0)				53.2
Credit to equity			-				(48.7)				-				0.9				(47.8)
At 31 March 2015			554.6				(162.6)				-				(30.0)				362.0

Certain deferred tax assets and liabilities have been offset. The following is an analysis of the deferred tax balances (after offset) for financial reporting purposes:

 

		2015 £m				2014  £m
Deferred tax liabilities			554.6				535.7
Deferred tax assets			(192.6)				(179.1)
Net deferred tax liabilities			362.0				356.6

The net deferred tax liability due after more than one year is £432.7m (2014: £402.7m).

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the deferred tax benefit through future taxable profits is probable. The WPD Group did not recognise deferred income tax assets of £2.8m (2014: £3.7m) in respect of non trading loss carry-forwards amounting to £13.9m (2014: £18.5m) that can be carried forward against future taxable income. The WPD Group did not recognise deferred income tax assets of £191.9m (2014: £189.8m) in respect of capital losses amounting to £959.7m (2014: £949.1m) that can be carried forward against future taxable chargeable gains.

 

Western Power Distribution plc		66

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations

Introduction

The WPD Group operates four defined benefit schemes:

-  two segments of the Electricity Supply Pension Scheme (“ESPS”),

- the segment covering WPD South West and WPD South Wales (“ESPS SW&WA”), and

- the segment covering WPD East Midlands and WPD West Midlands (“ESPS EM&WM”)

-  the Western Power Utilities Pension Scheme (“WPUPS”)

-  the Infralec 1992 Pension Scheme (“Infralec 92”)

The assets of all four schemes are held separately from those of the WPD Group in trustee administered funds.

The ESPS provides pension and other related defined benefits based on final pensionable pay to employees throughout the electricity supply industry. The two segments of the ESPS relating to WPD are closed to new members except in very limited circumstances. Existing members are unaffected. A defined contribution scheme is offered to new employees.

WPD South Wales is the principal employer for WPUPS, which is a defined benefit scheme providing benefits relating to previous employees of an affiliate group which was previously headed by Hyder plc (now Hyder Limited in liquidation). WPD South Wales will fund the deficit. However, as another PPL UK Distribution Holdings Limited Group company (PPL WPD Limited) has taken full financial responsibility for this scheme, WPD South Wales will be reimbursed for these payments. As PPL WPD Limited is outside the WPD Group, the value of the reimbursement agreement is stated in the balance sheet (Note 15) and matches the gross liability recorded under IAS 19 below.

Infralec 92 provides benefits on both a money purchase and final salary basis and is operated by WPD South Wales.

WPUPS and Infralec 92 are closed to active members.

The WPD Group also has an unfunded obligation which relates to previous executives of Hyder plc, WPD East Midlands and WPD West Midlands.

Other scheme

WPD also operates a defined contribution scheme. The assets of the scheme are held separately from those of WPD in an independent fund administered by the scheme trustee. The scheme has two sections:

(a) a closed section with no active members. At 31 March 2015 there were 261 members with deferred benefits in the scheme (2014: 262) and 6 pensioners (2014: 5). Market value of the assets was £2.1m (2014: £1.9m).

(b) a new pension arrangement available to all new employees in WPD with effect from 1 April 2010. At 31 March 2015 there were 2,203 members (2014: 1,900). The market value of the assets of the open section of the scheme was £24.8m (2014: £14.7m). Employer contributions to the scheme amounted to £4.7m in the year (2014: £3.7m).

Defined benefit schemes

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets. The defined benefit obligation is calculated annually by independent actuaries, Aon Hewitt Limited, using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits are paid, and that have terms to maturity approximating to the terms of the related pension obligation.

Actuarial gains and losses arising from experience adjustments and changes to actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

Past-service costs are recognised immediately in income.

The schemes are funded, defined benefit, final salary pension plans. The level of benefits provided depends on members’ length of service and their salary at their date of leaving the WPD. The majority of pensions in payment receive inflationary increases in line with the RPI (Retail Prices Index) inflation. The benefit payments are from trustee-administered funds. The amount of contributions to be paid is decided jointly by the employer and the Trustees of the Scheme. Assets held in trust are governed by UK regulations and practice. The Schemes’ investment strategy is decided by the Trustees, in consultation with the employer. The boards of Trustees must be composed of representatives of the employer and plan participants in accordance with the Schemes’ legal documentation.

 

Western Power Distribution plc		67

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

The amounts recognised in the balance sheet are determined as follows:

		2015
		ESPS  SW&WA  £m				ESPS  EM&WM  £m				WPUPS  £m				Infralec 92  £m				Unfunded £m				Total   £m
Present value of obligations			2,207.7				3,235.1				527.1				12.6				4.8				5,987.3
Fair value of scheme assets			(1,769.5)				(2,943.3)				(450.0)				(11.5)				-				(5,174.3)
Deficit of funded plan and liability recognised in the balance sheet			438.2				291.8				77.1				1.1				4.8				813.0
		2014
		ESPS  SW&WA  £m				ESPS  EM&WM  £m				WPUPS  £m				Infralec 92  £m				Unfunded £m				Total   £m
Present value of obligations			1,901.0				2,803.3				470.7				11.2				4.4				5,190.6
Fair value of scheme assets			(1,515.8)				(2,537.8)				(395.0)				(10.2)				-				(4,458.8)
Deficit of funded plan and liability recognised in the balance sheet			385.2				265.5				75.7				1.0				4.4				731.8
The regulator, Ofgem, currently allows ongoing service costs and a proportion of the deficit costs to be recovered through regulated income.
Analysis of the amount charged to profit before interest and taxation:
		2015
		ESPS  SW&WA  £m				ESPS  EM&WM  £m				WPUPS  £m				Infralec 92  £m				Unfunded £m				Total   £m
Current service cost			20.5				22.8				-				-				-				43.3
Administrative costs			1.6				1.8				0.5				-				-				3.9
WPUPS reimbursement agreement			-				-				(0.5)				-				-				(0.5)
Operating charge relating to defined benefit plans			22.1				24.6				-				-				-				46.7
Interest income on plan assets			(65.5)				(108.5)				(16.8)				(0.4)				-				(191.2)
Interest on plan liabilities			80.1				118.1				19.7				0.5				-				218.4
WPUPS reimbursement agreement			-				-				(2.9)				-				-				(2.9)
Other finance expense			14.6				9.6				-				0.1				-				24.3

 

Western Power Distribution plc		68

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

		2014
		ESPS  SW&WA  £m				ESPS  EM&WM  £m				WPUPS  £m				Infralec 92  £m				Unfunded £m				Total   £m
Current service cost			21.8				22.8				-				-				-				44.6
Administrative costs			1.8				2.1				0.4				-				-				4.3
Past service cost			-				1.2				-				-				-				1.2
WPUPS reimbursement agreement			-				-				(0.4)				-				-				(0.4)
Operating charge relating to defined benefit plans			23.6				26.1				-				-				-				49.7
Interest income on plan assets			(60.2)				(105.5)				(16.3)				(0.4)				-				(182.4)
Interest on plan liabilities			75.6				113.5				20.2				0.5				-				209.8
WPUPS reimbursement agreement			-				-				(3.9)				-				-				(3.9)
Other finance expense			15.4				8.0				-				0.1				-				23.5
Analysis of the amount recognized in other comprehensive income:
		2015
		ESPS  SW&WA  £m				ESPS  EM&WM  £m				WPUPS  £m				Infralec 92  £m				Unfunded £m				Total   £m
Return on plan assets excluding amounts included in interest income			(163.8)				(317.0)				(45.6)				(1.1)				-				(527.5)
Loss from change in financial assumptions			300.0				430.2				65.1				1.6				-				796.9
Experience gains			(7.1)				(12.7)				(5.5)				(0.1)				-				(25.4)
WPUPS reimbursement agreement			-				-				(14.0)				-				-				(14.0)
Remeasurements recognized in other comprehensive income			129.1				100.5				-				0.4				-				230.0
		2014
		ESPS  SW&WA  £m				ESPS  EM&WM  £m				WPUPS  £m				Infralec 92  £m				Unfunded £m				Total   £m
Return on plan assets excluding amounts included in interest income			16.9				110.6				8.0				-				-				135.5
Loss/(gain) from change in demographic assumptions			39.0				(2.8)				(6.0)				0.1				-				30.3
Gain from change in financial assumptions			(63.6)				(97.8)				(19.0)				(0.5)				-				(180.9)
Experience losses/(gains)			18.6				43.5				(10.5)				(0.7)				-				50.9
WPUPS reimbursement agreement			-				-				27.5				-				-				27.5
Remeasurements recognized in other comprehensive income			10.9				53.5				-				(1.1)				-				63.3

 

Western Power Distribution plc		69

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

The movement in the net defined benefit obligation over the accounting period is as follows:

 

ESPS SW&WA		Year ended 31 March 2015												Year ended 31 March 2014
		Present  value of  obligation  £m				Fair value  of plan  assets  £m				Total  £m				Present  value of  obligation  £m				Fair value  of plan  assets  £m				Total   £m
Liability/(asset) at 1 April			1,901.0				(1,515.8)				385.2				1,892.6				(1,491.1)				401.5
Current service cost			20.5				-				20.5				21.8				-				21.8
Administrative costs			1.6				-				1.6				1.8				-				1.8
Interest expense/(income)			80.1				(65.5)				14.6				75.6				(60.2)				15.4
			102.2				(65.5)				36.7				99.2				(60.2)				39.0
Remeasurements:
Return on plan assets excluding amounts included in interest income			-				(163.8)				(163.8)				-				16.9				16.9
Loss from change in demographic assumptions			-				-				-				39.0				-				39.0
Loss/(gain) from change in financial assumptions			300.0				-				300.0				(63.6)				-				(63.6)
Experience (gains)/losses			(7.1)				-				(7.1)				18.6				-				18.6
			292.9				(163.8)				129.1				(6.0)				16.9				10.9
Contributions:
Employers			-				(112.8)				(112.8)				-				(66.2)				(66.2)
Plan participants			4.6				(4.6)				-				4.6				(4.6)				-
			4.6				(117.4)				(112.8)				4.6				(70.8)				(66.2)
Payments from plan:
Benefit payments			(91.4)				91.4				-				(87.6)				87.6				-
Administrative costs			(1.6)				1.6				-				(1.8)				1.8				-
			(93.0)				93.0				-				(89.4)				89.4				-
Liability/(asset) at 31 March			2,207.7				(1,769.5)				438.2				1,901.0				(1,515.8)				385.2

 

Western Power Distribution plc		70

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

ESPS EM&WM		Year ended 31 March 2015												Year ended 31 March 2014
		Present  value of   obligation  £m				Fair value  of plan  assets  £m				Total  £m				Present  value of   obligation  £m				Fair value  of plan  assets  £m				Total   £m
Liability/(asset) at 1 April			2,803.3				(2,537.8)				265.5				2,846.4				(2,648.2)				198.2
Current service cost			22.8				-				22.8				22.8				-				22.8
Administrative costs			1.8				-				1.8				2.1				-				2.1
Interest expense/(income)			118.1				(108.5)				9.6				113.5				(105.5)				8.0
Past service cost			-				-				-				1.2				-				1.2
			142.7				(108.5)				34.2				139.6				(105.5)				34.1
Remeasurements:
Return on plan assets excluding amounts included in interest income			-				(317.0)				(317.0)				-				110.6				110.6
Gain from change in demographic assumptions			-				-				-				(2.8)				-				(2.8)
Loss/(gain) from change in financial assumptions			430.2				-				430.2				(97.8)				-				(97.8)
Experience (gains)/losses			(12.7)				-				(12.7)				43.5				-				43.5
			417.5				(317.0)				100.5				(57.1)				110.6				53.5
Contributions:
Employers			-				(108.4)				(108.4)				-				(20.3)				(20.3)
Plan participants			5.3				(5.3)				-				5.1				(5.1)				-
			5.3				(113.7)				(108.4)				5.1				(25.4)				(20.3)
Payments from plan:
Benefit payments			(131.9)				131.9				-				(128.6)				128.6				-
Administrative costs			(1.8)				1.8				-				(2.1)				2.1				-
			(133.7)				133.7				-				(130.7)				130.7				-
Liability/(asset) at 31 March			3,235.1				(2,943.3)				291.8				2,803.3				(2,537.8)				265.5

 

Western Power Distribution plc		71

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

WPUPS		Year ended 31 March 2015												Year ended 31 March 2014
		Present value of  obligation £m				Fair value of plan assets £m				Total   £m				Present value of  obligation £m				Fair value of plan assets £m				Total   £m
Liability/(asset) at 1 April			470.7				(395.0	)			75.7				508.0				(409.1	)			98.9
Administrative costs			0.5				-				0.5				0.4				-				0.4
Interest expense/(income)			19.7				(16.8	)			2.9				20.2				(16.3	)			3.9
			20.2				(16.8	)			3.4				20.6				(16.3	)			4.3
Remeasurements:
Return on plan assets excluding amounts included in interest income			-				(45.6	)			(45.6)				-				8.0				8.0
Gain from change in demographic assumptions			-				-				-				(6.0	)			-				(6.0)
Loss/(gain)/loss from change in financial assumptions			65.1				-				65.1				(19.0	)			-				(19.0)
Experience (gains)/losses			(5.5	)			-				(5.5)				(10.5	)			-				(10.5)
			59.6				(45.6	)			14.0				(35.5	)			8.0				(27.5)
Contributions:
Employers			-				(16.0	)			(16.0)				-				-				-
			-				(16.0	)			(16.0)				-				-				-
Payments from plan:
Benefit payments			(22.9	)			22.9				-				(22.0	)			22.0				-
Administrative costs			(0.5	)			0.5				-				(0.4	)			0.4				-
			(23.4	)			23.4				-				(22.4	)			22.4				-
Liability/(asset) at 31 March			527.1				(450.0	)			77.1				470.7				(395.0	)			75.7
Infralec 92		Year ended 31 March 2015												Year ended 31 March 2014
		Present value of  obligation £m				Fair value of plan assets £m				Total   £m				Present value of  obligation £m				Fair value of plan assets £m				Total   £m
Liability/(asset) at 1 April			11.2				(10.2	)			1.0				12.3				(9.9	)			2.4
Interest expense/(income)			0.5				(0.4	)			0.1				0.5				(0.4	)			0.1
			0.5				(0.4	)			0.1				0.5				(0.4	)			0.1
Remeasurements:
Return on plan assets excluding amounts included in interest income			-				(1.1	)			(1.1)				-				-				-
Loss from change in demographic assumptions			-				-				-				0.1				-				0.1
Loss/(gain) from change in financial assumptions			1.6				-				1.6				(0.5	)			-				(0.5)
Experience gains			(0.1	)			-				(0.1)				(0.7	)			-				(0.7)
			1.5				(1.1	)			0.4				(1.1	)			-				(1.1)
Contributions:
Employers			-				(0.4	)			(0.4)				-				(0.4	)			(0.4)
			-				(0.4	)			(0.4)				-				(0.4	)			(0.4)
Payments from plan:
Benefit payments			(0.6	)			0.6				-				(0.5	)			0.5				-
			(0.6	)			0.6				-				(0.5	)			0.5				-
Liability/(asset) at 31 March			12.6				(11.5	)			1.1				11.2				(10.2	)			1.0

 

Western Power Distribution plc		72

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

The significant actuarial assumptions made were as follows:		2015
		ESPS  SW&WA  %				ESPS  EM&WM  %				WPUPS  %				Infralec 92  %
RPI Inflation			2.65				2.65				2.65				2.65
CPI Inflation			1.55				1.55				1.55				1.55
Rate of general long-term salary increases			3.90				3.90				N/a				N/a
RPI-linked pension increases			2.65				2.65				2.65				2.65
CPI-linked pension increases			N/a				N/a				1.65				N/a
Post-88 GMP pension increases			1.55				1.55				1.55				1.55
Discount rate for scheme liabilities			3.10				3.10				3.10				3.10
		2014
		ESPS  SW&WA				ESPS  EM&WM				WPUPS				Infralec 92
		%				%				%				%
RPI Inflation			3.00				3.00				3.00				3.00
CPI Inflation			2.00				2.00				2.00				2.00
Rate of general long-term salary increases			4.25				4.25				N/a				N/a
RPI-linked pension increases			2.90				2.90				3.05				2.90
CPI-linked pension increases			N/a				N/a				2.10				N/a
Post-88 GMP pension increases			1.80				1.80				1.80				1.80
Discount rate for scheme liabilities			4.29				4.29				4.29				4.29

Assumptions relating to future mortality are set based on actuarial advice in accordance with published statistics and experience. These assumptions translate into an average life expectancy in years for a member at age 60:

 

ESPS SW&WA
		31 March 2015		31 March 2014
Mortality table adopted		Based on S1PXA base tables with CMI 2011 core projections and a 1.0% per annum long-term improvement rate		Based on S1PXA base tables with CMI 2011 core projections and a 1.0% per annum long-term improvement rate
Life expectancy for a male currently aged 60		27.3		27.3
Life expectancy for a female currently aged 60		29.8		29.7
Life expectancy at 60 for a male currently aged 40		28.5		28.4
Life expectancy at 60 for a female currently aged 40		31		30.9

 

Western Power Distribution plc		73

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

ESPS EM&WM
		31 March 2015		31 March 2014
Mortality table adopted		Based on S1PXA base tables with CMI 2011 core projections and a 1.0% per annum long-term improvement rate		Based on S1PXA base tables with CMI 2011 core projections and a 1.0% per annum long-term improvement rate
Life expectancy for a male currently aged 60		27.3		27.3
Life expectancy for a female currently aged 60		29.8		29.7
Life expectancy at 60 for a male currently aged 40		28.5		28.4
Life expectancy at 60 for a female currently aged 40		31		30.9
WPUPS
		31 March 2015		31 March 2014
Mortality table adopted		Pensions <£24,000 pa at 31/03/13: 111% (else 78%) of S1NXA base tables with CMI 2011 core projections and a 1.0% per annum long- term improvement rate		Pensions <£24,000 pa at 31/03/13: 111% (else 78%) of S1NXA base tables with CMI 2011 core projections and a 1.0% per annum long- term improvement rate
Life expectancy for a male currently aged 60		26.1		26.0
Life expectancy for a female currently aged 60		28.7		28.6
Life expectancy at 60 for a male currently aged 40		27.6		27.5
Life expectancy at 60 for a female currently aged 40		30.3		30.3
Infralec 92
		31 March 2015		31 March 2014
Mortality table adopted		100% of S1PXA base tables with CMI 2011 core projections and a 1.0% per annum long-term improvement rate		100% of S1PXA base tables with CMI 2011 core projections and a 1.0% per annum long-term improvement rate
Life expectancy for a male currently aged 60		26.9		26.8
Life expectancy for a female currently aged 60		29.4		29.3
Life expectancy at 60 for a male currently aged 40		28.5		28.4
Life expectancy at 60 for a female currently aged 40		31		30.9

 

Western Power Distribution plc		74

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

 The sensitivity of the defined benefit obligation to changes in the principal assumptions is:

 

Impact on defined benefit obligation

Change in assumption %

ESPS                ESPS SW&WA         EM&WM £m                    £m

WPUPS £m

Infralec 92  £m

Discount rate

+/-0.50%

+188.5/-172.0 +267.4/-245.4

+43.9/-40.5

+1.0/-1.0

RPI Inflation

+/-0.50%

+161.3/-150.9 +226.3/-213.2

+34.5/-32.9

+0.9/-0.8

Life expectancy

+ 1 year

96.1               127.1

19.7

0.5

The above sensitivity analysis on the discount rate is based on a change in assumption while holding all other assumptions constant. The change in RPI inflation assumption impacts on the CPI assumption, revaluation in deferment and pension increase assumptions. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the balance sheet.

 

ESPS SW&WA scheme assets are comprised as follows:		31 March 2015								31 March 2014
		Total £m				Of which   not quoted   in an active   market   £m				Total £m				Of which   not quoted   in an active   market   £m
Equities			354.7				-				669.1				-
Absolute return			133.0				-				183.1				55.9
Government bonds			412.2				-				319.8				-
RAFI and diversified funds			472.1								-				-
Corporate bonds			232.3				-				205.0				-
Property			149.6				149.6				128.1				128.1
Other			15.6				-				10.7				-
Total			1,769.5				149.6				1,515.8				184.0
ESPS EM&WM scheme assets are comprised as follows:		31 March 2015								31 March 2014
		Total £m				Of which   not quoted   in an active   market   £m				Total £m				Of which   not quoted   in an active   market   £m
Global equities			400.3				-				350.3				-
Global credit			358.7				-				358.9				-
Property			139.6				139.6				131.9				131.9
Macro-orientated			492.1				492.1				347.6				347.6
Multi strategy			219.7				41.0				317.8				153.5
LDI strategy			1,333.5				-				1,030.9				-
Other			(0.5	)			-				0.4				-
Total			2,943.4				672.7				2,537.8				633.0

 

Western Power Distribution plc		75

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

WPUPS scheme assets are comprised as follows:		31 March 2015								31 March 2014
		Total £m				Of which   not quoted   in an active   market   £m				Total £m				Of which   not quoted   in an active   market   £m
Equities			246.4				-				225.4				-
Government bonds			203.6				-				169.4				-
Other			-				-				0.2				-
Total			450.0				-				395.0				-
Infralec 92 scheme assets are comprised as follows:		31 March 2015								31 March 2014
		Total £m				Of which   not quoted   in an active   market   £m				Total £m				Of which   not quoted   in an active   market   £m
Equities			7.2				-				8.0				-
Government bonds			2.4				-				1.5				-
Corporate bonds			1.5				-				0.4				-
Other			0.4				-				0.3				-
Total			11.5				-				10.2				-

There is nil self-investment in any of the schemes.

Through its defined benefit pension plans, the WPD Group is exposed to a number of risks, the most significant of which are detailed below:

 

Asset volatility		The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a deficit. The scheme holds a significant proportion of growth assets (e.g. equities) which are expected to outperform corporate bonds in the long-term while providing volatility and risk in the short-term. The allocation to growth assets is monitored such that it is suitable with the schemes’ long-term objectives.
Changes in bond yields		A decrease in corporate bond yields will increase the scheme’s liabilities, although this will be partially offset by an increase in the value of the schemes’ bond holdings.
Inflation risk		The majority of the schemes’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either unaffected by or loosely correlated with inflation, meaning than an increase in inflation will also increase the deficit.
Life expectancy		The majority of the schemes’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities.

The schemes use government bonds, corporate bonds and cash as matching assets. The remainder of assets are used as growth assets.

The employer has agreed that it will aim to eliminate the scheme deficit (as assessed on the ongoing funding basis) by 31 January 2023 for the SW&WA segment of the ESPS, by 31 March 2022 for the EM&WM segment of the ESPS, by 1 December 2023 for WPUPS and by 31 March 2020 for Infralec 92.

The current agreed employer contributions are 34.2% per annum of pensionable salaries for the SW&WA segment of the ESPS and 31.4% of pensionable salaries for the EM&WM segment of the ESPS in respect of future benefit accrual, expenses and death in service benefits, and £85m per annum for the SW&WA segment of the ESPS and £80m per annum for the EM&WM segment of the ESPS (both indexed annually with RPI) in respect of deficit recovery contributions. The initial employer contribution during 2014/15 for WPUPS was £16.0m per annum (indexed annually with RPI). The current agreed employer contributions for Infralec 92 is £0.4m per annum (with possible true-ups to a maximum of £245,000 in 2017 and 2020).

Funding levels are monitored on a regular basis and the next triennial valuation is due to be completed as at 31 March 2016.

 

Western Power Distribution plc		76

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

22. Retirement benefit obligations (continued)

 

Expected employer contributions to the scheme for the year ending 31 March 2016 are £113.9m for the SW&WA segment of the ESPS, £109.1m for the EM&WM segment of the ESPS, £16.2m for WPUPS and £0.4m for Infralec 92.

The weighted average duration of the defined benefit obligation is around 17 years for both segments of the ESPS and WPUPS and around 15 years for Infralec 92.

 

23.  Provisions						Asset				Share appreciation
		Tree  Cutting  (i)  £m				retirement  obligations  (ii)  £m				Insurance (iii)  £m				rights  (“SARs”)  (iv)  £m				Pensions  (v)  £m				Other  (vi)  £m				Total     £m
At 1 April 2014			12.2				30.0				21.5				1.9				3.4				5.1				74.1
Charged to income statement:
Additional provisions			-				4.0				1.6				(0.2)				0.2				(2.1)				3.5
Utilised during year			(6.9)				(1.4)				(4.4)				(0.8)				(0.5)				(0.3)				(14.3)
At 31 March 2015			5.3				32.6				18.7				0.9				3.1				2.7				63.3
Provisions have been analysed between current and non-current as follows:
Current			5.3				1.4				5.9				0.8				0.5				2.5				16.4
Non-current			-				31.2				12.8				0.1				2.6				0.2				46.9
At 31 March 2015			5.3				32.6				18.7				0.9				3.1				2.7				63.3
Current			5.6				1.5				6.7				0.9				0.6				4.4				19.7
Non-current			6.6				28.5				14.8				1.0				2.8				0.7				54.4
At 31 March 2014			12.2				30.0				21.5				1.9				3.4				5.1				74.1

(i) WPD East Midlands and WPD West Midlands were not in compliance with regulations pertaining to overhead line clearances from trees as of the date of acquisition by WPD. The companies expect to incur costs through 2015/16 to comply with these requirements that are not included in allowed revenues under the current price control review.

(ii) Asset retirement obligations relate to an estimate of the costs of dismantling and removing items of property, plant and equipment at the end of their useful life and are expected to be settled over the next 70 years.

(iii) Insurance provisions relate to claims covered by the WPD Group’s wholly-owned captive insurance company, Aztec Insurance Limited (“Aztec”), based in Guernsey, and claims covered by external insurers. This includes third party motor claims, employers’ liability, public and product liability, and professional indemnity and includes claims that are reported but not yet paid and anticipated cost of claims incurred but not yet reported. The directors expect the provision to be settled in the next 5 years.

(iv) The share appreciation right provision relates to an estimate of the WPD Group’s liability in respect of cash settled phantom stock options issued to directors and senior employees. The option price is set at the quoted share price of the WPD Group’s parent in the US, PPL Corporation, at the date the phantom options are granted. The options may be exercised during fixed periods and require the WPD Group to pay the intrinsic value to the director or employee at the date of exercise. The liability is determined by using the Black-Scholes option-pricing model using the assumptions in note 6. The directors expect the provision to be settled in the next 13 years.

(v) Pension provisions relate to expected settlements of liabilities relating to the pension liability of the Electricity Association Technology Limited (“EATL”) and are expected to be settled over a period of approximately 7 years.

(vi) Other provisions relate principally to onerous property contracts, uninsured losses, and miscellaneous claims arising in the ordinary course of business; the directors expect other provisions to be settled within the next two years.

 

Western Power Distribution plc		77

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

24. Called-up share capital

 

		2015
Issued and fully paid		Shares				£m
Ordinary shares of £1 each			1,657,592,372				1,657.6
							1,657.6

On 17 September 2014 the Company issued 1 ordinary shares of £1 at par on incorporation of the Company.

On 30 October 2014 the Company issued 2,086,500,000 ordinary shares of £1 each at par to PPL UK Distribution Holdings Limited as part of an intra-group corporate reorganisation.

On 31 October 2014 the Company issued 571,092,371 ordinary shares of £1 each at par to PPL UK Distribution Holdings Limited as part of an intra-group corporate reorganisation.

As a result of the application of the pooling of interests basis of consolidation as ascribed in Note 29, the issue of shares on 30 and 31 October 2014 is reflected as a capitalisation of the consolidated merger reserve.

On 18 March 2015 the Company reduced its issued share capital from £2,657,592,372 to £1,657,592,372 by cancelling and extinguishing 1,000,000,000 ordinary shares of £1 each with the balance being credited to distributable reserves.

The shares entitle the holders thereof to one vote per share held. Each share ranks equally for any dividend declared and any distribution made on a winding up. The shares are not redeemable.

25. Capital and reserves

 

		2015 £m						2014  £m
Share capital			1,657.6						-
Merger reserve			(963.1)						1,694.5
Hedging reserve			(1.6)						(5.2)
Retained earnings			2,190.3						914.0
			2,883.2						2,603.3

The share capital represents the nominal value of the authorised ordinary shares in the Company in issue which carry a right to participate in the distribution of dividends or capital of the Company.

The merger reserve arose on the restructuring of WPD Group entities under common control in October 2014 and September 2001.

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedge derivative instruments related to hedged transactions that have not yet occurred.

26. Contingent liabilities

Legal proceedings

The WPD Group’s businesses are parties to various legal claims, actions and complaints, certain of which may involve material amounts. Although the WPD Group is unable to predict with certainty whether or not it will ultimately be successful in these legal proceedings or, if not, what the impact might be, the directors currently believe that disposition of these matters will not have a materially adverse effect on the WPD Group’s financial statements.

 

Western Power Distribution plc		78

---

Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

27. Commitments

Capital commitments

Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows:

 

		2015		2014
		£m		£m
Property, plant and equipment		43.5		32.9

Operating lease commitments - WPD Group as lessee

The WPD Group leases various properties under non-cancellable operating lease arrangements. The leases have various terms, escalation clauses and renewable rights. The WPD Group also leases plant and machinery under non-cancellable operating leases.

Future minimum rentals payable under non-cancellable operating leases at 31 March are as follows:

 

		2015		2014
		£m		£m
Within one year		4.0		5.9
In the second to fifth years inclusive		6.1		8.2
After five years		5.2		4.4
		15.3		18.5

Operating lease commitments - WPD Group as lessor

The WPD Group has entered into commercial property leases on its investment property portfolio, consisting of the WPD Group’s surplus offices, shops remaining from a discontinued business, and surplus land, and also on its operational radio sites. The leases have various terms, escalation clauses and renewable rights. Leases include a clause to enable upward revision of rental charge on a review cycle set on lease inception according to prevailing market conditions.

Future minimum rentals receivable under non-cancellable operating leases at 31 March are as follows:

 

		2015		2014
		£m		£m
Within one year		4.5		7.2
In the second to fifth years inclusive		12.7		17.7
After five years		16.8		20.2
		34.0		45.1

Guarantees and indemnities

The WPD Group has provided guarantees in respect of the funding required by the WPD Group’s pension schemes.

Ofgem review of line loss calculation

During the DPCR4 period, which covered a 5 year period to 31 March 2010, DNOs were subject to a mechanism by which their management of line losses was measured and, depending on their performance, they received either financial incentives or penalties. On 21 March 2014, Ofgem issued its final determination. This increased the WPD Group’s total liability to approximately £130m. Although the final values had not then been determined, in 2012 Ofgem determined that the WPD Group reduce its regulated income for 2013/14 by approximately £67m and the remaining £63m will be refunded to customers during the four years from 1 April 2015.

 

Western Power Distribution plc		79

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

28. Related party transactions

The immediate parent undertaking of the WPD Group is PPL UK Distribution Holdings Limited (formerly PPL WW Holdings Limited), which is registered in England and Wales. The ultimate controlling party is PPL Corporation, registered in the US.

There are no personnel, other than the directors, who as key management have authority and responsibility for planning, directing and controlling the activities, directly or indirectly, of the WPD Group. Details of directors’ compensation are set out in Note 7.

Loan to PPL affiliate

In February 2011, the WPD Group purchased $200m nominal at a premium of $21m from a PPL affiliate, PMDC Chile, of the $400M 2018 6.42% USD denominated Eurobond issued by PPL UK Resources Limited. This was funded through the repayment of a loan from an affiliate and the issue of share capital.

The investment has the following terms and conditions:

 

The WPD Group recorded interest receivable of £6.2m (2014: £6.3m) on the investment (Note 5).

Loan from PPL affiliate

Notes payable to PPL affiliates (Note 17) comprise an intercompany note of £228.6m (2014: £308.1m) due to PPL WPD Limited, a fellow subsidiary of PPL, together with interest payable of £1.5m thereon. The note accrues interest at rate of 3 month libor plus a margin of between 1.45% and 2.05% based on the Company’s credit rating and is unsecured and repayable on demand.

The WPD Group recorded interest payable of £10.2m (2014: £14.5m) on the loan (Note 5).

WPUPS reimbursement agreement

WPD South Wales is the principal employer for WPUPS, which is a defined benefit scheme providing benefits relating to previous employees of an affiliate group which was previously headed by Hyder plc (now Hyder Limited in liquidation). WPD South Wales will fund the deficit. However, as another PPL UK Distribution Holdings Limited Group company (PPL WPD Limited) has taken full financial responsibility for this scheme, WPD South Wales will be reimbursed for these payments. As PPL WPD Limited is outside the WPD Group, the value of the reimbursement agreement is stated in the balance sheet (Note 15) and matches the gross liability recorded under IAS 19 (Note 22).

29. Reconciliation to previously reported results

The effect of the group restructuring was for a new holding company, WPD plc, to acquire:

i) the subsidiary companies, treasury activities and the debt obligations of PPL UK Distribution Holdings Limited (formerly PPL WW Holdings Limited, ‘PPL WW Group’);

ii) PPL WEM Limited (formerly PPL WEM Holdings Limited, ‘PPL WEM Group’) and its subsidiaries; and

iii) certain other UK companies in the PPL Corporation group.

The financial information for the WPD Group has been prepared on the basis that the restructuring transactions that took place in October 2014 are all between entities under common control and hence are outside of the scope of IFRS 3 “Business combinations”. As such the financial information does not include the effects of acquisition accounting principles, with all values being based on amounts previously recorded for assets and liabilities, without the recognition of any fair value adjustments. For assets and liabilities previously recognised in either the PPL WW or PPL WEM consolidated financial statements, the values attributed in those financial statements are considered by the directors to be the most relevant for this purpose. For other UK entities, values attributed in their solus UK statutory financial statements are considered to be most relevant for this purpose.

The WPD Group income statement and balance sheet have been prepared using the pooling of interests method as if the group restructuring had taken place on 1 April 2013. The consolidated income statements and balance sheets of the WPD Group can be reconciled to the consolidated financial statements of PPL WW and PPL WEM for the year ended 31 March 2014 and as at 31 March 2014 as set out below.

 

Western Power Distribution plc		80

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

29. Reconciliation to previously reported results (continued)

 

Reconciliation of the profit and loss accounts previously reported by the PPL WW Group and the PPL WEM Group to the pooled WPD Group profit and loss account for the year ended 31 March 2014.

 

		PPL WW				Less PPL WW				PPL WW				Add PPL WEM				Add New				Less/Add Intra-group				Pooled
		Group as				transactions and				Group				Group as				Subsidiaries				eliminations				WPD
		previously				eliminations				eligible for				previously				acquired from				and policy				Group
		reported				ineligible for				pooling				reported				group				alignment				as
						pooling												companies				adjustments				reported
		(1)				(2)								(3)				(4)				(5)
						£m				£m				£m				£m				£m				£m
Revenue			677.7				-				677.7				907.6				-				(11.3)				1,574.0
Operating costs			(259.1)				0.4				(258.7)				(342.4)				-				11.3				(589.8)
Other operating income			1.9				-				1.9				0.5				-				-				2.4
Other operating expense			(5.3)				-				(5.3)				-				-				-				(5.3)
Impairment of intangible assets			-				-				-				(248.4)				-				-				(248.4)
Operating profit			415.2				0.4				415.6				317.3				-				-				732.9
Finance income			7.1				-				7.1				2.5				31.6				(33.5)				7.7
Finance costs			(94.2)				(14.5)				(108.7)				(159.0)				(32.9)				33.5				(267.1)
Net finance expense relating to pensions and other post-retirement benefits			(19.4)				3.9				(15.5)				(8.0)				-				-				(23.5)
Profit before income tax			308.7				(10.2)				298.5				152.8				(1.3)				-				450.0
Income tax expense			(20.3)				3.3				(17.0)				(47.9)				7.6				0.1				(57.2)
Profit for the year attributable to equity holders of the parent			288.4				(6.9)				281.5				104.9				6.3				0.1				392.8

(1) The financial information for the PPL WW Group has been extracted from the audited consolidated financial statements of PPL WW for the year ended 31 March 2014.

(2) The removal of transactions and balances relating to PPL WW, as this entity is the parent company of WPD plc and does not therefore form part of the WPD consolidated group. The adjustments include the removal of transactions and balances associated with the WPUPS and certain unfunded pension obligations included in the consolidated financial statements of the PPL WW Group, since these balances were transferred to another subsidiary within the PPL Corporation group, but outside of the WPD Group, as part of the group restructuring.

(3) The financial information for PPL WEM Group has been extracted from the audited consolidated financial statements of PPL WEM for the year ended 31 March 2014.

(4) The adjustments give effect to the following:

(a) the acquisition of PPL Island Limited. The adjustments reflect the assets and liabilities of PPL Island Financing LLP acquired by PPL Island Limited from PPL Island Financing LLP as part of the group restructuring, plus the results of its operations for the year ended 31 March 2014. The financial information has been extracted from the audited financial statements of PPL Island Financing LLP for the year ended 31 March 2014, converted at an exchange rate of £1 = $1.6672.

(b) the acquisition of PPL UK Investments Limited. The adjustments reflect the assets and liabilities and results of operations of PPL UK Investments Limited acquired as part of the group restructuring, and have been extracted from the audited financial statements of PPL UK Investments Limited for the year ended 31 March 2014, converted at an exchange rate of £1 = $1.6672.

(5) The elimination of intercompany transactions and balances between entities that comprise the WPD Group.

 

Western Power Distribution plc		81

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Notes to the Western Power Distribution plc Group financial statements

For the year ended 31 March 2015

 

29. Reconciliation to previously reported results (continued)

 

Reconciliation of the balance sheets previously reported by the PPL WW Group and the PPL WEM Group to the pooled WPD Group balance sheet as at 31 March 2014.

 

		PPL WW Group as previously reported      (1) £m				Less PPL WW balances and eliminations ineligible for pooling (2) £m				PPL WW Group eligible for pooling           £m				Add PPL WEM Group as previously reported      (3) £m				Add New subsidiaries acquired from group companies (4) £m				Less/Add Intra-group eliminations and policy alignment adjustments (5) £m				Pooled WPD Group as reported      £m
ASSETS
Property, plant and equipment			3,338.7				-				3,338.7				5,528.7				-				6.4			8,873.8
Investment property			39.3				-				39.3				1.1				-				-			40.4
Intangible assets			134.0				-				134.0				1,207.2				-				(3.3)			1,337.9
Held-to-maturity investments			127.4				-				127.4				-				-				-			127.4
Trade and other receivables			3.8				59.7				63.5				6.6				-				-			70.1
Derivative financial instruments			-				-				-				-				-				-			-
Non-current assets			3,643.2				59.7				3,702.9				6,743.6				-				3.1			10,449.6
Inventories			6.0				-				6.0				13.4				-				-			19.4
Trade and other receivables			134.1				16.0				150.1				224.0				721.4				(789.8)			305.7
Derivative financial instruments			-				-				-				-				-				-			-
Cash and cash equivalents			197.5				(0.9)				196.6				257.1				0.2				-			453.9
Current assets			337.6				15.1				352.7				494.5				721.6				(789.8)			779.0
Total assets			3,980.8				74.8				4,055.6				7,238.1				721.6				(786.7)			11,228.6
LIABILITIES
Loans and other borrowings			106.6				-				106.6				-				-				-			106.6
Derivative financial instruments			0.6				-				0.6				3.0				-				-			3.6
Trade and other payables			189.8				318.9				508.7				340.4				761.9				(789.8)			821.2
Current tax liabilities			26.7				0.2				26.9				25.0				-				-			51.9
Provisions			8.6				-				8.6				10.9				-				0.2			19.7
Current liabilities			332.3				319.1				651.4				379.3				761.9				(789.6)			1,003.0
Loans and other borrowings			1,479.7				-				1,479.7				3,145.2				-				-			4,624.9
Derivative financial instruments			7.2				-				7.2				21.4				-				-			28.6
Deferred income tax liabilities			146.4				-				146.4				211.0				-				(0.8)			356.6
Retirement benefit obligations			465.0				(3.1)				461.9				265.5				-				4.4			731.8
Trade and other payables			643.3				-				643.3				1,182.7				-				-			1,826.0
Provisions			10.6				-				10.6				37.9				-				5.9			54.4
Non-current liabilities			2,752.2				(3.1)				2,749.1				4,863.7				-				9.5			7,622.3
Total liabilities			3,084.5				316.0				3,400.5				5,243.0				761.9				(780.1)			8,625.3
Net assets			896.3				(241.2)				655.1				1,995.1				(40.3)				(6.6)			2,603.3
EQUITY
Share capital			100.9				-				100.9				1,550.1				-				(1,651.0)			-
Merger reserve			328.3				(241.2)				87.1				-				(40.3)				1,647.7			1,694.5
Hedging reserve			3.4				-				3.4				(8.6)				-				-			(5.2)
Retained earnings			463.7				-				463.7				453.6				-				(3.3)			914.0
Total equity			896.3				(241.2)				655.1				1,995.1				(40.3)				(6.6)			2,603.3

(1) (2) (3) (4) (5) - Please refer to footnotes on page 81.

 

Western Power Distribution plc		82

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Company balance sheet

As at 31 March 2015

 

		Note				£m
Fixed assets
Investments:
Shares in subsidiary undertakings		2					2,876.0
Loans to group undertakings		2					144.2
Current assets
Derivative financial instruments:
Due within one year							1.9
Due in greater than one year							66.9
Debtors		3					912.9
Cash at bank							1.3
							983.0
Creditors - amounts falling due within one year		4					(383.0)
Derivative financial instruments - amounts falling due within one year							(0.5)
Net current assets							599.5
Total assets less current liabilities							3,619.7
Creditors - amounts falling due after more than one year		4					(958.2)
Net assets							2,661.5
Capital and reserves
Called up share capital		5					1,657.6
Profit and loss account		6					1,003.9
Equity shareholders’ funds		6					2,661.5

The financial statements of the Company on pages 83 to 90 were approved by the Board of Directors on 16 July 2015 and signed on its behalf by:

 

R A Symons		D C S Oosthuizen
Chief Executive		Finance Director

 

Western Power Distribution plc		83

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Notes to the Company financial statements

For the period ended 31 March 2015

1.  Accounting policies

Accounting basis

The parent company financial statements of Western Power Distribution plc (the “Company”), company number 9223384, are presented as required by the Companies Act 2006 and were approved for issue on 16 July 2015.

The Company was incorporated as a private limited company on 17 September 2014 and re-registered as a public limited company on 24 June 2015.

The financial statements are prepared under the historical cost convention modified to include the revaluation of derivative financial instruments, and in accordance with applicable United Kingdom accounting standards (“UK GAAP”).

No profit and loss account is presented by the Company as permitted by Section 408 of the Companies Act 2006. The Company’s profit for the financial period was £3.9m.

The Company has taken advantage of the exemption in paragraph 2D of FRS 29 Financial Instruments: Disclosures and has not disclosed information required by that standard, as the Group’s consolidated financial statements, in which the Company is included, provide equivalent disclosures for the Group under IFRS 7 Financial Instruments: Disclosures.

The Western Power Distribution plc consolidated financial statements for the year ended 31 March 2015, which are publicly available, contain a consolidated statement of cash flows. Consequently, the Company has taken advantage of the exemption from preparing a cash flow statement under the terms of FRS 1 (revised).

The Company has taken advantage of the exemptions in FRS 8, ‘Related Party Disclosures’, not to disclose transactions with other wholly owned members of the Western Power Distribution Group.

Foreign currencies

The Company’s functional currency and presentation currency is pounds sterling. Transactions in foreign currencies are initially recorded in the entity’s functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the profit and loss account.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

Investments - shares

Investments in shares in subsidiary undertakings are recorded at cost. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount. The impairment, if any, is charged to the profit and loss account.

Taxation

Current tax is provided at the amount expected to be paid or recovered using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or the right to pay less tax, at a future date, at tax rates expected to apply when the timing differences reverse based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements.

Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.

 

Western Power Distribution plc		84

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Notes to the Company financial statements

For the period ended 31 March 2015

 

1.  Accounting policies (continued)

 

Dividends

Dividend distributions are recognised in the period in which the dividends are paid.

Financial assets

Financial assets are classified as loans and receivables; financial assets at fair value through profit or loss; derivatives designated as hedging instruments in an effective hedge; held-to-maturity financial assets; or as available-for-sale financial assets, as appropriate. Financial assets include cash and cash equivalents, trade receivables, other receivables, loans, other investments, and derivative financial instruments. The Company determines the classification of its financial assets at initial recognition. Financial assets are recognised initially at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

The subsequent measurement of financial assets depends on their classification, as follows:

Loans and receivables

Loans and receivables are carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. This category of financial assets includes trade and other receivables.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried on the balance sheet at fair value with gains or losses recognised in the profit and loss statement. Derivatives, other than those designated as effective hedging instruments, are classified as held for trading and are included in this category.

Derivatives designated as hedging instruments in an effective hedge

These derivatives are carried on the balance sheet at fair value. The treatment of gains and losses arising from revaluation is described below in the accounting policy for derivative financial instruments and hedging activities.

Held-to-maturity investments

Held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment.

Available-for-sale financial assets

After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity, except for impairment losses and, for available-for-sale debt instruments, foreign exchange gains or losses and any changes in fair value arising from revised estimates of future cash flows, which are recognised in profit or loss.

Impairment of loans and receivables

The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced, with the amount of the loss recognised in the profit and loss account.

 

Western Power Distribution plc		85

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Notes to the Company financial statements

For the period ended 31 March 2015

 

1.  Accounting policies (continued)

 

Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profit or loss; derivatives designated as hedging instruments in an effective hedge; or as financial liabilities measured at amortised cost, as appropriate. Financial liabilities include trade and other payables, accruals, most items of finance debt and derivative financial instruments. The Company determines the classification of its financial liabilities at initial recognition. The measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are carried on the balance sheet at fair value with gains or losses recognised in profit or loss. Derivatives, other than those designated as effective hedging instruments, are classified as held for trading and are included in this category.

Derivatives designated as hedging instruments in an effective hedge

These derivatives are carried on the balance sheet at fair value. The treatment of gains and losses arising from revaluation is described below in the accounting policy for derivative financial instruments and hedging activities.

Financial liabilities measured at amortised cost

All other financial liabilities are initially recognized at fair value. For interest-bearing loans and borrowings this is the fair value of the proceeds received net of issue costs associated with the borrowing.

After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognised in profit or loss.

This category of financial liabilities includes trade and other payables and finance debt.

Derivative financial instruments and hedging

The Company uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Gains or losses arising from changes in the fair value of derivatives that are not designated as effective hedging instruments are recognized in the income statement.

Share capital

Ordinary shares are classified as equity and are recorded at the par value of proceeds received, net of direct issue costs. Where shares are issued above par value, the proceeds in excess of par value are recorded in the share premium account.

 

Western Power Distribution plc		86

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Notes to the Company financial statements

For the period ended 31 March 2015

 

2.  Fixed asset investments		Subsidiary undertakings £m				Parent Company debt £m				Total   £m
Cost
Addition on 30 October 2014 (1)			2,086.5				-				2,086.5
Addition on 31 October 2014 (2)			789.5				135.0				924.5
Amortisation of premium			-				(1.2	)			(1.2)
Exchange rate movement			-				10.4				10.4
At 31 March 2015			2,876.0				144.2				3,020.2
Net book value at 31 March 2015			2,876.0				144.2				3,020.2

(1)  On 30 October 2014, as part of an intra-group corporate reorganisation, PPL UK Distribution Holdings Limited (‘PPLUK’ formerly PPL WW Holdings Limited), the Company’s immediate parent, transferred its shares in WPD Distribution Network Holdings Limited (‘DNH’) to the Company at fair value in exchange for the issue of 2,086,500,000 ordinary shares of £1 each at par in the capital of the Company. The principal subsidiaries of DNH were Western Power Distribution (South West) plc and Western Power Distribution (South Wales) plc.

(2)  On 31 October 2014, as part of an intra-group corporate reorganisation, PPLUK transferred its shares in PPL UK Investments Limited and assigned its $200m holding of 6.42% unsecured loan notes of PPL UK Resources Limited due 2018 together with   $4.3m accrued but unpaid interest thereon to the Company all at fair value. The consideration for transfer and assignment was (a) the assignment by PPLUK to the Company of its £210m revolving credit facility (b) the Company agreeing to become a co-obligor in respect of the $100m 7.25% notes due 15 December 2017 and the $255m 7.375% notes due 15 December 2028 issued by PPLUK (c) the novation by PPLUK to the Company of the rights and obligations under its cross currency swap agreements (d) the issue of 571,092,371 ordinary shares of £1 each at par in the capital of the Company.

Details of the Company’s subsidiary undertakings are as follows:

 

Subsidiary undertakings		Principal activity		Proportion %
Western Power Distribution (South West) plc		Electricity distribution			100
Western Power Distribution (South Wales) plc		Electricity distribution			100
Western Power Distribution (East Midlands) plc		Electricity distribution			100
Western Power Distribution (West Midlands) plc		Electricity distribution			100
WPD Distribution Network Holdings Limited		Investment company			100
PPL Island Limited		Investment company			100
PPL WEM Limited		Investment company			100
PPL Midlands Limited		Investment company			100
PPL UK Investments Limited		Investment company			100
Western Power Distribution Investments Limited		Investment company			100
Surf Telecoms Limited		Telecommunications			100
Western Power Generation Limited		Power generation			100
WPD Property Investments Limited		Property management			100
WPD Property Developments Limited		Property development			100
WPD Property Limited		Property management			100
Kelston Properties Limited		Property management			100
Kelston Properties 2 Limited		Property management			100
Aztec Insurance Limited ^		Insurance			100
South Western Helicopters Limited		Helicopter operator			100
WPD Smart Metering Limited		Electricity Metering			100
WPD Investments Limited		Investment company			100
WPD Midlands Properties Limited		Investment company			100
WPD Limited ^		Property management			100

 

Western Power Distribution plc		87

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Notes to the Company financial statements

For the period ended 31 March 2015

 

2.  Fixed asset investments (continued)

 

Subsidiary undertakings		Principal activity		Proportion %
Hyder Profit Sharing Trustees Limited		Dormant company			100
WW Share Scheme Trustees Limited		Dormant company			100
South Wales Electricity Share Scheme Trustees Limited		Dormant company			100
Infralec 1992 Pension Trustee Limited		Dormant company			100
WPD Midlands Networks Contracting Limited		Dormant company			100
Central Networks Trustees Limited		Dormant company			100
WPD Share Scheme Trustees Limited		Dormant company			100
Western Power Pension Trustee Limited		Dormant company			100
WPD Limited		Dormant company			100
Meter Reading Services Limited		Dormant company			100
Meter Operator Services Limited		Dormant company			100
Hyder Share Scheme Trustee Limited		Dormant company			100
Hyder Share Scheme Trustee 2 Limited		Dormant company			100

^ Incorporated in Guernsey.

All undertakings are registered in England and Wales unless stated.

Except for WPD Distribution Network Holdings Limited, which is owned 62.1% directly and 32.9% indirectly by subsidiaries, and PPL UK Investments Limited which is owned 100% directly, all shares are held by subsidiary undertakings. All holdings are in ordinary shares.

3.  Debtors

		£m
Amounts falling due within one year:
Amounts owed by Group undertakings			910.6
Other debtors			2.2
Prepayments and accrued income			0.1
			912.9

Amounts owed by Group undertakings include intercompany notes of £617.3m due from PPL WEM Limited (‘WEM’) and £278.3m due from DNH together with accrued interest of £13.1m and £1.8m thereon, respectively. The WEM note accrues interest at a fixed rate of 5.0% per annum and the DNH note accrues interest at a rate of 3 month libor plus a margin of between 1.15% and 1.65% based on the company’s credit rating. Both notes are unsecured and are repayable on demand.

4.  Creditors

		£m
Amounts falling due within one year:
Committed borrowing facility (1)			134.7
Amounts owed to Group undertakings (2)			231.1
Accruals and deferred income			17.2
			383.0
Amounts falling due after more than one year:
3.900% US$460m bonds due 2016 (3)			316.9
5.375% US$500m bonds due 2021 (3)			374.6
7.250% US$100m bonds due 2017 (4)			72.9
7.375% US$255m bonds due 2028 (4)			193.8
			958.2

 

Western Power Distribution plc		88

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Notes to the Company financial statements

For the period ended 31 March 2015

 

4.  Creditors (continued)

 

(1) At 31 March 2015, the Company had drawn £134.7m on its committed borrowing facility and had available £76.1m undrawn in respect of which all conditions precedent had been met. Interest on the facility accrues at a rate of libor plus a margin of between 1.4% and 2.5% based on the Company’s credit rating.

(2) Amounts owed to Group undertakings comprise an intercompany note of £228.6m due to PPL WPD Limited, a fellow subsidiary of the Company, together with interest payable of £1.5m thereon. The note accrues interest at rate of 3 month libor plus a margin of between 1.45% and 2.05% based on the Company’s credit rating and is unsecured and repayable on demand.

(3) On 30 October 2014, as part of an intra-group reorganisation, the Company (i) became a co-obligor and agreed to make all future payments on the $460m 3.900% notes due 1 May 2016 and the $500m 5.375% notes due 1 May 2021 issued by WEM (the ‘WEM Bonds’) (ii) entered into a reimbursement agreement in relation to payments under the WEM Bonds and (iii) accepted the novation from WEM of the rights and obligations under its cross currency swap agreements, in exchange for WEM issuing an intercompany note to the Company in the amount of £649.1m. As a consequence, the Company and WEM are jointly and severally, and fully and unconditionally, liable on the WEM Bonds. Under the terms of a reimbursement agreement, where WEM has given notice of its intention to make payments to the holders of the WEM Bonds, the Company will make payments to WEM equal to such amounts. Having recognised its obligations under the WEM bonds in full, the Company has not recognised any amounts in respect of its obligations under the reimbursement agreement.

(4) On 31 October 2014, as part of an intra-group reorganisation the Company (i) became a co-obligor and agreed to make all future payments on the $100m 7.250% notes due 15 December 2017 and the $255m 7.375% notes due 15 December 2028 issued by PPLUK (the ‘PPLUK Bonds’) (ii) entered into a reimbursement agreement in relation to payments under the PPLUK Bonds and (iii) accepted the novation from PPLUK of the rights and obligations under its cross currency swap agreements. See Note 2 for further details. As a consequence, the Company and PPLUK are jointly and severally, and fully and unconditionally, liable on the PPLUK Bonds. Under the terms of the reimbursement agreement, where PPLUK has given notice of its intention to make payments to the holders of the PPLUK Bonds, the Company will make payments to PPLUK equal to such amounts. Having recognised its obligations under the PPLUK bonds in full, the Company has not recognised any amounts in respect of its obligations under the reimbursement agreement.

5.  Called-up share capital

		Number of shares				£m
Ordinary share of £1 each allotted, called-up, and fully paid:
Issued on incorporation on 17 September 2014 (1)			1				-
Issue of new shares on 30 October 2014 (2)			2,086,500,000				2,086.5
Issue of new shares on 31 October 2014 (3)			571,092,371				571.1
Cancellation and extinguishment of shares (4)			(1,000,000,000	)			(1,000.0)
At 31 March 2015			1,657,592,372				1,657.6

A description of the shares is given in Note 24 of the WPD Group financial statements.

(1) On 17 September 2014 the Company issued 1 ordinary shares of £1 at par on incorporation of the Company.

(2)  On 30 October 2014 the Company issued 2,086,500,000 ordinary shares of £1 each at par to PPL UK Distribution Holdings Limited as part of an intra-group corporate reorganisation. See Note 2 for further detail.

(3)  On 31 October 2014 the Company issued 571,092,371 ordinary shares of £1 each at par to PPL UK Distribution Holdings Limited as part of an intra-group corporate reorganisation. See Note 2 for further detail.

(4)  On 18 March 2015 the Company reduced it’s issued share capital from £2,657,592,372 to £1,657,592,372 by cancelling and extinguishing 1,000,000,000 ordinary shares of £1 each with the balance being credited to distributable reserves.

 

Western Power Distribution plc		89

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Notes to the Company financial statements

For the period ended 31 March 2015

 

6.  Capital and reserves		Share capital £m				Profit     and loss account £m				Total   £m
Issue of share capital			2,657.6				-				2,657.6
Capital reduction			(1,000.0	)			1,000.0				-
Profit for the period			-				3.9				3.9
At 31 March 2015			1,657.6				1,003.9				2,661.5

7. Related party transactions

The immediate parent undertaking of the Company is PPL UK Distribution Holdings Limited, which is registered in England and Wales. The ultimate controlling party is PPL Corporation, registered in the US.

Investment in PPL affiliate debt

In October 2014, as part of an intra-group reorganisation, WPD acquired $200m nominal at a premium of $16m from PPL UK Distribution Holdings Limited of the $400M 2018 6.42% USD denominated Eurobond issued by PPL UK Resources Limited.

The investment has the following terms and conditions:

 

Name of PPL affiliate

Amount of investment

Term

Interest rate

PPL UK Resources Ltd

$200m

Repayable on 31 July 2018

6.42%

The Company recorded interest receivable of £2.3m on the investment for the period.

 

 

Registered office:

Western Power Distribution plc

Avonbank

Feeder Road

Bristol BS2 0TB

Telephone : 0117 933 2000

Fax  : 0117 933 2001

eMail: [email protected]

Registered number 9223384

 

Western Power Distribution plc		90

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THE ISSUER
Western Power Distribution plc
Avonbank
Feeder Road
Bristol BS2 0TB
United Kingdom
TRUSTEE		PRINCIPAL PAYING AGENT
HSBC Corporate Trustee Company (UK) Limited		HSBC Bank Plc
8 Canada Square		8 Canada Square
London E14 5HQ		London E14 5HQ
United Kingdom		United Kingdom
THE JOINT LEAD MANAGERS
Banco Santander, S.A.		Barclays Bank PLC
Ciudad Grupo Santander		5 The North Colonnade
Adificio Encinar Avenida de Cantabria		Canary Wharf
28660, Boadilla del Monte		London E14 4BB
Madrid		United Kingdom
Spain
Lloyds Bank plc		RBC Europe Limited
10 Gresham Street		Riverbank House
London EC2V 7AE		2 Swan Lane
United Kingdom		London EC4R 3BF
		United Kingdom
THE CO-LEAD MANAGERS
HSBC Bank plc		Mitsubishi UFJ Securities International plc
8 Canada Square		Ropemaker Place
London E14 5HQ		25 Ropemaker Street
		London EC2Y 9AJ
Mizuho International plc		The Royal Bank of Scotland plc
Bracken House		135 Bishopsgate
One Friday Street,		London EC2M 3UR
London, EC4M 9JA
LEGAL ADVISERS TO THE ISSUER AS TO ENGLISH LAW
Allen & Overy LLP
One Bishops Square
London E1 6AD
United Kingdom
LEGAL ADVISORS TO THE JOINT LEAD MANAGERS, THE CO-LEAD MANAGERS AND THE
TRUSTEE AS TO ENGLISH LAW
Clifford Chance LLP
10 Upper Bank Street
London E14 5JJ
United Kingdom

---

INDEPENDENT AUDITORS TO THE ISSUER

Ernst and Young LLP

The Paragon

Counterslip

Bristol BS1 6BX

United Kingdom

Exhibit 4.1

 

		CLIFFORD CHANCE LLP
		EXECUTION VERSION

WESTERN POWER DISTRIBUTION PLC

 

HSBC CORPORATE TRUSTEE COMPANY (UK) LIMITED

 

 

 

 

TRUST DEED

RELATING TO

£500,000,000 3.625 PER CENT.

NOTES DUE 2023

(WITH AUTHORITY TO ISSUE FURTHER NOTES)

 

 

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CONTENTS

 

Clause		Page
1.     Definitions and Interpretation			1
2.     Covenant to Repay			6
3.     The Original Notes			9
4.     Covenant to Comply with Trust Deed and Schedules			10
5.     Covenants by the Issuer			10
6.     Amendments and Substitution			13
7.     Enforcement			16
8.     Application of Moneys			17
9.     Terms of Appointment			18
10.   Costs and Expenses			24
11.   FATCA			26
12.   Appointment and Retirement			27
13.   Notices			28
14.   Law and Jurisdiction			29
15.   Severability			30
16.   Contracts (Rights of Third Parties) Act 1999			30
17.   Counterparts			30
Schedule 1			31
Part A Form of Temporary Global Note			31
Part B Form of Permanent Global Note			40
Schedule 2			45
Part A Form of Definitive Note			45
Part B Terms and Conditions of the Notes			47
Part C Form of Original Coupon			65
Schedule 3 Provisions for Meetings of Noteholders			67

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THIS TRUST DEED is made on 6 November 2015

BETWEEN:

 

(1)	WESTERN POWER DISTRIBUTION PLC (the “Issuer”); and

 

(2)	HSBC CORPORATE TRUSTEE COMPANY (UK) LIMITED (in its capacity as the “Trustee”, which expression includes, where the context admits, all persons for the time being the trustee or trustees of this Trust Deed which includes any replacement Trustee or co-Trustee).

WHEREAS

 

(A)	The Issuer has authorised the creation and issue of £500,000,000 in aggregate principal amount of 3.625 per cent. Notes due 2023 to be constituted in relation to this Trust Deed.

 

(B)	The Trustee has agreed to act as trustee of this Trust Deed on the following terms and conditions.

NOW THIS DEED WITNESSES AND IT IS HEREBY DECLARED as follows:

 

1.	DEFINITIONS AND INTERPRETATION

 

1.1	Definitions

In this Trust Deed the following expressions have the following meanings:

“£” or “Sterling” or “GBP” denotes the lawful currency for the time being of the United Kingdom;

“Agency Agreement” means, in relation to the Notes of any relevant series, the agreement appointing the initial Paying Agents in relation to such Notes and any other agreement for the time being in force appointing Successor paying agents in relation to such Notes, together with any agreement for the time being in force amending or modifying with the prior written approval of the Trustee any of the aforesaid agreements, in relation to such Notes;

“Appointee” means any delegate, agent, nominee, receiver or custodian appointed or employed pursuant to the provisions of this Trust Deed;

“Auditors” means the auditors for the time being of the Issuer and, if there are joint auditors, means all or any one of such joint auditors or, in the event of any of them being unable or unwilling to carry out any action requested of them pursuant to this Trust Deed, means such other firm of chartered accountants in England as may be nominated in writing by the Trustee for the purpose;

“Clearstream, Luxembourg” means Clearstream Banking S.A.;

“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time;

“Conditions” means, in relation to the Original Notes, the terms and conditions to be endorsed on the Original Notes, in the form or substantially in the form set out in Part B of Schedule 2, and, in relation to any Further Notes, the terms and conditions endorsed on the Notes in accordance with the supplemental deed relating thereto or substantially in the form set out or referred to in the supplemental deed relating thereto, as any of the same may from time to time be modified in accordance with this Trust Deed and any reference in this Trust

 

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Deed to a particular numbered Condition shall be construed in relation to the Original Notes accordingly and any reference in this Trust Deed to a particular numbered Condition in relation to any Further Notes shall be construed as a reference to the provision (if any) in the Conditions of such Further Notes which corresponds to the particular numbered Condition of the Original Notes;

“Couponholder” means the holder of a Coupon;

“Coupons” means the bearer interest coupons in or substantially in the form set out in Part C of Schedule 2 appertaining to the Notes and for the time being outstanding or, as the context may require, a specific number thereof and includes any replacement Coupons issued pursuant to Condition 13 (Replacement of Notes and Coupons);

“Euroclear” means Euroclear Bank S.A./N.V.;

“Event of Default” means any one of the circumstances described in Condition 9 (Events of Default), but in the case of the event described in paragraph (ii) (Breach of other obligations thereof in relation to the Issuer only if such event is certified by the Trustee to be materially prejudicial to the interests of the Noteholders;

“Extraordinary Resolution” has the meaning set out in Schedule 3 (Provisions for Meetings of Noteholders);

“FATCA” means Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, any law implementing an intergovernmental approach thereto, in each case, as amended from time to time, and an agreement described in Section 1471(b) of the Code;

“FCA” means the United Kingdom Financial Conduct Authority;

“FSMA” means the Financial Services and Markets Act 2000;

“Further Notes” means any bonds or notes of the Issuer constituted in relation to a deed supplemental to this Principal Trust Deed pursuant to Clause 2.3 (Further Issues) and for the time being outstanding or, as the context may require, a specific number thereof and includes any global bond, note or evidence of indebtedness which has not for the time being been exchanged for such bonds or notes and any replacement bonds or notes issued pursuant to Condition 13 (Replacement of Notes and Coupons);

“Global Note” means the Original Temporary Global Note and Original Permanent Global Note and any other global notes representing the Further Notes or any of them;

“ICSDs” means Clearstream, Luxembourg and Euroclear;

“Liabilities” means in respect of any person, in respect of any person, any losses, damages, costs, charges, awards, claims, fees, demands, expenses, judgments, actions, proceedings, or other liabilities whatsoever including legal fees and Taxes and penalties incurred by that person (but, for the avoidance of doubt, in each case, excluding tax on net income, profits or gains), together with any irrecoverable VAT charged or chargeable in respect of any sums referred to in this definition;

“Noteholder” means an Original Noteholder or holder of Further Notes;

“Notes” means the Original Notes and any Further Notes save that in Schedules 1 and 2 “Notes” means the Original Notes and any Further Notes forming a single issue therewith and the words “Coupons”, Noteholders and “Couponholders” where used therein shall be construed accordingly;

 

- 2 -

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“Original Coupons” means the bearer interest coupons in or substantially in the form set out in Part C of Schedule 2 appertaining to the Original Notes and for the time being outstanding or as the context may require a specific number thereof and includes any replacement Original Coupons issued pursuant to Condition 13 (Replacement of Notes and Coupons);

“Original Couponholder” and (in relation to a Coupon) “holder” means the bearer of an Original Coupon;

“Original Global Note” means the Original Temporary Global Note or the Original Permanent Global Note or either of them to be issued pursuant to Clause 3.1 (Global Note in the form or substantially in the form set out in Schedule 1;

“Original Noteholder” and (in relation to a Note) “holder” means the bearer of an Original Note;

“Original Notes” means the bearer notes in the denomination of £100,000 and integral multiples of £1,000 in excess thereof (up to and including £199,000, each comprising the £500,000,000 3.625 per cent. Notes due 2023 constituted in relation to this Trust Deed, in or substantially in the form set out in Schedules 1 and 2, and for the time being outstanding or, as the case may be, a specific number thereof and includes any replacement Original Notes issued pursuant to Condition 13 (Replacement of Notes and Coupons) and (except for the purposes of Clauses 3.1 (Global Note) and 3.3 (Signature)) the Original Global Note for so long as it has not been exchanged in accordance with the terms thereof;

“Original Permanent Global Note” means the Original Permanent Global Note to be issued pursuant to Clause 3.1 (Global Note) in the form or substantially in the form set out in Part B of Schedule 1;

“Original Temporary Global Note” means the Original Temporary Global Note to be issued pursuant to Clause 3.1 (Global Note) in the form or substantially in the form set out in Part A of Schedule 1;

“outstanding” means, in relation to the Notes, all the Notes other than:

 

(a)

those which have been redeemed in accordance with this Trust Deed;

 

(b)

those in respect of which the date for redemption in accordance with the provisions of the Conditions has occurred and for which the redemption moneys (including all interest accrued thereon to the date for such redemption) have been duly paid to the Trustee or the Principal Paying Agent in the manner provided for in the Agency Agreement (and, where appropriate, notice to that effect has been given to the relative Noteholders in accordance with Condition 15 (Notices)) and remain available for payment in accordance with the Conditions;

 

(c)

those which have been purchased and surrendered for cancellation as provided in Condition 5(g) (Cancellation) and notice of the cancellation of which has been given to the Trustee;

 

(d)

those which have become void under Condition 8 (Prescription);

 

- 3 -

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(e)

those mutilated or defaced Notes which have been surrendered or cancelled and in respect of which replacement Notes have been issued pursuant to Condition 13 (Replacement of Notes and Coupons);

 

(f)

(for the purpose only of ascertaining the amount of the Notes outstanding and without prejudice to the status for any other purpose of the relevant Notes) those Notes which are alleged to have been lost, stolen or destroyed and in respect of which replacements have been issued pursuant to Condition 13 (Replacement of Notes and Coupons);

provided that for each of the following purposes, namely:

 

(i)

the right to attend and vote at any meeting of Noteholders;

 

(ii)

the determination of how many and which Notes are for the time being outstanding for the purposes of Clauses 7.1 (Legal Proceedings) and 6.1 (Waiver), Conditions 9 (Events of Default) and 10 (Meetings of Noteholders, Modification, Waiver and Substitution) and Schedule 3 (Provisions for Meetings of Noteholders); and

 

(iii)

any discretion, power or authority, whether contained in this Trust Deed or provided by law, which the Trustee is required to exercise in or by reference to the interests of the Noteholders or any of them;

those Notes (if any) which are for the time being held by any person (including but not limited to the Issuer or any Subsidiary) for the benefit of the Issuer or any Subsidiary shall (unless and until ceasing to be so held) be deemed not to remain outstanding;

“Paying Agents” means, in relation to the Notes of any relevant series the several institutions (including, where the context permits, the Principal Paying Agent) at their respective Specified Offices initially appointed pursuant to the relative Agency Agreement and/or, if applicable, any Successor paying agents, in relation to such Notes at their respective Specified Offices;

“Permanent Global Note” means the Original Permanent Global Note and any other permanent global note representing the Further Notes or any of them;

“PRA” means the United Kingdom Prudential Regulation Authority;

“Principal Paying Agent” means, in relation to the Notes of any series, the institution at its Specified Office initially appointed as principal paying agent in relation to such Notes pursuant to the relative Agency Agreement or, if applicable, any Successor principal paying agent in relation to such Notes at its Specified Office;

“Principal Trust Deed” means this Trust Deed constituting the Original Notes;

“Repay” shall include “redeem” and vice versa and “repaid”, “repayable”, “repayment”, “redeemed”, “redeemable” and “redemption” shall be construed accordingly;

“Specified Office” means, in relation to any Paying Agent, either the office identified with its name in the Conditions of the Notes of the relevant series or any other office notified to any relevant parties pursuant to the Agency Agreement;

Subsidiary means a subsidiary within the meaning of section 1159 of the Companies Act 2006;

 

- 4 -

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“Successor” means, in relation to the Paying Agents, such other or further person, as may from time to time be appointed pursuant to the Agency Agreement as a Paying Agent;

“Tax” shall be construed so as to include any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature whatsoever (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same, but excluding taxes on net income, profits or gains) imposed or levied by or on behalf of any Tax Authority in the jurisdiction of the Issuer and Taxes shall be construed accordingly;

“Tax Authority” means any government, state or municipality or any local, state, federal or other authority, body or official anywhere in the world exercising a fiscal, revenue, customs or excise function (including, without limitation, Her Majesty’s Revenue and Customs);

“Temporary Global Note” means the Original Temporary Global Note and any other temporary global notes representing the Further Notes or any of them;

“this Trust Deed” means this Trust Deed and the Schedules (as from time to time modified in accordance with the provisions contained herein) and (unless the context requires otherwise) includes any deed or other document executed in accordance with the provisions hereof (as from time to time modified as aforesaid) and expressed to be supplemental hereto;

“Trustee Acts” means both the Trustee Act 1925 and the Trustee Act 2000 of England and Wales; and

“Written Resolution” means a resolution in writing signed by or on behalf of 75 per cent. of holders of Notes for the time being outstanding, whether contained in one document or several documents in the same form, each signed by or on behalf of one or more such holders of the Notes.

 

1.2	Principles of interpretation

 

1.2.1

In this Trust Deed references to:

 

(a)

Statutory modification: a provision of any statute shall be deemed also to refer to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under such modification or re-enactment;

 

(b)

Additional amounts: principal and/or interest in respect of the Notes shall be deemed also to include references to any additional amounts which may be payable under Condition 7 (Taxation);

 

(c)

Tax: costs, charges or expenses shall include any value added tax or similar tax charged or chargeable in respect thereof;

 

(d)

Enforcement of rights: an action, remedy or method of judicial proceedings for the enforcement of rights of creditors shall include, in respect of any jurisdiction other than England, references to such action, remedy or method of judicial proceedings for the enforcement of rights of creditors available or appropriate in such jurisdictions as shall most nearly approximate thereto;

 

(e)

Clauses and Schedules: a Schedule, a Clause or sub-clause, paragraph or sub-paragraph is, unless otherwise stated, to a schedule hereto or a clause or sub-clause, paragraph or sub-paragraph hereof respectively;

 

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(f)

Principal: principal shall, when applicable, include premium;

 

(g)

Clearing systems: Euroclear and/or Clearstream, Luxembourg shall, wherever the context so admits, be deemed to include references to any additional or alternative clearing system approved by the Issuer and the Trustee;

 

(h)

Trust Corporation: a trust corporation denotes a corporation entitled by rules made under the Public Trustee Act 1906 to act as a custodian trustee or entitled pursuant to any other legislation applicable to a trustee in any jurisdiction other than England to act as trustee and carry on trust business under the laws of the country of its incorporation; and

 

(i)

Gender: words denoting the masculine gender shall include the feminine gender also, words denoting individuals shall include companies, corporations and partnerships and words importing the singular number only shall include the plural and in each case vice versa.

 

1.2.2

All references in this Trust Deed, the Conditions or the Agency Agreement involving compliance by the Trustee with a test of reasonableness shall be deemed to include a reference to a requirement that such reasonableness shall be determined by reference solely to the interests of the Noteholders and in the event of any conflict between such interests and the interests of any other person, the former shall prevail as being paramount.

 

1.2.3

All references in this Trust Deed and in the Conditions to wilful default or fraud or gross negligence means a finding to such effect by a court of competent jurisdiction in relation to the conduct of the relevant party.

 

1.3	The Conditions

In this Trust Deed, unless the context requires or the same are otherwise defined, words and expressions defined in the Conditions and not otherwise defined herein shall have the same meaning in this Trust Deed.

 

1.4

Headings

The headings and sub-headings are for ease of reference only and shall not affect the construction of this Trust Deed.

 

1.5	The Schedules

The schedules are part of this Trust Deed and shall have effect accordingly.

 

2.	COVENANT TO REPAY

 

2.1	Covenant to Repay

The Issuer covenants with the Trustee that it will, as and when the Original Notes or any of them become due to be redeemed or any principal on the Original Notes or any of them becomes due to be repaid in accordance with the Conditions, unconditionally pay or procure to be paid to or to the order of the Trustee in Sterling in immediately available freely transferable funds the principal amount of the Original Notes or any of them becoming due for redemption or repayment on that date and shall (subject to the provisions of the Conditions) until all such payments (both before and after judgment or other order) are duly

 

- 6 -

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made unconditionally pay or procure to be paid to or to the order of the Trustee as aforesaid on the dates provided for in the Conditions interest on the principal amount of the Original Notes or any of them outstanding from time to time as set out in the Conditions provided that:

 

2.1.1

every payment of principal or interest in respect of the Original Notes or any of them made to the Principal Paying Agent in the manner provided in the Agency Agreement shall satisfy, to the extent of such payment, the relevant covenant by the Issuer contained in this Clause except to the extent that there is default in the subsequent payment thereof to the Original Noteholders or Original Couponholders (as the case may be) in accordance with the Conditions;

 

2.1.2

if any payment of principal or interest in respect of the Original Notes or any of them is made after the due date or as a result of the Original Notes becoming repayable following an Event of Default, payment shall be deemed not to have been made until either the full amount is paid to the Original Noteholders or, if earlier, the seventh day after notice has been given to the Original Noteholders or Original Couponholders (as the case may be) in accordance with the Conditions that the full amount has been received by the Principal Paying Agent or the Trustee except, in the case of payment to the Principal Paying Agent, to the extent that there is failure in the subsequent payment to the Original Noteholders or Original Couponholders (as the case may be) under the Conditions; and

 

2.1.3

in any case where payment of the whole or any part of the principal amount due in respect of any Original Note is improperly withheld or refused upon due presentation (if so provided for in the Conditions) of the Original Note, interest shall accrue on the whole or such part of such principal amount from the date of such withholding or refusal until the date either on which such principal amount due is paid to the Original Noteholders or, if earlier, the seventh day after which notice is given to the Original Noteholders in accordance with the Conditions that the full amount payable in respect of the said principal amount is available for collection by the Original Noteholders provided that on further due presentation thereof (if so provided for in the Conditions) such payment is in fact made.

The Trustee will hold the benefit of this covenant and the covenant in Clause 4 (Covenant to comply with Trust Deed and Schedules) on trust for the Original Noteholders and Original Couponholders.

 

2.2	Following an Event of Default

At any time after any Event of Default shall have occurred, the Trustee may:

 

2.2.1

by notice in writing to the Issuer, the Principal Paying Agent and the other Paying Agents require the Principal Paying Agent and the other Paying Agents or any of them:

 

(a)

to act thereafter, until otherwise instructed by the Trustee, as Paying Agents of the Trustee under the provisions of this Trust Deed on the terms provided in the Agency Agreement (with consequential amendments as necessary and save that the Trustee’s liability under any provisions thereof for the indemnification, remuneration and payment of out-of-pocket expenses of the Paying Agents shall be limited to amounts for the time being held by the Trustee on the trusts of this Trust Deed in relation to the Notes on the terms of this Trust Deed and available to the Trustee for such purpose) and thereafter to hold all Notes and Coupons and all sums, documents and records held by them in respect of Notes and Coupons on behalf of the Trustee; and/or

 

(b)

to deliver up all Notes and Coupons and all sums, documents and records held by them in respect of Notes and Coupons to the Trustee or as the Trustee shall direct in such notice provided that such notice shall be deemed not to apply to any document or record which the relevant Paying Agent is obliged not to release by any law or regulation; and

 

2.2.2

by notice in writing to the Issuer require the Issuer to make all subsequent payments in respect of Notes and Coupons to or to the order of the Trustee and with effect from the issue of any such notice until such notice is withdrawn, sub-clause 2.1.1 of Clause 2.1 (Covenant to Repay) and (so far as it concerns payments by the Issuer) Clause 8.4 (Payment to Noteholders and Couponholders) shall cease to have effect.

 

- 7 -

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2.3	Further Issues

 

2.3.1

The Issuer shall be at liberty from time to time (but subject always to the provisions of this Trust Deed) without the consent of the Noteholders or the Couponholders to create and issue further notes or debt securities howsoever designated either ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so as to form a single series with the original Notes and/or Further Notes of any series or upon such terms as to interest, conversion, redemption and otherwise as the Issuer may at the time of the issue thereof determine.

 

2.3.2

Any further notes or debt securities howsoever designated created and issued pursuant to the provisions of sub-clause 2.3.1 shall, if they are to form a single series with the Original Notes, and/or Further Notes of any series, be constituted in relation to a deed supplemental to this Principal Trust Deed and in any other case, if the Trustee so agrees, may be so constituted. In any such case the Issuer shall prior to the issue of any such further notes or bonds, execute and deliver to the Trustee a deed supplemental to this Principal Trust Deed (if applicable, duly stamped or denoted) and containing a covenant by the Issuer in the form mutatis mutandis of Clause 2.1 (Covenant to repay) of this Principal Trust Deed in relation to the principal and interest in respect of such further notes or debt securities howsoever designated and such other provisions (corresponding to any of the provisions contained in this Trust Deed) as the Trustee shall require.

 

2.3.3

A memorandum of every such supplemental deed shall be endorsed by the Trustee on this Principal Trust Deed and by the Issuer on the duplicate of this Principal Trust Deed.

 

2.3.4

Any Further Notes not forming a single series with the Original Notes or any other series of Further Notes shall form a separate series and accordingly, unless for any purpose the Trustee at its absolute discretion shall otherwise determine, all the provisions of this Trust Deed (other than Clauses 2.1 (Covenant to Repay) and 3.1 to 3.3 inclusive (The Original Notes) and Schedules 1 and 2) shall apply separately to each series of the Notes, and in this Trust Deed (other than such Clauses and Schedules) the expression “Notes” and “Noteholders”, “Coupons” and “Couponholders” shall be construed accordingly.

 

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3.	THE ORIGINAL NOTES

 

3.1	Global Note

 

3.1.1

The Notes will initially be represented by the Original Temporary Global Note in the principal amount of £500,000,000 which the Issuer shall issue to a common safekeeper for Euroclear and Clearstream, Luxembourg.

 

3.1.2

The Original Temporary Global Notes shall be printed or typed in the form or substantially in the form set out in Schedule 1 Part A (Form of Temporary Global Note) and may be facsimiles.

 

3.1.3

The Issuer shall issue an Original Permanent Global Note in exchange for each Original Temporary Global Note in accordance with the provisions thereof. The Original Permanent Global Notes shall be printed or typed in the form or substantially in the form set out in Schedule 1 Part B (Form of Original Permanent Global Note) and may be facsimiles.

 

3.1.4

If the Issuer becomes obliged to do so under the Conditions, it shall issue Original Notes in definitive form (together with unmatured coupons attached) in exchange of the Original Permanent Global Notes.

 

3.2	The definitive Notes

The definitive Original Notes and the Original Coupons will be security printed in accordance with applicable legal and stock exchange requirements substantially in the forms set out in Schedule 2. The Original Notes will be endorsed with the Conditions.

 

3.3

Signature

The Original Global Notes, the Original Notes and the Original Coupons will be signed manually or in facsimile by a duly authorised person designated by the Issuer and, in the case of the Original Global Notes and the Original Notes will be authenticated manually by or on behalf of the Principal Paying Agent. The Issuer may use the facsimile signature of a person who at the date of this Trust Deed is such a duly authorised person even if at the time of issue of any Original Notes and/or Coupons he no longer holds that office. Original Notes and Original Coupons so executed and authenticated will be binding and valid obligations of the Issuer and title thereto shall pass by delivery.

 

3.4	Entitlement to treat holder as owner

The Issuer, the Trustee and any Paying Agent may deem and treat the holder of any Note and any Coupon appertaining to the relevant Note as the absolute owner of such Note or such Coupon as the case may be, free of any equity, set-off or counterclaim on the part of the Issuer against the original or any intermediate holder of such Note (whether or not such Note or such Coupon shall be overdue and notwithstanding any notation of ownership or other writing thereon or any notice of previous loss or theft of such Note or Coupon for all purposes and, except as ordered by a court of competent jurisdiction or as required by applicable law, the Issuer, the Trustee and the Paying Agents shall not be affected by any notice to the contrary. All payments made to any such holder shall be valid and, to the extent of the sums so paid, effective to satisfy and discharge the liability for the moneys payable upon the Notes and Coupons.

 

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4.	COVENANT TO COMPLY WITH TRUST DEED AND SCHEDULES

 

4.1

The Issuer covenants with the Trustee to comply with those provisions of this Trust Deed and the Conditions which are expressed to be binding on it and to perform and observe the same. The Notes and the Coupons are subject to the provisions contained in this Trust Deed, all of which shall be binding upon the Issuer, the Noteholders and the Couponholders and all persons claiming through or under them respectively.

 

4.2	The Trustee shall itself be entitled to enforce the obligations of the Issuer under the Notes and the Conditions as if the same were set out and contained in this Trust Deed which shall be read and construed as one document with the Notes.

 

5.	COVENANTS BY THE ISSUER

The Issuer hereby covenants with the Trustee that, so long as any of the Notes remain outstanding, it will:

 

5.1	Books of account

At all times keep and procure that all its Subsidiaries keep such books of account as may be necessary to comply with all applicable laws and so as to enable the financial statements of the Issuer to be prepared and allow the Trustee and any person appointed by it free access to the same at all reasonable times during normal business hours and to discuss the same with responsible officers of the Issuer;

 

5.2	Event of Default

Give notice in writing to the Trustee forthwith upon becoming aware of any Event of Default and without waiting for the Trustee to take any further action;

 

5.3	Certificate of Compliance

Provide to the Trustee within 10 days of any request by the Trustee and at the time of the dispatch to the Trustee of its annual consolidated audited financial statements, and in any event not later than 180 days after the end of its financial year, a certificate signed by two directors of the Issuer certifying that up to a specified date not earlier than seven days prior to the date of such certificate (the “Certified Date”) the Issuer has complied with its obligations under this Trust Deed (or, if such is not the case, giving details of the circumstances of such non-compliance) and that as at such date there did not exist nor had there existed at any time prior thereto since the Certified Date in respect of the previous such certificate (or, in the case of the first such certificate, since the date of this Trust Deed) any Event of Default or Restructuring Event or other matter which would affect the Issuer’s ability to perform its obligations under this Trust Deed or (if such is not the case) specifying the same;

 

5.4	Financial statements

Send to the Trustee and to the Principal Paying Agent (if the same are produced) as soon as practicable after their date of publication and in the case of annual financial statements in any event not more than 180 days after the end of each financial year, two copies of the Issuer’s annual balance sheet and profit and loss account and of every balance sheet, profit and loss account, report or other notice, statement or circular issued (or which under any legal or contractual obligation should be issued) to the members or holders of debentures or creditors (or any class of them) of the Issuer in their capacity as such at the time of the actual (or legally or contractually required) issue or publication thereof and procure that the same are made available for inspection by Noteholders and Couponholders at the Specified Offices of the Paying Agents as soon as practicable thereafter;

 

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5.5	Information

So long as any of the Notes remain outstanding and so far as permitted by applicable law, at all times give to the Trustee such information, opinions, certificates and other evidence as it shall reasonably require and in such form as it shall reasonably require (including, without limitation, the certificates called for by the Trustee pursuant to Clause 5.3 (Certificate of Compliance)) for the purpose of the discharge or exercise of the duties, trusts, powers, authorities and discretions vested in it under the Trust Deed or any other related document or by operation of law;

 

5.6	Notes held by Issuer

Send to the Trustee forthwith upon being so requested in writing by the Trustee a certificate of the Issuer (signed on its behalf by any two of its directors) setting out the total number of Notes of each series which at the date of such certificate are held by or for the benefit of the Issuer or any Subsidiary;

 

5.7	Execution of further Documents

So far as permitted by applicable law, at all times execute all such further documents and do all such further acts and things as may be necessary at any time or times in the opinion of the Trustee to give effect to the provisions of this Trust Deed;

 

5.8	Notices to Noteholders

Send or procure to be sent to the Trustee not less than ten days prior to the date of publication, for the Trustee’s approval, one copy of each notice to be given to the Noteholders in accordance with the Conditions and not publish such notice without such approval and, upon publication, send to the Trustee two copies of such notice (such approval, unless so expressed, not to constitute approval of such notice for the purpose of Section 21 of the Financial Services and Markets Act 2000);

 

5.9	Notification of non-payment

Procure that the Principal Paying Agent notifies the Trustee forthwith in the event that it does not, on or before the due date for payment in respect of the Notes or any of them or any of the Coupons, receive unconditionally the full amount in the relevant currency of the moneys payable on such due date on all such Notes or Coupons;

 

5.10	Notification of late payment

In the event of the unconditional payment to the Principal Paying Agent or the Trustee of any sum due in respect of the Notes or any of them or any of the Coupons being made after the due date for payment thereof, forthwith give notice to the Noteholders that such payment has been made;

 

5.11	Notification of redemption or repayment

Not less than the number of days specified in the relevant Condition prior to the redemption or repayment date in respect of any Note, give to the Trustee notice in writing of the amount of such redemption or repayment pursuant to the Conditions and duly proceed to redeem or repay such Notes accordingly;

 

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5.12	Tax or optional redemption

If the Issuer gives notice to the Trustee that it intends to redeem the Notes pursuant to Conditions 5(b) (Redemption for Taxation Reasons) and 5(c) (Redemption at the Option of the Issuer) the Issuer shall, prior to giving such notice to the Noteholders, provide such information to the Trustee as the Trustee requires in order to satisfy itself of the matters referred to in such Condition;

 

5.13	Obligations of Paying Agents

Enforce its rights as against the Paying Agents under the Agency Agreement; and notify the Trustee immediately it becomes aware of any material breach of such obligations, or failure by a Paying Agent to comply with such obligations, in relation to the Notes or Coupons;

 

5.14	Change of taxing jurisdiction

If the Issuer shall become subject generally to the taxing jurisdiction of any territory or any political sub-division thereof or any authority therein or thereof having power to tax other than or in addition to the United Kingdom, immediately upon becoming aware thereof it shall notify the Trustee of such event and (unless the Trustee otherwise agrees) enter forthwith into a trust deed supplemental hereto, giving to the Trustee an undertaking or covenant in form and manner satisfactory to the Trustee in terms corresponding to the terms of Condition 7 (Taxation) with the substitution for (or, as the case may be, the addition to) the references therein to the United Kingdom of references to that other or additional territory to whose taxing jurisdiction, or that of a political subdivision thereof or an authority therein or thereof, the Issuer shall have become subject as aforesaid, such trust deed also to modify Condition 7 (Taxation) so that such Condition shall make reference to that other or additional territory;

 

5.15	Listing and Trading

At all times use all reasonable endeavours to maintain the admission to listing, trading and/or quotation of the Original Notes by the relevant competent authority, stock exchange and/or quotation system by which they are admitted to listing, trading and or quotation on issue or, if it is unable to do so having used all reasonable endeavours or if the maintenance of such admission to listing, trading and/or quotation is agreed by the Trustee to be unduly onerous or impractical and the Trustee is satisfied that the interests of the Noteholders would not be thereby materially prejudiced, use reasonable endeavours to obtain and maintain an admission to listing, trading and/or quotation of the Original Notes on such other competent authority, stock exchange or quotation system as the Issuer may (with the approval of the Trustee) decide and give notice of the identity of such other competent authority, stock exchange and/or quotation system to the Noteholders;

 

5.16	Authorised Signatories

Upon the execution hereof and thereafter forthwith upon any change of the same, deliver to the Trustee (with a copy to the Principal Paying Agent) a list of the Authorised Signatories of the Issuer, together with certified specimen signatures of the same; and

 

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5.17

Payments

Pay moneys payable by it to the Trustee hereunder without set off, counterclaim, deduction or withholding, unless otherwise compelled by law and in the event of any deduction or withholding compelled by law will pay such additional amount as will result in the payment to the Trustee of the amount which would otherwise have been payable by it to the Trustee hereunder save that, for the avoidance of doubt, this shall not apply to any payments of interest or principal in respect of the Notes or the Coupons, any additional amounts to be paid in respect of such sums to be instead determined in accordance with Condition 7 (Taxation).

 

5.18	Change in Paying Agents

Give at least 14 days’ prior notice to the Noteholders of any future appointment, resignation or removal of a Paying Agent or of any change by a Paying Agent of its specified office and not make any such appointment or removal without the Trustee’s written approval;

 

5.19	Notice of Put Event

Notify the Trustee in writing immediately on becoming aware of the occurrence of any Put Event.

 

6.	AMENDMENTS AND SUBSTITUTION

 

6.1

Waiver

The Trustee may, without any consent or sanction of the Noteholders or Couponholders and without prejudice to its rights in respect of any subsequent breach, condition, event or act, from time to time and at any time, but only if and in so far as in its opinion the interests of the Noteholders shall not be materially prejudiced thereby, authorise or waive, on such terms and conditions (if any) as shall seem expedient to it, any breach or proposed breach of any of the covenants or provisions contained in this Trust Deed, the Conditions or the Agency Agreement or the Notes or Coupons or determine that any Event of Default shall not be treated as such for the purposes of this Trust Deed; any such authorisation, waiver or determination shall be binding on the Noteholders, the Couponholders and, if, but only if, the Trustee shall so require, the Issuer shall cause such authorisation, waiver or determination to be notified to the Noteholders as soon as practicable thereafter in accordance with the Condition relating thereto; provided that the Trustee shall not exercise any powers conferred upon it by this Clause in contravention of any express direction by an Extraordinary Resolution or of a request in writing made by the holders of not less than 25 per cent. in aggregate principal amount of the Notes then outstanding (but so that no such direction or request shall affect any authorisation, waiver or determination previously given or made) or so as to authorise or waive any such breach or proposed breach relating to any of the matters the subject of the Reserved Matters as specified and defined in Schedule 3.

 

6.2	Modifications

The Trustee may from time to time and at any time without any consent or sanction of the Noteholders or Couponholders concur with the Issuer in making (a) any modification to this Trust Deed (other than in respect of Reserved Matters as specified and defined in Schedule 3 or any provision of this Trust Deed referred to in that specification) or the Notes which in the opinion of the Trustee it may be proper to make provided the Trustee is of the opinion that such modification will not be materially prejudicial to the interests of the Noteholders or (b) any modification to this Trust Deed or the Notes if in the opinion of the Trustee such modification is of a formal, minor or technical nature or made to correct a manifest error.

 

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Any such modification shall be binding on the Noteholders and the Couponholders and the Issuer shall cause such modification to be notified to the Noteholders as soon as practicable thereafter in accordance with the Conditions.

 

6.3	Substitution

 

6.3.1

Procedure: The Trustee may, without the consent of the Noteholders or the Couponholders, agree to the substitution, in place of the Issuer (or of any previous substitute under this Clause) of any Subsidiary of the Issuer (hereinafter called the “Substituted Obligor”) as the principal debtor hereunder if:

 

(a)

a trust deed is executed or some other written form of undertaking is given by the Substituted Obligor to the Trustee, in form and manner satisfactory to the Trustee, agreeing to be bound by the terms of this Trust Deed, the Notes and the Coupons with any consequential amendments which the Trustee may deem appropriate, as fully as if the Substituted Obligor had been named in this Trust Deed and on the Notes and the Coupons as the principal debtor in place of the Issuer (or of any previous substitute under this Clause);

 

(b)

the Issuer and the Substituted Obligor execute such other deeds, documents and instruments (if any) as the Trustee and the Principal Paying Agent may require in order that the substitution is fully effective and comply with such other requirements as the Trustee may direct in the interests of the Noteholders and the Couponholders;

 

(c)

an unconditional and irrevocable guarantee in form and substance satisfactory to the Trustee shall have been given by the Issuer of the obligations of the Substituted Obligor under this Trust Deed and the Notes and Coupons;

 

(d)

the Trustee may request and be provided with such legal opinions as it has requested in a form and manner acceptable to it in relation to the Substituted Obligor:

 

(e)

the Trustee is satisfied that (i) the Substituted Obligor has obtained all governmental and regulatory approvals and consents necessary for its assumption of liability as principal debtor in respect of the Notes and the Coupons in place of the Issuer (or such previous substitute as aforesaid), (ii) the Issuer has obtained all governmental and regulatory approvals and consents necessary for the guarantee to be fully effective as referred to in sub-clause 6.3.1(c) and (iii) such approvals and consents are at the time of substitution in full force and effect;

 

(f)

without prejudice to the generality of the preceding sub-clauses 6.3.1 (a) to (c) where the Substituted Obligor is incorporated, domiciled or resident in or is otherwise subject generally to the taxing jurisdiction of any territory or any political sub-division thereof or any authority of or in such territory having power to tax (the “Substituted Territory”) other than or in addition to the territory, the taxing jurisdiction of which (or to any such authority of or in which) the Issuer is subject generally (the “Issuer’s Territory”), the Substituted Obligor will (unless the Trustee otherwise agrees) give to the Trustee an undertaking in form and manner satisfactory to the Trustee in terms corresponding to the terms of Condition 7 (Taxation) with the substitution for the reference in that Condition to the

 

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Issuer’s Territory of references to the Substituted Territory and in such event the Trust Deed and Notes and Coupons will be interpreted accordingly;

 

(g)

the Issuer and the Substituted Obligor comply with such other requirements as the Trustee may direct in the interests of the Noteholders and the Couponholders;

 

(h)

without prejudice to the rights of reliance of the Trustee under sub-clause 6.3.4 (Directors’ certification) the Trustee is satisfied that the said substitution is not materially prejudicial to the interests of the Noteholders; and

 

(i)

Moody’s Investors Services Ltd and Standard & Poor’s Credit Market Services Europe Limited, have confirmed in writing to the Issuer and the Issuer has forwarded to the Trustee a copy of such confirmation that the substitution of the Substituted Obligor will not result in a downgrading of the then current credit rating of such rating agencies applicable to the class of debt represented by the Notes;

 

6.3.2

Change of law:  In connection with any proposed substitution of the Issuer or any previous substitute, the Trustee may, in its absolute discretion and without the consent of the Noteholders or the Couponholders agree to a change of the law from time to time governing the Notes and the Coupons and this Trust Deed provided that such change of law, in the opinion of the Trustee, would not be materially prejudicial to the interests of the Noteholders;

 

6.3.3

Extra duties:    The Trustee shall be entitled to refuse to approve any Substituted Obligor if, pursuant to the law of the country of incorporation of the Substituted Obligor, the assumption by the Substituted Obligor of its obligations hereunder imposes responsibilities on the Trustee over and above those which have been assumed under this Trust Deed;

 

6.3.4

Directors’ certification:  If any two directors of the Substituted Obligor certify that immediately prior to the assumption of its obligations as Substituted Obligor under this Trust Deed the Substituted Obligor is solvent after taking account of all prospective and contingent liabilities resulting from its becoming the Substituted Obligor, the Trustee need not have regard to the financial condition, profits or prospects of the Substituted Obligor or compare the same with those of the Issuer (or of any previous substitute under this Clause);

 

6.3.5

Interests of Noteholders:  In connection with any proposed substitution, the Trustee shall not have regard to, or be in any way liable for, the consequences of such substitution for individual Noteholders or the Couponholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder or Couponholder shall, in connection with any such substitution, be entitled to claim from the Issuer any indemnification or payment in respect of any tax consequence of any such substitution upon individual Noteholders or Couponholders;

 

6.3.6

Release of Issuer:  Any such agreement by the Trustee pursuant to sub-clause 6.3.1 (Procedure) shall, if so expressed, operate to release the Issuer (or such previous substitute as aforesaid) from any or all of its obligations as principal debtor under the Notes and this Trust Deed but without prejudice to its liabilities under any guarantee given pursuant to sub-clause 6.3.1(c). Not later than 14 days after the execution of

 

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any such documents as aforesaid and after compliance with the said requirements of the Trustee, the Substituted Obligor shall cause notice thereof to be given to the Noteholders; and

 

6.3.7

Completion of Substitution: Upon the execution of such documents and compliance with the said requirements, the Substituted Obligor shall be deemed to be named in this Trust Deed and the Notes and Coupons as the principal debtor in place of the Issuer (or of any previous substitute under this Clause) and this Trust Deed, the Notes and the Agency Agreement shall thereupon be deemed to be amended in such manner as shall be necessary to give effect to the substitution and without prejudice to the generality of the foregoing any references in this Trust Deed, in the Notes and Coupons or in the Agency Agreement to the Issuer shall be deemed to be references to the Substituted Obligor.

 

7.	ENFORCEMENT

 

7.1	Legal Proceedings

In relation to any discretion to be exercised or action to be taken by the Trustee under the Trust Deed or any related document, the Trustee may at any time, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to recover any amounts due in respect of the Notes which are unpaid or to enforce any of its rights under this Trust Deed or the Conditions but it shall not be bound to take any such proceedings unless (a) it has been so directed by an Extraordinary Resolution or so requested in writing by the holders of at least one-quarter in principal amount of the outstanding Notes and (b) it has been indemnified and/or secured and/or pre-funded to its satisfaction against all actions, Liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith and provided that the Trustee shall not be held liable for the consequence of taking any such action and may take such action without having regard to the effect of such action on individual Noteholders or Couponholders. Only the Trustee may enforce the provisions of the Notes or this Trust Deed and no Noteholder or Couponholder shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

 

7.2	Evidence of Default

If the Trustee (or any Noteholder or Couponholder where entitled under this Trust Deed so to do) makes any claim, institutes any legal proceeding or lodges any proof in a winding-up or insolvency of the Issuer under this Trust Deed or under the Notes, proof therein that:

 

7.2.1

as regards any specified Note the Issuer has made default in paying any principal due in respect of such Note shall (unless the contrary be proved) be sufficient evidence that the Issuer has made the like default as regards all other Notes in respect of which a corresponding payment is then due; and

 

7.2.2

as regards any specified Coupon the Issuer has made default in paying any interest due in respect of such Coupon shall (unless the contrary be proved) be sufficient evidence that the Issuer has made the like default as regards all other Coupons in respect of which a corresponding payment is then due;

 

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and for the purposes of sub-clauses 7.2.1 and 7.2.2 a payment shall be a “corresponding” payment notwithstanding that it is due in respect of a Note of a different denomination from that in respect of the above specified Note or specified Coupon.

 

7.3

Put Event

At any time upon the Issuer becoming aware that a Put Event has occurred, the Issuer shall give notice to the Noteholders in accordance with Condition 15 (Notices) specifying the nature of the Put Event and the procedure for exercising the Put Option.

 

8.	APPLICATION OF MONEYS

 

8.1	Application of Moneys

All moneys received by the Trustee in respect of the Notes or amounts payable under this Trust Deed will, despite any appropriation of all or part of them by the Issuer, be apportioned pari passu and rateably between each series of the Notes and be held by the Trustee on trust to apply them (subject to Clause 8.2 (Accumulation)):

 

8.1.1

first, in payment or satisfaction of the costs, charges, expenses and liabilities incurred by the Trustee or its Appointees in the preparation and execution of the trusts of this Trust Deed (including remuneration of the Trustee and its Appointees);

 

8.1.2

secondly, in or towards payment pari passu and rateably of all arrears of interest remaining unpaid in respect of the Notes of that series and all principal moneys due on or in respect of the Notes of that series; and

 

8.1.3

thirdly, the balance (if any) in payment to the Issuer.

 

8.2	Accumulation

If the amount of the moneys at any time available for payment of principal or interest in respect of the Notes under Clause 8.1 (Application of Moneys) shall be less than the sum sufficient to pay at least one-tenth of the principal amount of the Notes then outstanding, the Trustee may, at its discretion retain such moneys on deposit in the name or under the control of the Trustee with such bank or financial institution as the Trustee may think fit. Such deposits may be accumulated until the accumulations together with any funds for the time being under the control of the Trustee and available for the purpose shall amount to a sum sufficient to pay at least one-tenth of the principal amount outstanding of the Notes then outstanding and such accumulation and funds (after deduction of any taxes and any other deductibles applicable thereto) shall then be applied in the manner aforesaid.

 

8.3	Deposit of Moneys

The Trustee may in its absolute discretion place any moneys held by it on deposit in the name or under the control of the Trustee with any bank or financial institution as the Trustee may think fit in such currency as the Trustee may in its absolute discretion determine and the Trustee may at any time deposit or convert any moneys so deposited into any other currency and shall not be responsible for any Liability occasioned by reason of any such deposit whether by depreciation in value, fluctuation in exchange rates or otherwise for the purpose of meeting the cash needs of the transaction and not for the purpose of generating income. If such bank or financial institution is an affiliate of the Trustee, the Trustee need only account for an amount of interest equal to the standard amount of interest payable by it on a deposit to an independent customer.

 

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8.4	Payment to Noteholders and Couponholders

The Trustee shall give notice to the Noteholders in accordance with the Conditions of the date fixed for any payment under Clause 8.1 (Application of Moneys). Any payment to be made in respect of the Notes or the Coupons by the Issuer or the Trustee may be made in the manner provided in the Conditions, the Agency Agreement and this Trust Deed and any payment so made shall be a good discharge to the extent of such payment, by the Issuer or the Trustee, as the case may be. Any payment in full of interest made in respect of a Coupon in the manner aforesaid shall extinguish any claim of a Noteholder which may arise directly or indirectly in respect of such interest.

 

8.5	Production of Notes and Coupons

Upon any payment under Clause 8.4 (Payment to Noteholders and Couponholders) of principal or interest, the Note or Coupon in respect of which such payment is made shall, if the Trustee so requires, be produced to the Trustee or the Paying Agent by or through whom such payment is made and the Trustee shall (a) in the case of part payment, enface or cause such Paying Agent to enface a memorandum of the amount and date of payment thereon (or cause the Paying Agent to procure that the ICSDs make appropriate entries in their records to reflect such payment) or (b) in the case of payment in full, shall cause such Note or Coupon to be surrendered or shall cancel or procure the same to be cancelled and shall certify or procure the certification of such cancellation.

 

8.6	Noteholders to be treated as holding all Coupons

Wherever in this Trust Deed the Trustee is required or entitled to exercise a power, trust, authority or discretion under this Trust Deed, the Trustee shall, notwithstanding that it may have express notice to the contrary, assume that each Noteholder is the holder of all Coupons appertaining to each Note of which he is the holder.

 

9.	TERMS OF APPOINTMENT

By way of supplement to the Trustee Acts, it is expressly declared as follows:

 

9.1	Reliance on Information

 

9.1.1

Advice: the Trustee may in relation to this Trust Deed act on the opinion or advice or report of or a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker, auctioneer, accountant (including the Auditors) or other expert (whether obtained by the Trustee, the Issuer, any Subsidiary or any Paying Agent, whether or not addressed to the Trustee and whether or not such advice contains a monetary or other limit on liability or limits the scope and/or basis of such advice) and shall not be responsible for any Liability occasioned by so acting; any such opinion, advice, certificate or information may be sent or obtained by letter, email, electronic communication, or facsimile transmission and the Trustee shall not be liable to anyone for acting on any opinion, advice, certificate or information purporting to be so conveyed although the same shall contain some error or shall not be authentic;

 

9.1.2

Certificate of directors:  the Trustee may call for and shall be at liberty to accept a certificate signed by two directors of the Issuer or other person duly authorised on its behalf as to any fact or matter as sufficient evidence thereof and a like certificate to the effect that any particular dealing, transaction or step or thing is, in the opinion of the person so certifying, expedient as sufficient evidence that it is expedient and the Trustee shall not be bound in any such case to call for further evidence or be responsible for any Liability that may be occasioned by its failing so to do;

 

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9.1.3

Resolution or direction of Noteholders:  the Trustee shall not be responsible for acting upon any resolution purporting to be a Written Resolution or to have been passed at any meeting of the Noteholders in respect whereof minutes have been made and signed or a direction of a specified percentage of Noteholders, even though it may subsequently be found that there was some defect in the constitution of the meeting or the passing of the resolution or the making of the directions or that for any reason the resolution purporting to be a Written Resolution or to have been passed at any Meeting or the making of the directions was not valid or binding upon the Noteholders and Couponholders;

 

9.1.4

Reliance on certification of clearing system:  the Trustee may call for any certificate or other document issued by Euroclear or Clearstream, Luxembourg or any other relevant clearing system in relation to the principal amount outstanding of Notes standing to the account of any person. Any such certificate or other document shall, in the absence of manifest error, be conclusive and binding for all purposes. Any such certificate or other document may comprise any form of statement or print out of electronic records provided by the relevant clearing system (including Euroclear’s EUCLID or Clearstream, Luxembourg’s Cedcom system) in accordance with its usual procedures and in which the holder of a particular principal or nominal amount of the Notes is clearly identified together with the amount of such holding. The Trustee shall not be liable to any person by reason of having accepted as valid or not having rejected any certificate or other document to such effect purporting to be issued by Euroclear or Clearstream, Luxembourg or any other relevant clearing system and subsequently found to be forged or not authentic;

 

9.1.5

Noteholders as a class:    whenever in this Trust Deed the Trustee is required in connection with any exercise of its powers, trusts, authorities or discretions to have regard to the interests of the Noteholders, it shall have regard to the interests of the Noteholders as a class and in particular, but without prejudice to the generality of the foregoing, shall not be obliged to have regard to the consequences of such exercise for any individual Noteholder resulting from his or its being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory;

 

9.1.6

Trustee not responsible for investigations:  the Trustee shall not be responsible for, or for investigating any matter which is the subject of, any recital, statement, representation, warranty or covenant of any person contained in this Trust Deed, the Notes, or any other agreement or document relating to the transactions herein or therein contemplated or for the execution, legality, effectiveness, adequacy, genuineness, validity, enforceability or admissibility in evidence thereof;

 

9.1.7

No Liability as a result of the delivery of a certificate:   the Trustee shall have no Liability whatsoever for any loss, cost, damages or expenses directly or indirectly suffered or incurred by the Issuer, any Noteholder, Couponholder or any other person as a result of the delivery by the Trustee to the Issuer of a certificate as to material prejudice pursuant to Condition 9 (Events of Default) on the basis of an opinion formed by it in good faith;

 

9.1.8

No obligation to monitor:   the Trustee shall be under no obligation to monitor or supervise the functions of any other person under the Notes or Coupons or any other agreement or document relating to the transactions herein or therein contemplated and

 

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shall be entitled, in the absence of actual knowledge of a breach of obligation, to assume that each such person is properly performing and complying with its obligations;

 

9.1.9

Notes held by the Issuer:    in the absence of knowledge or express notice to the contrary, the Trustee may assume without enquiry (other than requesting a certificate of the Issuer under Clause 5.6 (Notes held by Issuer)), that no Notes are for the time being held by or for the benefit of the Issuer or its Subsidiaries;

 

9.1.10

Forged Notes:    the Trustee shall not be liable to the Issuer or any Noteholder or Couponholder by reason of having accepted as valid or not having rejected any Note or Coupon as such and subsequently found to be forged or not authentic; and

 

9.1.11

Events of Default or Restructuring Events:  the Trustee shall not be bound to give notice to any person of the execution of this Trust Deed or any related document or to take any steps to ascertain whether any Event of Default or Restructuring Event has happened and, until it shall have actual knowledge or express notice to the contrary, the Trustee shall be entitled to assume that no such Event of Default or Restructuring Event has happened and that the Issuer is observing and performing all the obligations on its part contained in the Notes and Coupons and under this Trust Deed and no event has happened as a consequence of which any of the Notes may become repayable; and

 

9.1.12

Right to Deduct or Withhold:  notwithstanding anything contained in this Trust Deed, to the extent required by any applicable law, if the Trustee is or will be required to make any deduction or withholding from any distribution or payment made by it hereunder or if the Trustee is or will be otherwise charged to, or is or may become liable to, tax as a consequence of performing its duties hereunder whether as principal, agent or otherwise, and whether by reason of any assessment, prospective assessment or other imposition of liability to taxation of whatsoever nature and whensoever made upon the Trustee, and whether in connection with or arising from any sums received or distributed by it or to which it may be entitled under this Trust Deed (other than in connection with its remuneration as provided for herein) or any investments or deposits from time to time representing the same, including any income or gains arising therefrom or any action of the Trustee in connection with the trusts of this Trust Deed (other than the remuneration herein specified) or otherwise, then the Trustee shall be entitled to make such deduction or withholding or, as the case may be, to retain out of sums received by it an amount sufficient to discharge any liability to tax which relates to sums so received or distributed or to discharge any such other liability of the Trustee to tax from the funds held by the Trustee upon the trusts of this Trust Deed.

 

9.1.13

Maintaining the rating of the Notes:    the Trustee shall not be responsible for maintaining the rating of the Notes.

 

9.1.14

Reliance on Rating Agency Confirmation:  the Trustee shall be entitled to rely on any Rating Agency confirmation without further investigation.

 

9.2	Trustee’s powers and duties

 

9.2.1

Trustee’s determination:  The Trustee may determine whether or not a default in the performance or observance by the Issuer of any obligation under the provisions of this Trust Deed or contained in the Notes or Coupons is capable of remedy and/or materially prejudicial to the interests of the Noteholders and if the Trustee shall certify that any such default is, in its opinion, not capable of remedy and/or materially prejudicial to the interests of the Noteholders, such certificate shall be conclusive and binding upon the Issuer and the Noteholders and Couponholders;

 

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9.2.2

Determination of questions:  the Trustee as between itself and the Noteholders and the Couponholders shall have full power to determine all questions and doubts arising in relation to any of the provisions of this Trust Deed and every such determination, whether made upon a question actually raised or implied in the acts or proceedings of the Trustee, shall be conclusive and shall bind the Trustee, the Noteholders and the Couponholders;

 

9.2.3

Trustee’s discretion:  the Trustee shall (save as expressly otherwise provided herein) as regards all the trusts, powers, authorities and discretions vested in it by this Trust Deed or by operation of law, have absolute and uncontrolled discretion as to the exercise or non-exercise thereof and the Trustee shall not be responsible for any Liability that may result from the exercise or non-exercise thereof but whenever the Trustee is under the provisions of this Trust Deed bound to act at the request or direction of the Noteholders, the Trustee shall nevertheless not be so bound unless first indemnified and/or prefunded and/or provided with security to its satisfaction against all actions, proceedings, claims and demands to which it may render itself liable and all costs, charges, damages, expenses and Liabilities which it may incur by so doing;

 

9.2.4

Freedom to refrain: notwithstanding anything else herein contained or contained in the Agency Agreement or the Conditions, the Trustee may refrain from (a) doing anything which would or might in its opinion be contrary to any law of any jurisdiction or any directive or regulation of any agency or any state (including, without limitation, section 619 of the Dodd-Frank Wall Street Report and Consumer Protection Act) or which would or might otherwise render it liable to any person and may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation; or (b) doing anything which might cause the Trustee to be considered a sponsor of a covered fund under Section 619 of the Dodd-Frank Wall Street Report and Consumer Protection Act and any regulations promulgated thereunder.

 

9.2.5

Trustee’s consent:  any consent given by the Trustee for the purposes of this Trust Deed may be given on such terms and subject to such conditions (if any) as the Trustee may require;

 

9.2.6

Conversion of currency:    where it is necessary or desirable for any purpose in connection with this Trust Deed to convert any sum from one currency to another it shall (unless otherwise provided by this Trust Deed or required by law) be converted at such rate or rates, in accordance with such method and as at such date for the determination of such rate of exchange, as may be specified by the Trustee in its absolute discretion as relevant and any rate, method and date so specified shall be binding on the Issuer and the Noteholders and the Couponholders;

 

9.2.7

Application of proceeds:    the Trustee shall not be responsible for the receipt or application by the Issuer of the proceeds of the issue of the Notes, the exchange of any Temporary Global Note for any Permanent Global Note or any Permanent Global Note for definitive Notes or the delivery of any Note or Coupon to the persons entitled to them;

 

9.2.8

Agents:  the Trustee may, in the conduct of the trusts of this Trust Deed instead of acting personally, employ and pay an agent on any terms, whether or not a lawyer or other professional person, to transact or conduct, or concur in transacting or

 

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conducting, any business and to do or concur in doing all acts required to be done by the Trustee (including the receipt and payment of money) and the Trustee shall not be responsible for any loss, Liability, expense, demand, cost, claim or proceedings incurred by reason of the misconduct, omission or default on the part of any person appointed by it hereunder or be bound to supervise the proceedings or acts of any such person;

 

9.2.9

Delegation:  the Trustee may, in the execution and exercise of all or any of the trusts, powers, authorities and discretions vested in it by this Trust Deed, act by responsible officers or a responsible officer for the time being of the Trustee and the Trustee may also whenever it thinks fit, whether by power of attorney or otherwise, delegate to any person or persons or fluctuating body of persons (whether being a joint trustee of this Trust Deed or not) all or any of the trusts, powers, authorities and discretions vested in it by this Trust Deed and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate with the consent of the Trustee) as the Trustee may think fit in the interests of the Noteholders and the Trustee shall not be bound to supervise the proceedings or acts of and shall not in any way or to any extent be responsible for any loss, Liability, expense, demand, cost, claim or proceedings incurred by reason of the misconduct, omission or default on the part of such delegate or sub-delegate. The Trustee shall, within a reasonable time after any such delegation or any renewal, extension or termination thereof give notice thereof to the Issuer;

 

9.2.10

Custodians and nominees:  the Trustee may appoint and pay any person to act as a custodian or nominee on any terms in relation to such assets of the trust as the Trustee may determine, including for the purpose of depositing with a custodian this Trust Deed or any document relating to the trust created hereunder and the Trustee shall not be responsible for any loss, Liability, expense, demand, cost, claim or proceedings incurred by reason of the misconduct, omission or default on the part of any person appointed by it hereunder or be bound to supervise the proceedings or acts of any such person; the Trustee is not obliged to appoint a custodian if the Trustee invests in securities payable to bearer;

 

9.2.11

Confidential information:  the Trustee shall not (unless required by law or ordered so to do by a court of competent jurisdiction) be required to disclose to any Noteholder or Couponholder confidential financial information or other information made available to the Trustee by the Issuer in connection with this Trust Deed and no Noteholder or Couponholder shall be entitled to take any action to obtain from the Trustee any such information;

 

9.2.12

Interests of accountholders or participants:   so long as any Note is held by or on behalf of Euroclear or Clearstream, Luxembourg, in considering the interests of Noteholders the Trustee may consider the interests (either individual or by category) of its accountholders or participants with entitlements to any such Note as if such accountholders or participants were the holder(s) thereof;

 

9.2.13

Legal Opinions:    the Trustee shall not be responsible to any person for failing to request, require or receive any legal opinion relating to any Notes or for checking or commenting upon the content of any such legal opinion.

 

9.3	Financial matters

 

9.3.1

Professional charges: any trustee being a banker, lawyer, broker or other person engaged in any profession or business shall be entitled to charge and be paid all usual

 

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professional and other charges for business transacted and acts done by him or his partner or firm on matters arising in connection with the trusts of this Trust Deed and also his properly incurred charges in addition to disbursements for all other work and business done and all time spent by him or his partner or firm on matters arising in connection with this Trust Deed, including matters which might or should have been attended to in person by a trustee not being a banker, lawyer, broker or other professional person;

 

9.3.2

Expenditure by the Trustee:   nothing contained in this Trust Deed shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties or the exercise of any right, power, authority or discretion hereunder if it has grounds for believing the repayment of such funds or adequate indemnity against, or security for, such risk or liability is not reasonably assured to it; and

 

9.3.3

Trustee may enter into financial transactions with the Issuer:  no Trustee and no director or officer of any corporation being a Trustee hereof shall by reason of the fiduciary position of such Trustee be in any way precluded from making any contracts or entering into any transactions in the ordinary course of business with the Issuer or any Subsidiary, or any person or body corporate directly or indirectly associated with the Issuer or any Subsidiary, or from accepting the trusteeship of any other debenture stock, debentures or securities of the Issuer or any Subsidiary or any person or body corporate directly or indirectly associated with the Issuer or any Subsidiary, and neither the Trustee nor any such director or officer shall be accountable to the Noteholders or the Issuer or any Subsidiary, or any person or body corporate directly or indirectly associated with the Issuer or any Subsidiary, for any profit, fees, commissions, interest, discounts or share of brokerage earned, arising or resulting from any such contracts or transactions and the Trustee and any such director or officer shall also be at liberty to retain the same for its or his own benefit.

 

9.3.4

Regulatory Position:   notwithstanding anything in the Trust Deed or any other Issue document connected thereto to the contrary, the Trustee shall not do, or be authorised or required to do, anything which might constitute a regulated activity for the purpose of FSMA, unless it is authorised under FSMA to do so.

 

The Trustee shall have the discretion at any time:

 

(a)

to delegate any of the functions which fall to be performed by an authorised person under FSMA to any other agent or person which also has the necessary authorisations and licences; and

 

(b)

to apply for authorisation under FSMA and perform any or all such functions itself if, in its absolute discretion, it considers it necessary, desirable or appropriate to do so.

 

Nothing in this Trust Deed shall require the Trustee to assume an obligation of the Issuer arising under any provisions of the listing, prospectus, disclosure or transparency rules (or equivalent rules of any other competent authority besides the FCA or the PRA, as applicable).

 

9.4	Disapplication

Section 1 of the Trustee Act 2000 shall not apply to the duties of the Trustee in relation to the trusts constituted by this Trust Deed. Where there are any inconsistencies between the Trustee Acts and the provisions of this Trust Deed, the provisions of this Trust Deed shall, to

 

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the extent allowed by law, prevail and, in the case of any such inconsistency with the Trustee Act 2000, the provisions of this Trust Deed shall constitute a restriction or exclusion for the purposes of that Act.

 

9.5	Trustee Liability

 

9.5.1

Subject to Section 750 and 751 of the Companies Act 2006 (if applicable) and notwithstanding anything to the contrary in this Trust Deed, the Notes or the Agency Agreement, the Trustee shall not be liable to any person for any matter or thing done or omitted in any way in connection with or in relation to this Trust Deed, the Notes or the Agency Agreement save in relation to its own gross negligence, wilful default or fraud having regard to the provisions of this Trust Deed, the Agency Agreement and the Conditions conferring on it any trusts, powers, authorities and discretions.

 

9.5.2

Any liability of the Trustee in connection with or in relation to this Trust Deed, the Notes or the Agency Agreement shall be limited to the amount of actual loss suffered (such loss shall be determined as at the date of default of the Trustee or, if later, the date on which the loss arises as a result of such default) but without reference to any special conditions or circumstances known to the Trustee at the time of entering into this Trust Deed or the Agency Agreement, or at the time of accepting any relevant instructions, which increase the amount of the loss. In no event shall the Trustee be liable for any loss of profits, goodwill, reputation, business opportunity or anticipated saving, or for special, punitive or consequential damages, whether or not the Trustee has been advised of the possibility of such loss or damages. This clause shall not apply in the event that a court with jurisdiction determines that the Trustee has acted fraudulently or to the extent the limitation of such liability would be precluded by virtue of Sections 750 and 751 of the Companies Act 2006.

 

10.	COSTS AND EXPENSES

 

10.1	Remuneration

 

10.1.1

Normal Remuneration:    The Issuer shall pay to the Trustee remuneration for its services as trustee as from the date of this Trust Deed, such remuneration to be at such rate as may from time to time be agreed between the Issuer and the Trustee. Such remuneration shall be payable in advance on the anniversary of the date hereof in each year and the first payment shall be made on the date hereof. Upon the issue of any Further Notes the rate of remuneration in force immediately prior thereto shall be increased by such amount as shall be agreed between the Issuer and the Trustee, such increased remuneration to be calculated from such date as shall be agreed as aforesaid. Such remuneration shall accrue from day to day and be payable (in priority to payments to the Noteholders and Couponholders in accordance with Clause 8 (Application of Moneys) up to and including the date when, all the Notes having become due for redemption, the redemption moneys and interest thereon to the date of redemption have been paid to the Principal Paying Agent or the Trustee, provided that if upon due presentation (if required pursuant to the Conditions) of any Note or Coupon, payment of the moneys due in respect thereof is improperly withheld or refused, remuneration will commence again to accrue;

 

10.1.2

Extra Remuneration:  If an Event of Default (or an event has occurred which has led the Trustee, acting reasonably, to take steps to determine whether an Event of Default has occurred) shall have occurred in relation to the Issuer, the Issuer hereby agrees that the Trustee shall be entitled to be paid additional remuneration calculated at its normal hourly rates in force from time to time. In any other case, if the Trustee finds

 

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it expedient or necessary or is requested by the Issuer to undertake duties that they both agree to be of an exceptional nature or otherwise outside the scope of the Trustee’s normal duties under this Trust Deed, the Issuer shall pay such additional remuneration as they may agree (and which may be calculated by reference to the Trustee’s normal hourly rates in force from time to time) or, failing agreement as to any of the matters in this subclause (or as to such sums referred to in subclause 10.1.1 (Normal Remuneration)), as determined by a financial institution or person (acting as an expert) selected by the Trustee and approved by the Issuer or, failing such approval, nominated by the President for the time being of The Law Society of England and Wales. The expenses involved in such nomination and such financial institution’s fee shall be borne by the Issuer. The determination of such financial institution or person shall be conclusive and binding on the Issuer, the Trustee, the Noteholders and the Couponholders.

 

10.1.3

Value added tax: The Issuer shall in addition pay to the Trustee an amount equal to the amount of any value added tax or similar tax chargeable in respect of its remuneration under this Trust Deed;

 

10.1.4

Failure to agree:  In the event of the Trustee and the Issuer failing to agree:

 

(a)

(in a case to which sub-clause 10.1.1 applies) upon the amount of the remuneration; or

 

(b)

(in a case to which sub-clause 10.1.2 applies) upon whether such duties shall be of an exceptional nature or otherwise outside the scope of the normal duties of the Trustee under this Trust Deed, or upon such additional remuneration;

such matters shall be determined by a merchant bank (acting as an expert and not as an arbitrator) selected by the Trustee and approved by the Issuer or, failing such approval, nominated (on the application of the Trustee) by the President for the time being of The Law Society of England and Wales (the expenses involved in such nomination and the fees of such merchant bank being payable by the Issuer) and the determination of any such merchant bank shall be final and binding upon the Trustee and the Issuer;

 

10.1.5

Expenses: The Issuer shall also pay or discharge all costs, fees, charges and expenses incurred by the Trustee or any Appointee of the Trustee in relation to the preparation and execution of, the exercise of its powers and the performance of its duties under, and in any other manner in relation to, this Trust Deed, including but not limited to legal and travelling expenses and any stamp, issue, registration, documentary and other taxes or duties paid or payable by the Trustee or any Appointee of the Trustee in connection with any action taken or contemplated by or on behalf of the Trustee or any Appointee of the Trustee for enforcing, or resolving any doubt concerning, or for any other purpose in relation to, this Trust Deed.

 

10.1.6

Indemnity: Without prejudice to the right of indemnity given by law to the Trustee, the Issuer shall indemnify the Trustee and keep him indemnified against (a) all Liabilities and expenses (including any VAT payable) incurred by it or by any Appointee or other person appointed by it to whom any trust, power, authority or discretion may be delegated by it in the execution or purported execution of the trusts, powers, authorities or discretions vested in it by this Trust Deed and any related documents and (b) its functions or all Liabilities, actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted in any way relating to this Trust Deed (including, without limitation, Liabilities incurred in disputing or defending any of the foregoing) provided that it is expressly stated that Clause 9.5 (Trustee Liability) shall apply in relation to these provisions;

 

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10.1.7

Payment of amounts due: All amounts due and payable pursuant to sub clauses 10.1.5 (Expenses) and 10.1.6 (Indemnity) shall be payable by the Issuer on the date specified in a demand by the Trustee; the rate of interest applicable to such payments shall be three per cent. per annum above the base rate from time to time of HSBC Bank Plc and interest shall accrue:

 

(a)

in the case of payments made by the Trustee prior to the date of the demand, from the date on which the payment was made or such later date as specified in such demand; and

 

(b)

in the case of payments made by the Trustee on or after the date of the demand, from the date specified in such demand, which date shall not be a date earlier than the date such payments are made.

All remuneration payable to the Trustee shall carry interest at the rate specified in this sub clause 10.1.7 (Payment of amounts due) from the due date thereof;

 

10.1.8

Discharges: Unless otherwise specifically stated in any discharge of this Trust Deed the provisions of this Clause 10.1 (Remuneration) shall continue in full force and effect notwithstanding such discharge and whether or not the Trustee is then the trustee of this Trust Deed.

 

10.2	Stamp duties

The Issuer will pay all stamp duties, registration taxes, capital duties and other similar duties or taxes (if any) payable on (a) the constitution and issue of the Notes and Coupons, (b) the initial delivery of the Notes (c) any action taken by the Trustee (or any Noteholder or Couponholder where permitted or required under this Trust Deed so to do) to enforce the provisions of the Notes or this Trust Deed and (d) the execution of this Trust Deed. If the Trustee (or any Noteholder or Couponholder where permitted under this Trust Deed so to do) shall take any proceedings against the Issuer in any other jurisdiction and if for the purpose of any such proceedings this Trust Deed or any Notes are taken into any such jurisdiction and any stamp duties or other duties or taxes become payable thereon in any such jurisdiction, the Issuer will pay (or reimburse the person making payment of) such stamp duties or other duties or taxes (including penalties).

 

10.3	Indemnities separate

The indemnities in this Trust Deed constitute separate and independent obligations from the other obligations in this Trust Deed, will give rise to separate and independent causes of action, will apply irrespective of any indulgence granted by the Trustee and/or any Noteholder or Couponholder and will continue in full force and effect despite any judgment, order, claim or proof for a liquidated amount in respect of any sum due under this Trust Deed or the Notes and/or the Coupons or any other judgment or order.

 

11.

FATCA

 

11.1	Information Collection & Sharing

The Issuer agrees to provide to the Trustee, and consents to the collection and processing by the Trustee of, any authorisations, waivers, forms, documentation and other information, relating to its status (or the status of its direct or indirect owners or Noteholders) or otherwise

 

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required to be reported, under FATCA (“FATCA Information”). The Issuer further consents to the disclosure, transfer and reporting of such FATCA Information to any relevant government or taxing authority, any member of the Trustee’s group, any sub-contractors, agents, service providers or associates of the Trustee’s group, and any person making payments to the Trustee or a member of the Trustee’s group, including transfers to jurisdictions which do not have strict data protection or similar laws, to the extent that the Trustee determines that such disclosure, transfer or reporting is necessary or warranted to facilitate compliance with FATCA. The Issuer agrees to inform the trustee promptly, and in any event, within 30 days in writing if there are any changes to the FATCA Information supplied to the Trustee from time to time. The Issuer warrants that each person whose FATCA Information it provides (or has provided) to the Trustee has been given such information, and has given such consent, as may be necessary to permit the collection, processing, disclosure, transfer and reporting of their information as set out in this clause.

 

11.2	FATCA Withholding

The Trustee shall be entitled to deduct FATCA Withholding and shall have no obligation to gross-up any payment hereunder or to pay any additional amount as a result of such FATCA Withholding.

 

12.	APPOINTMENT AND RETIREMENT

 

12.1	Appointment of Trustees

The power of appointing new trustees of this Trust Deed shall be vested in the Issuer but no person shall be appointed who shall not previously have been approved by an Extraordinary Resolution. A trust corporation may be appointed sole trustee hereof but subject thereto there shall be at least two trustees hereof one at least of which shall be a trust corporation. Any appointment of a new trustee hereof shall as soon as practicable thereafter be notified by the Issuer to the Paying Agents and to the Noteholders. The Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove any trustee or trustees for the time being hereof. The removal of any trustee shall not become effective unless there remains a trustee hereof (being a trust corporation) in office after such removal.

 

12.2	Co-trustees

Notwithstanding the provisions of Clause 12.1 (Appointment of Trustees), the Trustee may, upon giving prior notice to the Issuer but without the consent of the Issuer or the Noteholders, appoint any person established or resident in any jurisdiction (whether a trust corporation or not) to act either as a separate trustee or as a co-trustee jointly with the Trustee:

 

12.2.1

if the Trustee considers such appointment to be in the interests of the Noteholders; or

 

12.2.2

for the purposes of conforming to any legal requirements, restrictions or conditions in any jurisdiction in which any particular act or acts are to be performed; or

 

12.2.3

for the purposes of obtaining a judgment in any jurisdiction or the enforcement in any jurisdiction either of a judgment already obtained or of this Trust Deed.

 

12.3

Attorneys

The Issuer hereby irrevocably appoints the Trustee to be its attorney in its name and on its behalf to execute any such instrument of appointment. Such a person shall (subject always to the provisions of this Trust Deed) have such trusts, powers, authorities and discretions (not

 

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exceeding those conferred on the Trustee by this Trust Deed) and such duties and obligations as shall be conferred on such person or imposed by the instrument of appointment. The Trustee shall have power in like manner to remove any such person. Such proper remuneration as the Trustee may pay to any such person, together with any attributable costs, charges and expenses incurred by it in performing its function as such separate trustee or co-trustee, shall for the purposes of this Trust Deed be treated as costs, charges and expenses incurred by the Trustee.

 

12.4	Retirement of Trustees

Any Trustee for the time being of this Trust Deed may retire at any time upon giving not less than three calendar months’ notice in writing to the Issuer without assigning any reason therefor and without being responsible for any costs occasioned by such retirement. The retirement of any Trustee shall not become effective unless there remains a trustee hereof (being a trust corporation) in office after such retirement. The Issuer hereby covenants that in the event of the only trustee hereof which is a trust corporation giving notice under this Clause it shall use its best endeavours to procure a new trustee, being a trust corporation, to be appointed and if the Issuer has not procured the appointment of a new trustee within 30 days of the expiry of the Trustee notice referred to in this Clause 12.4, the Trustee shall be entitled to procure forthwith a new trustee.

 

12.5	Competence of a majority of Trustees

Whenever there shall be more than two trustees hereof the majority of such trustees shall (provided such majority includes a trust corporation) be competent to execute and exercise all the trusts, powers, authorities and discretions vested by this Trust Deed in the Trustee generally.

 

12.6	Powers additional

The powers conferred by this Trust Deed upon the Trustee shall be in addition to any powers which may from time to time be vested in it by general law or as the holder of any of the Notes or Coupons.

 

12.7

Merger

Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Clause, without the execution or filing of any paper or any further act on the part of any of the parties hereto.

 

13.

NOTICES

 

13.1	Addresses for notices

All notices and other communications hereunder shall be made in writing and in English (by letter or fax) and shall be sent as follows:

 

13.1.1

Issuer:  If to the Issuer, to it at:

Western Power Distribution PLC

Avonbank

Feeder Road

Bristol BS2 0TB

 

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Attention: Ian Williams, Resources and External Affairs Director

 

13.1.2

Trustee:  if to the Trustee, to it at:

HSBC Corporate Trustee Company (UK) Limited

Level 27, 8 Canada Square

London E14 5HQ

Fax: +44 (0)207 991 4350

Attention: CTLA Trustee Services Administration

 

13.2	Effectiveness

Every notice or other communication sent in accordance with Clause 13.1, if sent by letter, shall be deemed to have been delivered when received and if sent by fax, shall be deemed to have been delivered on completion of its transmission, provided that any such notice or other communication which would otherwise take effect after 4.00 p.m. on any particular day shall not take effect until 10.00 a.m. on the immediately succeeding business day in the place of the addressee.

 

13.3	No Notice to Couponholders

Neither the Trustee nor the Issuer shall be required to give any notice to the Couponholders for any purpose under this Trust Deed and the Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with Condition 15 (Notices).

 

14.	LAW AND JURISDICTION

 

14.1	Governing law

This Trust Deed and the Notes and all non-contractual obligations arising from or in connection with them are governed by English law.

 

14.2	English courts

Subject to Clause 14.4 (Rights of the Trustee and Noteholders to take proceedings outside England), the courts of England have exclusive jurisdiction to settle any dispute (a “Dispute”), arising from or connected with this Trust Deed or the Notes (including a dispute relating to non-contractual obligations arising from or in connection with this Trust Deed or the Notes, or a dispute regarding the existence, validity or termination of this Trust Deed or the Notes) or the consequences of their nullity.

 

14.3	Appropriate forum

The Issuer agrees that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary.

 

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14.4	Rights of the Trustee to take proceedings outside England

Notwithstanding Clause 14.2 (English courts), the Trustee may take proceedings relating to a Dispute (“Proceedings”) in any other courts with jurisdiction. To the extent allowed by law, the Trustee may take concurrent Proceedings in any number of jurisdictions.

 

15.	SEVERABILITY

In case any provision in or obligation under this Trust Deed shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

 

16.	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

No person shall have any right to enforce any provision of this Trust Deed under the Contracts (Rights of Third Parties) Act 1999 except and to the extent (if any) that this Trust Deed expressly provides for such Act to apply to any of its terms.

 

17.	COUNTERPARTS

This Trust Deed may be executed in any number of counterparts, each of which shall be deemed an original.

IN WITNESS WHEREOF this Trust Deed has been executed as a deed by the parties hereto and is intended to be and is hereby delivered on the date first before written.

 

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SCHEDULE 1

PART A

FORM OF TEMPORARY GLOBAL NOTE

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England and Wales with registered number 09223384)

£500,000,000

3.625 per cent. Notes due 2023

ISIN: XS1315962602

TEMPORARY GLOBAL NOTE

 

1.	INTRODUCTION

This Temporary Global Note is issued in respect of the £500,000,000 3.625 per cent. Notes due 2023 (the “Notes”) of Western Power Distribution plc (the “Issuer”). The Notes are subject to, and have the benefit of, a trust deed dated 6 November 2015 (as amended or supplemented from time to time, the “Trust Deed”) between the Issuer and HSBC Corporate Trustee Company (UK) Limited as trustee (the “Trustee”, which expression includes all persons for the time being appointed trustee or trustees under the Trust Deed) and are the subject of an agency agreement dated 6 November 2015 (as amended or supplemented from time to time, the “Agency Agreement”) and made between the Issuer, HSBC Bank Plc as principal paying agent (the “Principal Paying Agent”, which expression includes any successor principal paying agent appointed from time to time in connection with the Notes), the other paying agents named therein (together with the Principal Paying Agent, the “Paying Agents”, which expression includes any successor or additional paying agents appointed from time to time in connection with the Notes) and the Trustee.

 

2.	REFERENCES TO CONDITIONS

Any reference herein to the “Conditions” is to the terms and conditions of the Notes scheduled to the Trust Deed and any reference to a numbered “Condition” is to the correspondingly numbered provision thereof. Words and expressions defined in the Conditions shall have the same meanings when used in this Temporary Global Note.

 

3.	PROMISE TO PAY

 

3.1	Pay to Bearer

The Issuer, for value received, promises to pay to the bearer of this Temporary Global Note the principal sum of

£500,000,000

five hundred million pounds Sterling

 

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on 6 November 2023 or on such earlier date or dates as the same may become payable in accordance with the Conditions, and to pay interest on such principal sum in arrear on the dates and at the rate specified in the Conditions, together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions; provided, however, that such interest shall be payable only:

 

3.1.1

in the case of interest falling due before the Exchange Date (as defined below), to the extent that a certificate or certificates issued by Euroclear Bank SA/NV (“Euroclear”) and/or Clearstream Banking S.A. (“Clearstream, Luxembourg”, together with Euroclear, the international central securities depositaries or “ICSDs”) dated not earlier than the date on which such interest falls due and in substantially the form set out in Schedule 1 (Form of Euroclear/Clearstream, Luxembourg Certification) hereto is/are delivered to the Specified Office (as defined in the Conditions) of the Principal Paying Agent; or

 

3.1.2

in the case of interest falling due at any time, to the extent that the Issuer has failed to procure the exchange for a permanent global note of that portion of this Temporary Global Note in respect of which such interest has accrued.

 

3.2	Principal Amount

The principal amount of Notes represented by this Temporary Global Note shall be the aggregate amount from time to time entered in the records of both ICSDs. The records of the ICSDs (which expression in this Temporary Global Note means the records that each ICSD holds for its customers which reflect the amount of such customers’ interests in the Notes (but excluding any interest in any Notes of one ICSD shown in the records of another ICSD)) shall be conclusive evidence of the principal amount of Notes represented by this Temporary Global Note and, for these purposes, a statement issued by an ICSD (which statement shall be made available to the bearer upon request) stating the principal amount of Notes represented by this Temporary Global Note at any time shall be conclusive evidence of the records of the ICSD at that time.

 

4.	NEGOTIABILITY

This Temporary Global Note is negotiable and, accordingly, title to this Temporary Global Note shall pass by delivery.

 

5.

EXCHANGE

On or after the day following the expiry of 40 days after the date of issue of this Global Note (the “Exchange Date”), the Issuer shall procure (in the case of first exchange) the delivery of a permanent global note (the “Permanent Global Note”) in substantially the form set out in Schedule 1 Part B (Form of Original Permanent Global Note) to the Trust Deed to the bearer of this Temporary Global Note or (in the case of any subsequent exchange) an increase in the principal amount of the Permanent Global Note in accordance with its terms against:

 

5.1	presentation and (in the case of final exchange) surrender of this Global Note to or to the order of the Principal Paying Agent; and

 

5.2	receipt by the Principal Paying Agent of a certificate or certificates issued by Euroclear and/or Clearstream, Luxembourg dated not earlier than the Exchange Date and in substantially the form set out in Schedule 2 (Form of Euroclear / Clearstream, Luxembourg Certification) hereto.

 

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The principal amount of Notes represented by the Permanent Global Note shall be equal to the aggregate of the principal amounts specified in the certificates issued by Euroclear and/or Clearstream, Luxembourg and received by the Principal Paying Agent; provided, however, that in no circumstances shall the principal amount of Notes represented by the Permanent Global Note exceed the initial principal amount of Notes represented by this Temporary Global Note.

 

6.	WRITING DOWN

On each occasion on which:

 

6.1	the Permanent Global Note is delivered or the principal amount of Notes represented thereby is increased in accordance with its terms in exchange for a further portion of this Global Note; or

 

6.2	Notes represented by this Temporary Global Note are to be cancelled in accordance with Condition 5(g) (Redemption, Purchase and Options - Cancellation),

the Issuer shall procure that details of the exchange or cancellation shall be entered pro rata in the records of the ICSDs.

 

7.

PAYMENTS

 

7.1	Recording of Payments

Upon any payment being made in respect of the Notes represented by this Temporary Global Note, the Issuer shall procure that details of such payment shall be entered pro rata in the records of the ICSDs and, in the case of any payment of principal, the principal amount of the Notes entered in the records of ICSDs and represented by this Temporary Global Note shall be reduced by the principal amount so paid.

 

7.2	Discharge of Issuer’s obligations

Payments due in respect of Notes for the time being represented by this Temporary Global Note shall be made to the bearer of this Temporary Global Note and each payment so made will discharge the Issuer’s obligations in respect thereof. Any failure to make the entries referred to above shall not affect such discharge.

 

8.	CONDITIONS APPLY

Until this Temporary Global Note has been exchanged as provided herein or cancelled in accordance with the Agency Agreement, the bearer of this Temporary Global Note shall be subject to the Conditions and, subject as otherwise provided herein, shall be entitled to the same rights and benefits under the Conditions as if the bearer were the holder of Notes in definitive form in substantially the form set out in Schedule 2 Part A (Form of Definitive Note) to the Trust Deed and the related interest coupons in the denomination of £1,000 and in an aggregate principal amount equal to the principal amount of Notes represented by this Global Note.

 

9.

NOTICES

Notwithstanding Condition 15 (Notices), while all the Notes are represented by this Temporary Global Note (or by this Temporary Global Note and the Permanent Global Note) and this Temporary Global Note is (or this Temporary Global Note and the Permanent Global

 

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Note are) deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg notices to Noteholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with the Condition 15 (Notices) on the date of delivery to Euroclear and Clearstream, Luxembourg.

 

10.	AUTHENTICATION

This Temporary Global Note shall not be valid for any purpose until it has been authenticated for and on behalf of HSBC Bank Plc as principal paying agent.

 

11.	EFFECTUATION

This Temporary Global Note shall not be valid for any purpose until it has been effectuated for and on behalf of the entity appointed as common safekeeper by the ICSDs.

 

12.	GOVERNING LAW

This Temporary Global Note and any non-contractual obligations arising out of or in connection with it are governed by English law.

AS WITNESS the manual signature of a duly authorised person for and on behalf of the Issuer.

 

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WESTERN POWER DISTRIBUTION PLC
By:
		manual signature
		(duly authorised)
ISSUED on 6 November 2015 AUTHENTICATED for and on behalf of HSBC BANK PLC as principal paying agent without recourse, warranty or liability
By:
		manual signature
		(duly authorised)

EFFECTUATED for and on behalf of
Euroclear Bank S.A./N.V. as common safekeeper without   recourse, warranty or liability

By:
		manual signature
		(duly authorised)

 

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Schedule 1

Form of Accountholder’s Certification

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England and Wales with registered number 09223384)

£500,000,000

3.625 per cent. Notes due 2023

This is to certify that as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (a) are owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source (“United States persons”), (b) are owned by United States person(s) that (i) are foreign branches of a United States financial institution (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(iv)) (“financial institutions”) purchasing for their own account or for resale, or (ii) acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (i) or (ii), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the issuer or the issuer’s agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (c) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if the owner of the Securities is a United States or foreign financial institution described in clause (c) (whether or not also described in clause (a) or (b)) this is to further certify that such financial institution has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

If the Securities are of the category contemplated in Section 903(b)(3) of Regulation S under the Securities Act of 1933, as amended (the “Act”), then this is also to certify that, except as set forth below, the Securities are beneficially owned by (1) non-U.S. person(s) or (2) U.S. person(s) who purchased the Securities in transactions which did not require registration under the Act. As used in this paragraph the term “U.S. person” has the meaning given to it by Regulation S under the Act.

As used herein, “United States” means the United States of America (including the States and the District of Columbia); and its “possessions” include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.

We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Securities held by you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date.

This certification excepts and does not relate to £[amount] of such interest in the above Securities in respect of which we are not able to certify and as to which we understand exchange and delivery of definitive Securities (or, if relevant, exercise of any rights or collection of any interest) cannot be made until we do so certify.

We understand that this certification is required in connection with certain tax laws and, if applicable, certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings.

 

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Dated:   [                         ]
[name of account holder] as, or as agent for, the beneficial owner(s) of the Securities to which this certificate relates.
By:
		Authorised signatory

 

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Schedule 2

Form of Euroclear/Clearstream, Luxembourg Certification

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England and Wales with registered number 09223384)

£500,000,000

3.625 per cent. Notes due 2023

This is to certify that, based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organisations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our “Member Organisations”) substantially to the effect set forth in the temporary global note issued in respect of the securities, as of the date hereof, £[•] principal amount of the above-captioned Securities (a) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source (“United States persons”), (b) is owned by United States persons that (i) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(iv)) (“financial institutions”) purchasing for their own account or for resale, or (ii) acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (i) or (ii), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer’s agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (c) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and to the further effect that United States or foreign financial institutions described in clause (c) (whether or not also described in clause (a) or (b)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

If the Securities are of the category contemplated in Section 903(b)(3) of Regulation S under the Securities Act of 1933, as amended (the “Act”), then this is also to certify with respect to the principal amount of Securities set forth above that, except as set forth below, we have received in writing, by tested telex or by electronic transmission, from our Member Organisations entitled to a portion of such principal amount, certifications with respect to such portion substantially to the effect set forth in the temporary global note issued in respect of the Securities.

We further certify (1) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the temporary global security excepted in such certifications and (2) that as of the date hereof we have not received any notification from any of our Member Organisations to the effect that the statements made by such Member Organisations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as of the date hereof.

We understand that this certification is required in connection with certain tax laws and, if applicable, certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings.

 

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Dated: [                                ]

 

Euroclear Bank SA/NV as operator of the Euroclear System
or
Clearstream Banking S.A.
By:
		Authorised signatory

 

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PART B

FORM OF PERMANENT GLOBAL NOTE

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England and Wales with registered number 09223384)

£500,000,000

3.625 per cent. Notes due 2023

ISIN: XS1315962602

PERMANENT GLOBAL NOTE

 

1.	INTRODUCTION

This Global Note is issued in respect of the £500,000,000 3.625 per cent. Notes due 2023 (the “Notes”) of Western Power Distribution plc (the “Issuer”). The Notes are subject to, and have the benefit of, a trust deed dated 6 November 2015 (as amended or supplemented from time to time, the “Trust Deed”) between the Issuer and HSBC Corporate Trustee Company (UK) Limited as trustee (the “Trustee”, which expression includes all persons for the time being appointed trustee or trustees under the Trust Deed) and are the subject of an agency agreement dated 6 November 2015 (as amended or supplemented from time to time, the “Agency Agreement”) and made between the Issuer, HSBC Bank Plc as principal paying agent (the “Principal Paying Agent”, which expression includes any successor principal paying agent appointed from time to time in connection with the Notes), the other paying agents named therein (together with the Principal Paying Agent, the “Paying Agents”, which expression includes any successor or additional paying agents appointed from time to time in connection with the Notes) and the Trustee.

 

2.	REFERENCES TO CONDITIONS

Any reference herein to the “Conditions” is to the terms and conditions of the Notes set out in Schedule 2 Part B (Terms and Conditions of the Notes) of the Trust Deed and any reference to a numbered “Condition” is to the correspondingly numbered provision thereof. Words and expressions defined in the Conditions shall have the same meanings when used in this Global Note.

 

3.	PROMISE TO PAY

 

3.1	Pay to bearer

The Issuer, for value received, promises to pay to the bearer of this Global Note, in respect of each Note represented by this Global Note, its principal amount on 6 November 2023 or on such earlier date or dates as the same may become payable in accordance with the Conditions, and to pay interest on each such Note on the dates and in the manner specified in the Conditions, together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions.

 

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3.2	Principal Amount

The principal amount of Notes represented by this Global Note shall be the aggregate amount from time to time entered in the records of both Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream, Luxembourg” and, together with Euroclear, the international central securities depositaries or “ICSDs”). The records of the ICSDs (which expression in this Global Note means the records that each ICSD holds for its customers which reflect the amount of such customers’ interests in the Notes (but excluding any interest in any Notes of one ICSD shown in the records of another ICSD)) shall be conclusive evidence of the principal amount of Notes represented by this Global Note and, for these purposes, a statement issued by an ICSD (which statement shall be made available to the bearer upon request) stating the principal amount of Notes represented by this Global Note at any time shall be conclusive evidence of the records of the ICSD at that time.

 

4.	NEGOTIABILITY

This Global Note is negotiable and, accordingly, title to this Global Note shall pass by delivery.

 

5.

EXCHANGE

This Global Note will be exchanged, in whole but not in part only, for Notes in definitive form (“Definitive Notes”) in substantially the form set out in Schedule 2 Part A (Form of Definitive Note) to the Trust Deed if either of the following events (each, an “Exchange Event”) occurs:

 

(a)

Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business; or

 

(b)

any of the circumstances described in Condition 9 (Events of Default) occurs.

 

6.	DELIVERY OF DEFINITIVE NOTES

Whenever this Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery of such Definitive Notes, duly authenticated and with interest coupons (“Coupons”) attached, in an aggregate principal amount equal to the principal amount of Notes represented by this Global Note to the bearer of this Global Note against the surrender of this Global Note to or to the order of the Principal Paying Agent within 30 days of the occurrence of the relevant Exchange Event.

 

7.	WRITING DOWN

On each occasion on which:

 

(a)

a payment of principal is made in respect of this Global Note;

 

(b)

Definitive Notes are delivered; or

 

(c)

Notes represented by this Global Note are to be cancelled in accordance with Condition 5(g) (Redemption, Purchase and Options - Cancellation),

the Issuer shall procure that details of the exchange or cancellation shall be entered pro rata in the records of the ICSDs.

 

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8.	WRITING UP

 

8.1	Initial Exchange

If this Global Note was originally issued in exchange for part only of a temporary global note representing the Notes, then all references in this Global Note to the principal amount of Notes represented by this Global Note shall be construed as references to the principal amount of Notes represented by the part of the temporary global note in exchange for which this Global Note was originally issued which the Issuer shall procure is entered by the ICSDs in their records.

 

8.2	Subsequent Exchange

If at any subsequent time any further portion of such temporary global note is exchanged for an interest in this Global Note, the principal amount of Notes represented by this Global Note shall be increased by the amount of such further portion, and the Issuer shall procure that the principal amount of Notes represented by this Global Note (which shall be the previous principal amount of Notes represented by this Global Note plus the amount of such further portion) is entered by the ICSDs in their records.

 

9.

PAYMENTS

 

9.1	Recording of Payments

Upon any payment being made in respect of the Notes represented by this Global Note, the Issuer shall procure that details of such payment shall be entered pro rata in the records of the ICSDs and, in the case of any payment of principal, the principal amount of the Notes entered in the records of ICSDs and represented by this Global Note shall be reduced by the principal amount so paid.

 

9.2	Discharge of Issuer’s obligations

Payments due in respect of Notes for the time being represented by this Global Note shall be made to the bearer of this Global Note and each payment so made will discharge the Issuer’s obligations in respect thereof. Any failure to make the entries referred to above shall not affect such discharge.

 

10.	CONDITIONS APPLY

Until this Global Note has been exchanged as provided herein or cancelled in accordance with the Agency Agreement, the bearer of this Global Note shall be subject to the Conditions and, subject as otherwise provided herein, shall be entitled to the same rights and benefits under the Conditions as if it were the holder of Definitive Notes and the related Coupons in the denomination of £1,000 and in an aggregate principal amount equal to the principal amount of Notes represented by this Global Note.

 

11.	EXERCISE OF PUT OPTION

In order to exercise the option contained in Condition 5(d) (Redemption at the option of Noteholders) (the “Put Option”), the bearer of this Global Note must, within the period specified in the Conditions for the deposit of the relevant Note and Put Event Notice, give written notice of such exercise to the Principal Paying Agent specifying the principal amount of Notes in respect of which the Put Option is being exercised. Any such notice shall be irrevocable and may not be withdrawn.

 

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12.	EXERCISE OF CALL OPTION

In connection with an exercise of the option contained in Condition 5(c) (Redemption at the option of the Issuer) in relation to some only of the Notes, this Global Note may be redeemed in part in the principal amount specified by the Issuer in accordance with the Conditions and the Notes to be redeemed will not be selected as provided in the Conditions but in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg (to be reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor or a reduction in principal amount, at their discretion).

 

13.

NOTICES

Notwithstanding Condition 15 (Notices), while all the Notes are represented by this Global Note (or by this Global Note and a temporary global note) and this Global Note is (or this Global Note and a temporary global note are) deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with the Condition 15 (Notices) on the date of delivery to Euroclear and Clearstream, Luxembourg.

 

14.	AUTHENTICATION

This Global Note shall not be valid for any purpose until it has been authenticated for and on behalf of HSBC Bank Plc as principal paying agent.

 

15.	EFFECTUATION

This Global Note shall not be valid for any purpose until it has been effectuated for and on behalf of the entity appointed as common safekeeper by the ICSDs.

 

16.	GOVERNING LAW

This Global Note and any non-contractual obligations arising out of or in connection with it are governed by English law.

AS WITNESS the manual signature of a duly authorised person for and on behalf of the Issuer.

 

WESTERN POWER DISTRIBUTION PLC
By:
		manual signature
		(duly authorised)
ISSUED as of 6 November 2015

 

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AUTHENTICATED for and on behalf of HSBC BANK PLC as principal paying agent without recourse, warranty or liability
By:
		manual signature
		(duly authorised)
EFFECTUATED for and on behalf of
Euroclear Bank S.A./N.V. as common safekeeper without recourse, warranty or liability
By:
		manual signature
		(duly authorised)

 

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SCHEDULE 2

PART A

FORM OF DEFINITIVE NOTE

[On the face of the Note:]

£[•]

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England and Wales with registered number 09223384)

£500,000,000

3.625 per cent. Notes due 2023

This Note is one of a series of notes (the “Notes”) in the denomination of £100,000 and integral multiples of £1,000 in excess thereof (up to and including £199,000) and in the aggregate principal amount of £500,000,000 issued by Western Power Distribution plc (the “Issuer”). The Notes are subject to, and have the benefit of, a trust deed dated 6 November 2015 between the Issuer and HSBC Corporate Trustee Company (UK) Limited as trustee for the holders of the Notes from time to time.

The Issuer, for value received, promises to pay to the bearer the principal sum of

£[•]

([AMOUNT AND CURRENCY IN WORDS]¹)

on 6 November 2023, or on such earlier date or dates as the same may become payable in accordance with the conditions endorsed hereon (the “Conditions”), and to pay interest on such principal sum in arrear on the dates and at the rate specified in the Conditions, together with any additional amounts payable in accordance with the Conditions, all subject to and in accordance with the Conditions.

Interest is payable on the above principal sum at the rate of 3.625 per cent. per annum, payable annually in arrear on 6 November, all subject to and in accordance with the Conditions.

This Note and the interest coupons relating hereto shall not be valid for any purpose until this Note has been authenticated for and on behalf of HSBC Bank Plc as principal paying agent.

AS WITNESS the facsimile signature of a duly authorised person on behalf of the Issuer.

 

1        Amount and currency in words.

 

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WESTERN POWER DISTRIBUTION PLC
By:
		facsimile signature
		(duly authorised)
ISSUED as of [•]
AUTHENTICATED for and on behalf of HSBC Bank Plc as principal paying agent without recourse, warranty or liability
By:
		manual signature
		(duly authorised)

 

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PART B

TERMS AND CONDITIONS OF THE NOTES

The following are the terms and conditions of the Notes which (subject to modification) will be endorsed on each Note in definitive form:

The GBP500,000,000 3.625 per cent. Notes due 6 November 2023 (the “Notes”, which expression includes any further notes issued pursuant to Condition 14 (Further issues) and forming a single series therewith are constituted by, are subject to, and have the benefit of, a trust deed dated on or around 6 November 2015 (as amended or supplemented from time to time, the “Trust Deed”) between Western Power Distribution plc (the “Issuer”) and HSBC Corporate Trustee Company (UK) Limited (the “Trustee”, which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the Noteholders (as defined below). These terms and conditions (the “Conditions”) include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Notes and Coupons referred to below. An Agency Agreement dated on or around 6 November 2015 (as amended or supplemented from time to time) has been entered into in relation to the Notes between the Issuer, the Trustee, HSBC Bank Plc as principal paying agent and the other agents named in it. The principal paying agent and the other paying agents for the time being (if any) are referred to below respectively as the “Principal Paying Agent” and the “Paying Agents” (which expression shall include the Principal Paying Agent). Copies of the Trust Deed, the Agency Agreement and the Prospectus are available for inspection during usual business hours at the specified offices of the Paying Agents.

The Noteholders and the holders of the interest coupons (the “Coupons”) (the “Couponholders”) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of those provisions applicable to them of the Agency Agreement.

 

1.	Form, Denomination and Title

The Notes are issued in bearer form serially numbered, in the denominations of £100,000 and integral multiples of £1,000 in excess thereof, up to and including £199,000, each with Coupons attached on issue. Notes of one denomination may not be exchanged for Notes of any other denomination.

Title to the Notes and the Coupons shall pass by delivery. Except as ordered by a court of competent jurisdiction or as required by law, the holder (as defined below) of any Note or Coupon shall be deemed to be and may be treated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it, any writing on it or its theft or loss and no person shall be liable for so treating the holder.

In these Conditions, “Noteholder” means the bearer of any Note, “holder” (in relation to a Note or Coupon) means the bearer of any Note or Coupon.

 

2.

Status

The Notes and the Coupons relating to them constitute direct, general, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and the Coupons relating to them shall, save for such exceptions as may be provided by applicable legislation, at all times rank at least equally with all other unsecured and unsubordinated indebtedness of the Issuer present and future.

 

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3.	Negative Pledge

Save with the prior written consent of the Trustee, the Issuer shall not, so long as any Note remains outstanding, create or permit to subsist any encumbrance (unless arising by operation of law) or other security interest whatsoever over any of its assets or undertaking.

 

4.	Interest and other Calculations

Each Note bears interest on its outstanding principal amount from 6 November 2015 (the “Issue Date”) at the rate per annum (expressed as a percentage) equal to the Rate of Interest, such interest being payable in arrear on 6 November in each year (each, an Interest Payment Date), subject as provided in Condition 6 (Payments).

 

(a)

Accrual of Interest:

Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall continue to accrue (both before and after judgment) at the Rate of Interest in the manner provided in this Condition 4 (Interest and other Calculations) to the Relevant Date (as defined in Condition 7 (Taxation)).

 

(b)

Calculations:

The amount of interest payable on each Interest Payment Date shall be GBP 36.25 per Calculation Amount in respect of any Note or GBP 48.75 per Calculation Amount in respect of any Note following a Step-Up Event and for an Interest Period to which the higher rate of interest applies. If interest is required to be paid in respect of a Note on any other date, it shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by the relevant Day Count Fraction, rounding the resulting figure to the nearest penny (half a penny being rounded upwards) and multiplying such rounded figure by a fraction equal to the denomination of such Note divided by the Calculation Amount.

 

(c)

Definitions:

In these Conditions, unless the context otherwise requires, the following defined terms shall have the meanings set out below:

“Business Day” means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in London.

“Calculation Amount” means GBP 1,000.

“Day Count Fraction” means, in respect of any period, the number of days in the relevant period, from (and including) the first day in such period to (but excluding) the last day in such period, divided by the number of days in the Interest Period in which the relevant period falls.

“Interest Amount” means in respect of an Interest Accrual Period, the amount of interest payable per Calculation Amount for that Interest Accrual Period and which, in the case of Fixed Rate Notes, shall mean the Fixed Coupon Amount or Broken Amount as being payable on the Interest Payment Date ending the Interest Period of which such Interest Accrual Period forms part.

 

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“Interest Period” means the period beginning on and including the Issue Date and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date.

“Rate of Interest” means 3.625 per cent., provided that if a Step-up Event has occurred and is continuing, the Rate of Interest shall be calculated as the aggregate of 3.625 per cent. plus 1.25 per cent. from and including the Interest Payment Date immediately following the occurrence of that Step-up Event, provided further that the Rate of Interest shall revert to 3.625 from and including the Interest Payment Date immediately following the date on which the relevant Step-up Event ceases to be continuing, and the Rate of Interest shall not be affected by any subsequent Step-up Event thereafter.

“Step-up Event” means that the then current rating assigned to the Rated Securities by any Rating Agency (whether provided by a Rating Agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced to a non-investment grade rating (BB+/Bal, or their respective equivalents for the time being, or worse), for any reason other than as a result of an event falling within paragraph (A) of the definition of Restructuring Event set out in Condition 5(d) (Redemption at the Option of Noteholders).

 

5.	Redemption, Purchase and Options

 

(a)

Final Redemption:

Unless previously redeemed, purchased and cancelled as provided below, each Note shall be finally redeemed on the Maturity Date at its principal amount.

 

(b)

Redemption for Taxation Reasons:

The Notes may be redeemed at the option of the Issuer in whole, but not in part, on any Interest Payment Date on giving not less than 30 nor more than 60 days’ notice to the Trustee and the Noteholders in accordance with Condition 15 (Notices) (which notice shall be irrevocable) at their principal amount (together with interest accrued to the date fixed for redemption), if (i) the Issuer satisfies the Trustee immediately before the giving of such notice that it has or will become obliged to pay additional amounts as described under Condition 7 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the United Kingdom or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the Notes, and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this Condition 5(b) (Redemption for Taxation Reasons), the Issuer shall deliver to the Trustee a certificate signed by two directors of the Issuer stating that the obligation referred to in (i) above cannot be avoided by the Issuer taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate (without any further investigation) as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above, in which event it shall be conclusive and binding on Noteholders and Couponholders.

 

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All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition.

 

(c)

Redemption at the Option of the Issuer:

The Issuer may, on giving not less than 15 nor more than 30 days’ irrevocable notice to the Trustee and the Noteholders redeem all or some of the Notes on any Interest Payment Date. Any such redemption of Notes shall be at their Early Redemption Amount together with interest accrued up to (and including) the date fixed for redemption.

For the purposes of these Conditions, “Early Redemption Amount” means an amount equal to the principal amount of that Note then outstanding multiplied by the higher of: (A) 1; and (B) the price expressed as a percentage and determined by an internationally recognised investment bank based in London acting as financial adviser (selected by the Issuer and notified in writing to the Trustee) at which the Gross Redemption Yield (as defined below) on such Notes on the Reference Date (as defined below) is equal to the Gross Redemption Yield at 3.00 p.m. (London time) on the Reference Date on the Reference Gilt (as defined below) while that stock is in issue, and thereafter such UK government stock as the Issuer may, with the advice of three persons operating in the gilt-edged market (selected by the Issuer and notified in writing to the Trustee) determine to be appropriate, plus accrued but unpaid interest on the principal amount of that Note then outstanding.

For the purposes of this Condition, “Gross Redemption Yield” means a yield expressed as a percentage and calculated on a basis consistent with the basis indicated by the United Kingdom Debt Management Office publication “Formulae for Calculating Gilt Prices from Yields” published on 8 June 1998 with effect from 1 November 1998 and updated on 16 March 2005, page 5 or any replacement therefor and, for the purposes of such calculation, the date of redemption of the relevant Notes shall be the Final Maturity Date; “Reference Date” means the date which is two Business Days prior to the despatch of the notice of redemption under this Condition; and “Reference Gilt” means the Treasury stock whose modified duration most closely matches that of the Notes on the Reference Date determined by agreement of three persons operating in the gilt-edged market (selected by the Issuer and notified in writing to the Trustee).

All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition.

In the case of a partial redemption of the Notes pursuant to this Condition, such Notes to be redeemed shall be drawn by lot in London, or identified in such other manner or in such other place as the Issuer deems appropriate and fair, subject always to compliance with all applicable laws and the requirements of each listing authority, stock exchange and/or quotation system (if any) by which the Notes may have been admitted to listing, trading and/or quotation.

 

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(d)

Redemption at the Option of Noteholders:

 

(i)

 

(a)

If, at any time while any of the Notes remains outstanding, a Restructuring Event (as defined below) occurs and prior to the commencement of or during the Restructuring Period (as defined below):

 

(A)

an independent financial adviser (as described below) shall have certified in writing to the Trustee that such Restructuring Event will not be or is not, in its opinion, materially prejudicial to the interests of the Noteholders; or

 

(B)

if there are Rated Securities (as defined below), each Rating Agency (as defined below) that at such time has assigned a current rating to the Rated Securities confirms in writing to the Issuer at its request (which it shall make as set out below) that it will not be withdrawing or reducing the then current rating assigned to the Rated Securities by it from an investment grade rating (BBB-/Baa3, or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Bal, or their respective equivalents for the time being, or worse) or, if the Rating Agency shall have already rated the Rated Securities below investment grade (as described above), the rating will not be lowered by one full rating category or more, in each case as a result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event,

the following provisions of this Condition 5(d) (Redemption at the Option of Noteholders) shall cease to have any further effect in relation to such Restructuring Event.

 

(b)

If, at any time while any of the Notes remains outstanding, a Restructuring Event occurs and (subject to Condition 5(d)(i)(a)):

 

(A)

within the Restructuring Period, either:

 

(i)

if at the time such Restructuring Event occurs there are Rated Securities, a Rating Downgrade (as defined below) in respect of such Restructuring Event also occurs; or

 

(ii)

if at such time there are no Rated Securities, a Negative Rating Event (as defined below) in respect of such Restructuring Event also occurs; and

 

(B)

an independent financial adviser shall have certified in writing to the Trustee that such Restructuring Event is, in its opinion, materially prejudicial to the interests of the Noteholders (a Negative Certification),

then, unless at any time the Issuer shall have given notice under Condition 5(c) (Redemption at the Option of the Issuer), the holder of each Note will, upon the giving of a Put Event Notice (as defined below), have the option (the “Put Option”) to require the Issuer to redeem or, at the option of the Issuer, purchase (or procure the purchase of) that Note on the Put Date (as defined below), at its principal amount outstanding together with (or, where purchased, together with an amount equal to) interest (if any) accrued to (but excluding) the Put Date.

 

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A Restructuring Event shall be deemed not to be materially prejudicial to the interests of the Noteholders if, notwithstanding the occurrence of a Rating Downgrade or a Negative Rating Event, the rating assigned to the Rated Securities by any Rating Agency (as defined below) is subsequently increased to, or, as the case may be, there is assigned to the Notes or other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more by any Rating Agency, an investment grade rating (BBB-/Baa3) or their respective equivalents for the time being) or better prior to any Negative Certification being issued.

Any Negative Certification shall be conclusive and binding on the Trustee, the Issuer and the Noteholders. The Issuer may, at any time, with the approval of the Trustee appoint an independent financial adviser for the purposes of this Condition 5(d) (Redemption at the Option of Noteholders). If, within five Business Days following the occurrence of a Rating Downgrade or a Negative Rating Event, as the case may be, in respect of a Restructuring Event, the Issuer shall not have appointed an independent financial adviser for the purposes of Condition 5(d)(i)(b)(B) and (if so required by the Trustee) the Trustee is indemnified and/or prefunded and/or secured by the Issuer to its satisfaction against the costs of such adviser, the Trustee may appoint an independent financial adviser for such purpose following consultation with the Issuer.

 

(ii)

Promptly upon the Issuer becoming aware that a Put Event (as defined below) has occurred, and in any event not later than 14 days after the occurrence of a Put Event, the Issuer shall, give notice (a Put Event Notice) to the Noteholders in accordance with Condition 15 (Notices) specifying the nature of the Put Event and the procedure for exercising the Put Option.

 

(iii)

To exercise the Put Option, the holder of a Note must comply with the provisions of Condition 5(d) (Redemption at the Option of Noteholders). The applicable notice period for the purposes of Condition 5(d) (Redemption at the Option of Noteholders) shall be the period (the Put Period) of 45 days after that on which a Put Event Notice is given. Subject to the relevant Noteholder having complied with Condition 5(d) (Redemption at the Option of Noteholders), the Issuer shall redeem or, at the option of the Issuer, purchase (or procure the purchase of) the relevant Note on the fifteenth day after the date of expiry of the Put Period (the Put Date) unless previously redeemed or purchased.

 

(iv)

For the purposes of these Conditions:

 

(a)

“Distribution Licence” means an electricity distribution licence granted under section 6(1)(c) of the Electricity Act 1989 (as amended by section 30 of the Utilities Act 2000 and from time to time).

 

(b)

“Distribution Services Area” means, in respect of any Distribution Company, the area specified as such in the relevant Distribution Licence granted to it on 1 October 2001, as of the date of such Distribution Licence.

 

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(c)

A “Negative Rating Event” shall be deemed to have occurred if (1) the Issuer does not, either prior to or not later than 14 days after the date of the relevant Restructuring Event, seek, and thereupon use all reasonable endeavours to obtain, a rating of the Notes or any other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more from a Rating Agency or (2) if it does so seek and use such endeavours, it is unable, as a result of such Restructuring Event, to obtain such a rating of at least investment grade (BBB-/Baa3, or their respective equivalents for the time being).

 

(d)

A “Put Event” occurs on the date of the last to occur of (1) a Restructuring Event, (2) either a Rating Downgrade or, as the case may be, a Negative Rating Event and (3) the relevant Negative Certification.

 

(e)

“Rating Agency” means Standard & Poor’s Credit Market Services Europe Limited or any of its subsidiaries and their successors (“Standard & Poor’s”) or Moody’s Investors Service Ltd. or any of its subsidiaries and their successors (“Moody’s”) or any rating agency substituted for any of them (or any permitted substitute of them) by the Issuer from time to time with the prior written approval of the Trustee.

 

(f)

A Rating Downgrade shall be deemed to have occurred in respect of a Restructuring Event if the then current rating assigned to the Rated Securities by any Rating Agency (or any other rating provided by a rating agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced from an investment grade rating (BBB-/Baa3), or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Bal), or their respective equivalents for the time being, or worse) or, if the rating agency shall then have already rated the Rated Securities below investment grade (as described above), the rating is lowered one full rating category or more.

 

(g)

Rated Securities means the Notes, if at any time and for so long as they have a rating from a Rating Agency, and otherwise any other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more which is rated by a rating agency;

 

(h)

Restructuring Event means the occurrence of any one or more of the following events:

(A)

 

(i)

the Secretary of State for Business, Innovation and Skills (or any successor) giving any of the Distribution Companies a written notice of any revocation of its Distribution Licence; or

 

(ii)

any of the Distribution Companies agreeing in writing with the Secretary of State for Business, Innovation and Skills (or any successor) to any revocation or surrender of its Distribution Licence; or

 

(iii)

any legislation (whether primary or subordinate) being enacted which terminates or revokes the Distribution Licence of any of the Distribution Companies;

 

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except, in each such case, in circumstances where a licence or licences on substantially no less favourable terms is or are granted to the Issuer or a wholly-owned subsidiary of the Issuer; or

 

(B)

any modification (other than a modification which is of a formal, minor or technical nature or to correct a manifest error) being made to the terms and conditions upon which a Distribution Company is authorised and empowered under relevant legislation to distribute electricity in the Distribution Services Area unless two directors of such Distribution Company have certified to the Trustee that the modified terms and conditions are not materially less favourable to the business of that Distribution Company; or

 

(C)

any legislation (whether primary or subordinate) is enacted which removes, qualifies or amends (other than an amendment which is of a formal, minor or technical nature or to correct a manifest error) the duties of the Secretary of State for Business, Innovation and Skills (or any successor) and/or the Gas and Electricity Markets Authority (or any successor) under section 3A of the Electricity Act 1989 (as amended by the Utilities Act 2000) (as this may be amended from time to time) unless two directors of each Distribution Company have certified in good faith to the Trustee that such removal, qualification or amendment does not have a materially adverse effect on the financial condition of such Distribution Company; or

 

(D)

the Issuer ceases to be a direct or indirect subsidiary of PPL Corporation.

 

(i)

“Restructuring Period” means:

 

(A)

if at the time a Restructuring Event occurs there are Rated Securities, the period of 90 days starting from and including the day on which that Restructuring Event occurs; or

 

(B)

if at the time a Restructuring Event occurs there are no Rated Securities, the period starting from and including the day on which that Restructuring Event occurs and ending on the day 90 days following the later of (aa) the date (if any) on which the Issuer shall seek to obtain a rating as contemplated by the definition of Negative Rating Event; (bb) the expiry of the 14 days referred to in the definition of Negative Rating Event and (cc) the date on which a Negative Certification shall have been given to the Trustee in respect of that Restructuring Event.

 

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(j)

A Rating Downgrade or a Negative Rating Event or a non-investment grade rating shall be deemed not to have occurred as a result or in respect of a Restructuring Event if the Rating Agency making the relevant reduction in rating or, where applicable, refusal to assign a rating of at least investment grade as provided in this Condition 5(d) (Redemption at the Option of Noteholders), does not announce or publicly confirm or inform the Issuer in writing at its request (which it shall make as set out in the following paragraph) that the reduction or, where applicable, declining to assign a rating of at least investment grade, was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event.

The Issuer undertakes to contact the relevant Rating Agency immediately following that reduction, or, where applicable the refusal to assign a rating of at least investment grade, to confirm whether that reduction or refusal to assign a rating of at least investment grade was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event. The Issuer shall notify the Trustee immediately upon receipt of any such confirmation from the relevant Rating Agency.

 

(e)

Redemption on disposal of a Distribution Company:

If a Disposal Event (as defined below) occurs, the Issuer shall, on giving not less than 15 nor more than 30 days’ irrevocable notice to the Trustee and the Noteholders redeem all of the Notes. Any such redemption of the Notes shall be at the Early Redemption Amount together with interest accrued up to (and including) the date fixed for redemption.

For the purposes of these Conditions:

 

(i)

“Disposal” means the Issuer ceasing directly or indirectly to:

 

(A)

own more than 51 per cent. of the economic rights of any Distribution Company;

 

(B)

have the right to cast more than 51 per cent. of the votes capable of being cast in general meetings of any Distribution Company; or

 

(C)

have the ability to determine the composition of the majority of the board of directors or equivalent body of any Distribution Company.

 

(ii)

“Disposal Event” means the occurrence of (i) a Disposal and (ii) during the Disposal Period, a Rating Downgrade.

 

(iii)

“Disposal Period” means the period of 90 days starting from and including the day on which that Disposal occurs.

 

(iv)

A “Rating Downgrade” shall be deemed to have occurred in respect of a Disposal if the then current rating assigned to the Notes by any Rating

 

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Agency (or any other rating provided by a rating agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced from an investment grade rating (BBB-/Baa3), or their respective equivalents for the time being, or better) to a non-investment grade rating (BB+/Bal), or their respective equivalents for the time being, or worse) or, if the rating agency shall then have already rated the Notes below investment grade (as described above), the rating is lowered one full rating category or more.

 

(f)

Purchases:

The Issuer or its subsidiaries may at any time purchase Notes (provided that all unmatured Coupons are attached thereto or surrendered therewith) in the open market or otherwise at any price.

 

(g)

Cancellation:

All Notes purchased by or on behalf of the Issuer or its subsidiaries may be surrendered for cancellation by surrendering each such Note together with all unmatured Coupons to the Principal Paying Agent and, in each case, if so surrendered, shall, together with all Notes redeemed by the Issuer, be cancelled forthwith (together with all unmatured Coupons attached thereto or surrendered therewith). Any Notes so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer in respect of any such Notes shall be discharged.

 

6.

Payments

Payments of principal and interest in respect of the Notes shall, subject as mentioned below, be made against presentation and surrender of the relevant Notes (in the case of all payments of principal and, in the case of interest, as specified in Condition 6(c)(ii) (Unmatured Coupons)) or Coupons (in the case of interest, save as specified in Condition 6(c)(ii) (Unmatured Coupons)), as the case may be, at the specified office of any Paying Agent outside the United States by a transfer to an account denominated in such currency with, a bank in London.

 

(a)

Payments subject to Fiscal Laws:

All payments are subject in all cases to (i) any applicable fiscal or other laws, regulations and directives in the place of payment, but without prejudice to the provisions of Condition 7 (Taxation) and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the “Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or (without prejudice to Condition 7 (Taxation)) any law implementing an intergovernmental approach thereto. No commission or expenses shall be charged to the Noteholders or Couponholders in respect of such payments.

 

(b)

Appointment of Agents:

The Principal Paying Agent and the Paying Agents initially appointed by the Issuer are listed in the Agency Agreement. The Principal Paying Agent and the Paying Agents act solely as agents of the Issuer and do not assume any obligation or relationship of agency or trust for or with any Noteholder or Couponholder. The Issuer reserves the right at any time with the approval of the Trustee to vary or terminate the appointment of the Principal Paying Agent or any other Paying Agent

 

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and to appoint additional or other Paying Agents provided that the Issuer shall at all times maintain (i) a Principal Paying Agent, (ii) such other agents as may be required by any other stock exchange on which the Notes may be listed in each case, as approved by the Trustee and (iii) a Paying Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC.

Notice of any such change or any change of any specified office shall promptly be given to the Noteholders.

 

(c)

Unmatured Coupons:

 

(i)

Upon the due date for redemption of the Notes, the Notes should be surrendered for payment together with all unmatured Coupons (if any) relating thereto, failing which an amount equal to the face value of each missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the amount of such missing unmatured Coupon that the sum of principal so paid bears to the total principal due) shall be deducted from the principal amount outstanding, Early Redemption Amount or Optional Redemption Amount, as the case may be, due for payment. Any amount so deducted shall be paid in the manner mentioned above against surrender of such missing Coupon within a period of 10 years from the Relevant Date for the payment of such principal (whether or not such Coupon has become void pursuant to Condition 8 (Prescription)).

 

(ii)

If the due date for redemption of any Note is not a due date for payment of interest, interest accrued from the preceding Interest Payment Date or the Issue Date, as the case may be, shall only be payable against presentation (and surrender if appropriate) of the relevant Note.

 

(d)

Non-Business Days:

If any date for payment in respect of any Note or Coupon is not a business day, the holder shall not be entitled to payment until the next following business day nor to any interest or other sum in respect of such postponed payment. In this paragraph, “business day” means a day (other than a Saturday or a Sunday) on which banks are open for presentation and payment of debt securities and for dealings in foreign currency in the relevant place of presentation in London.

 

7.

Taxation

All payments of principal and interest by or on behalf of the Issuer in respect of the Notes, and the Coupons shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the United Kingdom or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as shall result in receipt by the Noteholders and Couponholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable with respect to any Note or Coupon:

 

(a)	Other connection:

to, or to a third party on behalf of, a holder who is liable for such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of his having some connection with the United Kingdom other than the mere holding of the Note or Coupon; or

 

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(b)	Lawful avoidance of withholding:

to, or to a third party on behalf of, a holder who could lawfully avoid (but has not so avoided) such deduction or withholding by complying or procuring that any third party complies with any reasonable written request of the Issuer or the Principal Paying Agent or any other Paying Agent addressed to the Noteholders and made at least 30 days before any such deduction or withholding would be payable to comply with any statutory requirements or make or procure that any third party makes a declaration of non-residence or other similar claim for exemption to any tax authority in the place where the relevant Note or Coupon is presented for payment; or

 

(c)	Presentation more than 30 days after the Relevant Date:

presented or surrendered for payment more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such additional amounts on presenting it for payment on the thirtieth day; or

 

(d)	Payment to individuals:

where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or

 

(e)	Payment by another Paying Agent:

presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union.

As used in these Conditions, “Relevant Date” in respect of any Note or Coupon means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the Noteholders that, upon further presentation of the Note or Coupon being made in accordance with the Conditions, such payment will be made, provided that payment is in fact made upon such presentation. References in these Conditions to (i) principal shall be deemed to include any premium payable in respect of the Notes Early Redemption Amounts, and all other amounts in the nature of principal payable pursuant to Condition 5 (Redemption, Purchase and Options) or any amendment or supplement to it, (ii) interest shall be deemed to include all Interest Amounts and all other amounts payable pursuant to Condition 4 (Interest and other Calculations) or any amendment or supplement to it and (iii) principal and/or interest shall be deemed to include any additional amounts that may be payable under this Condition or any undertaking given in addition to or in substitution for it under the Trust Deed.

 

8.	Prescription

Claims against the Issuer for payment in respect of the Notes and Coupons shall be prescribed and become void unless made within 10 years (in the case of principal) or five years (in the case of interest) from the appropriate Relevant Date in respect of them.

 

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9.	Events of Default

If any of the following events (“Events of Default”) occurs and is continuing, the Trustee at its discretion may, and if so requested by holders of at least one-quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution and if indemnified and/or prefunded and/or secured to its satisfaction shall, give notice to the Issuer that the Notes are, and they shall immediately become, due and payable at their outstanding principal amount together (if applicable) with accrued interest:

 

(i)

Non-Payment:

if default is made in the payment of any principal or interest due in respect of the Notes or any of them and the default continues for a period of 14 days in the case of principal and 21 days in the case of interest or, where relevant, the Issuer, having become obliged to redeem, purchase or procure the purchase of (as the case may be) any Notes pursuant to Condition 5 (Redemption, Purchase and Options) fails to do so within a period of 14 days of having become so obliged; or

 

(ii)

Breach of Other Obligations:

the Issuer does not perform, observe or comply with any one or more of its other obligations, covenants, conditions or provisions under the Notes or the Trust Deed and (except where the Trustee shall have certified to the Issuer in writing that it considers such failure to be incapable of remedy in which case no such notice or continuation as is hereinafter mentioned will be required) the failure continues for the period of 30 days next following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or

 

(iii)

Cross-default and Cross-acceleration:

if (A) any indebtedness of the Issuer or any Distribution Company becomes due and repayable prior to its stated maturity by reason of a default or (B) any such indebtedness of the Issuer is not paid when due or, as the case may be, within any applicable grace period (as originally provided) or (C) the Issuer fails to pay when due (or, as the case may be, within any originally applicable grace period) any amount payable by it under any present or future guarantee for, or indemnity in respect of, any indebtedness of any person, provided that the aggregate amount of the relevant indebtedness in respect of which any one or more of the events mentioned above in this paragraph (iii) has or have occurred equals or exceeds £20,000,000;

For the purposes of these Conditions:

“indebtedness” means (i) money borrowed, (ii) liabilities under or in respect of any acceptance or acceptance credit or (iii) any notes, bonds, debentures, debenture stock, loan stock or other securities offered, issued or distributed whether by way of public offer, private placing, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash.

 

(iv)

Enforcement Proceedings:

a distress, attachment, execution or other legal process is levied, enforced or sued out on or against any substantial part of the property, assets or revenues of the Issuer and is not discharged or stayed within 90 days; or

 

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(v)

Insolvency:

the Issuer is (or is, or could be, deemed by law or a court to be) insolvent or bankrupt or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of its debts generally or a material part of a particular type of its debts, proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is agreed or declared or comes into effect in respect of or affecting its debts generally or any part of a particular type of the debts of the Issuer; or

 

(vi)

Winding-up:

(A) an administrator or liquidator is appointed in relation to the Issuer (and, in each case, not discharged within 90 days) or (B) an order is made or an effective resolution passed for the winding-up or dissolution or administration of the Issuer, or (C) the Issuer shall apply or petition for a winding-up or administration order in respect of itself or (D) the Issuer ceases or threatens to cease to carry on all or substantially all of its business or operations, in each case ((A) to (D) inclusive) except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation on terms approved by the Trustee or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders; or

 

(vii)

Nationalisation:

any step is taken by any person with a view to the seizure, compulsory acquisition, expropriation or nationalisation of all or a material part of the assets of the Issuer; or

 

(viii)

Illegality:

it is or will become unlawful for the Issuer to perform or comply with any one or more of its obligations under any of the Notes or the Trust Deed,

provided that in the case of paragraph (ii) the Trustee shall have certified (without liability on its part) that in its opinion such event is materially prejudicial to the interests of the Noteholders.

 

10.	Meetings of Noteholders, Modification, Waiver and Substitution

 

(a)

Meetings of Noteholders:

The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution (as defined in the Trust Deed) of a modification of any of these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by Noteholders holding not less than 10 per cent. in aggregate principal amount of the Notes for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution shall be two or more persons holding or representing not less than 50 per cent. in aggregate principal amount of the Notes for the time being outstanding, or at any adjourned meeting one or more persons being or representing Noteholders whatever the aggregate principal amount of the Notes held or represented, unless the business of such meeting includes consideration of proposals:

 

(i)

to amend the dates of maturity or redemption of the Notes or any date for payment of interest or Interest Amounts on the Notes;

 

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(ii)

to reduce or cancel the principal amount of, or any premium payable on redemption of, the Notes;

 

(iii)

to reduce the rate or rates or amount of interest in respect of the Notes or to vary the method or basis of calculating the rate or rates or amount of interest or the basis for calculating any Interest Amount in respect of the Notes;

 

(iv)

to vary any method of, or basis for, calculating the Early Redemption Amount;

 

(v)

to vary the currency or currencies of payment or denomination of the Notes;

 

(vi)

to sanction the exchange or substitution for the Notes of, or the conversion of the Notes into, shares, bonds or other obligations or securities of the Issuer, whether or not those rights arise under the Trust Deed;

 

(vii)

to amend the definition of Reserved Matter; or

 

(viii)

to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass the Extraordinary Resolution,

(each a “Reserved Matter”)

in which case the necessary quorum shall be two or more persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in aggregate principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on all Noteholders (whether or not they were present at the meeting at which such resolution was passed) and on all Couponholders.

The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 75 per cent. in principal amount of the Notes outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

 

(b)

Modification of the Trust Deed:

The Trustee may agree, without the consent of the Noteholders or Couponholders, (i) to any modification of any of the provisions of the Trust Deed or the Notes, or Coupons or these Conditions that is of a formal, minor or technical nature or is made to correct a manifest error, or (ii) if in the opinion of the Trustee the interests of the Noteholders will not be materially prejudiced thereby, to any other modification (except in relation to a Reserved Matter), and any waiver or authorisation of any breach or proposed breach of any of the provisions of the Trust Deed or the Notes, or Coupons or these Conditions, or determine that any Event of Default shall not be treated as such. Any such modification, authorisation or waiver shall be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such modification shall be notified to the Noteholders as soon as practicable.

 

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(c)

Substitution:

The Trust Deed contains provisions for the substitution of the Issuer. The Trustee may agree, subject to the execution of a deed or undertaking supplemental to the Trust Deed in form and manner satisfactory to the Trustee and such other conditions as the Trustee may require, but without the consent of the Noteholders or the Couponholders, to the substitution of the Issuer’s successor in business in place of the Issuer or of any previous substituted company, as principal debtor under the Trust Deed and the Notes. In the case of such a substitution the Trustee may agree, without the consent of the Noteholders or the Couponholders, to a change of the law governing the Notes, the Coupons, and/or the Trust Deed provided that such change would not in the opinion of the Trustee be materially prejudicial to the interests of the Noteholders.

 

(d)

Entitlement of the Trustee:

In connection with the exercise of its functions (including but not limited to those referred to in this Condition) the Trustee shall have regard to the interests of the Noteholders as a class and shall not have regard to the consequences of such exercise for individual Noteholders or Couponholders and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders.

 

11.	Enforcement

At any time after the occurrence of an Event of Default which is continuing, and, in the case of paragraph (ii) of Condition 9 (Events of Default) where the Trustee has certified (without liability on its part) that in its opinion such event is materially prejudicial to the interests of the Noteholders, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed, the Notes and the Coupons, but it need not take any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least one-quarter in principal amount of the Notes outstanding, and (b) it shall have been indemnified and/or secured and/or prefunded to its satisfaction. No Noteholder or Couponholder may proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

 

12.	Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility. The Trustee is entitled to enter into business transactions with the Issuer and any entity related to the Issuer without accounting for any profit.

The Trustee may rely without liability on a report, confirmation or certificate or any advice of any accountants, financial advisers, financial institution or any other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation or certificate or advice and such report, confirmation or certificate or advice shall be binding on the Issuer, the Trustee and the Noteholders.

 

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13.	Replacement of Notes and Coupons

If a Note or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws, regulations and stock exchange or other relevant authority regulations, at the specified office of the Principal Paying Agent in London or such other Paying Agent as the case may be, as may from time to time be designated by the Issuer for the purpose and notice of whose designation is given to Noteholders, in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence, security and indemnity (which may provide, inter alia, that if the allegedly lost, stolen or destroyed Note or Coupon is subsequently presented for payment, there shall be paid to the Issuer on demand the amount payable by the Issuer in respect of such Notes or Coupons) and otherwise as the Issuer may require. Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.

 

14.	Further Issues

The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects save for the Issue Date, interest commencement date and issue price) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes) or upon such different terms as the Issuer may determine at the time of their issue. References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the Notes. Any further issues may be constituted by the Trust Deed or any deed supplemental to it. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides.

 

15.

Notices

Notices to the holders of Notes shall be valid if published in a daily newspaper of general circulation in London (which is expected to be the Financial Times). If in the sole opinion of the Trustee any such publication is not practicable, notice shall be validly given if published in another leading daily English language newspaper with general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which publication is made, as provided above.

Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the holders of Notes in accordance with this Condition.

 

16.	Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

 

17.	Governing Law and Jurisdiction

 

(a)

Governing Law:

The Trust Deed, the Notes and the Coupons and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, English law.

 

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(b)

Jurisdiction:

The Courts of England are to have jurisdiction to settle any disputes that may arise out of or in connection with any Notes or Coupons and accordingly any legal action or proceedings arising out of or in connection with any Notes or Coupons may be brought in such courts. The Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of such courts.

 

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PART C

FORM OF ORIGINAL COUPON

[On the face of the Coupon:]

WESTERN POWER DISTRIBUTION PLC

£500,000,000 3.625 per cent. Notes due 2023

Coupon for £[amount of interest payment] due on 6 November [•].

Such amount is payable, subject to the terms and conditions (the “Conditions”) endorsed on the Note to which this Coupon relates (which are binding on the holder of this Coupon whether or not it is for the time being attached to such Note), against presentation and surrender of this Coupon at the specified office for the time being of any of the agents shown on the reverse of this Coupon (or any successor or additional agents appointed from time to time in accordance with the Conditions).

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

 

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[On the reverse of the Coupon:]

Principal Paying Agent: HSBC Bank Plc, 8 Canada Square, London E14 5HQ.

 

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SCHEDULE 3

PROVISIONS FOR MEETINGS OF NOTEHOLDERS

 

1.	Definitions

In this Trust Deed and the Conditions, the following expressions have the following meanings:

“Block Voting Instruction” means, in relation to any Meeting, a document in the English language issued by a Paying Agent:

 

(a)

certifying that certain specified Notes (each a “Deposited Note”) have been deposited with such Paying Agent (or to its order at a bank or other depositary) or blocked in an account with a clearing system and will not be released until the earlier of:

 

(i)

the conclusion of the Meeting; and

 

(ii)

the surrender to such Paying Agent, not less than 48 hours before the time fixed for the Meeting (or, if the Meeting has been adjourned, the time fixed for its resumption), of the receipt for the deposited or blocked Notes and notification thereof by such Paying Agent to the Issuer and the Trustee; and

 

(b)

certifying that the depositor of each Deposited Note or a duly authorised person on its behalf has instructed the relevant Paying Agent that the votes attributable to such Deposited Note are to be cast in a particular way on each resolution to be put to the Meeting and that, during the period of 48 hours before the time fixed for the Meeting, such instructions may not be amended or revoked;

 

(c)

listing the total number and (if in definitive form) the certificate numbers of the Deposited Notes, distinguishing for each resolution between those in respect of which instructions have been given to vote for, or against, the resolution; and

 

(d)

authorising a named individual or individuals to vote in respect of the Deposited Notes in accordance with such instructions;

“Chairman” means, in relation to any Meeting, the individual who takes the chair in accordance with paragraph 7 (Chairman);

“Extraordinary Resolution” means a resolution passed at a Meeting duly convened and held in accordance with this Schedule by a majority of not less than three quarters of the votes cast;

“Meeting” means a meeting of Noteholders (whether originally convened or resumed following an adjournment);

“Proxy” means, in relation to any Meeting, a person appointed to vote under a Block Voting Instruction other than:

 

(a)

any such person whose appointment has been revoked and in relation to whom the relevant Paying Agent has been notified in writing of such revocation by the time which is 48 hours before the time fixed for such Meeting; and

 

(b)

any such person appointed to vote at a Meeting which has been adjourned for want of a quorum and who has not been re-appointed to vote at the Meeting when it is resumed;

 

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“Relevant Fraction” means:

 

(a)

for all business other than voting on an Extraordinary Resolution, one tenth;

 

(b)

for voting on any Extraordinary Resolution other than one relating to a Reserved Matter, half; and

 

(c)

for voting on any Extraordinary Resolution relating to a Reserved Matter, three quarters;

provided, however, that, in the case of a Meeting which has resumed after adjournment for want of a quorum, it means:

 

(i)

for all business other than voting on an Extraordinary Resolution relating to a Reserved Matter, any proportion of the Notes which such Voters represent; and

 

(ii)

for voting on any Extraordinary Resolution relating to a Reserved Matter, one quarter;

“Reserved Matter” means any proposal:

 

(a)

to amend the dates of maturity or redemption of the Notes or any date for payment of interest or Interest Amounts on the Notes;

 

(b)

to reduce or cancel the principal amount of, or any premium payable on redemption of, the Notes;

 

(c)

to reduce the rate or rates or amount of interest in respect of the Notes or to vary the method or basis of calculating the rate or rates or amount of interest or the basis for calculating any Interest Amount in respect of the Notes;

 

(d)

to vary any method of, or basis for, calculating the Early Redemption Amount;

 

(e)

to vary the currency or currencies of payment or denomination of the Notes;

 

(f)

to sanction the exchange or substitution for the Notes of, or the conversion of the Notes into, shares, bonds or other obligations or securities of the Issuer, whether or not those rights arise under this Trust Deed;

 

(g)

to amend this definition; or

 

(h)

to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass the Extraordinary Resolution;

“Voter” means, in relation to any Meeting, the bearer of a Voting Certificate, a Proxy or the bearer of a definitive Note who produces such definitive Note at the Meeting;

 

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“Voting Certificate” means, in relation to any Meeting, a certificate in the English language issued by a Paying Agent and dated in which it is stated:

 

(a)

that certain specified Notes (the “Deposited Notes”) have been deposited with such Paying Agent (or to its order at a bank or other depositary) or blocked in an account with a clearing system and will not be released until the earlier of:

 

(i)

the conclusion of the Meeting; and

 

(ii)

the surrender of such certificate to such Paying Agent; and

 

(b)

that the bearer of such certificate is entitled to attend and vote at the Meeting in respect of the Deposited Notes;

“Written Resolution” means a resolution in writing signed by or on behalf of 75 per cent. of holders of Notes who for the time being are entitled to receive notice of a Meeting in accordance with the provisions of this Schedule, whether contained in one document or several documents in the same form, each signed by or on behalf of one or more such holders of the Notes;

“24 hours” means a period of 24 hours including all or part of a day (disregarding for this purpose the day upon which such Meeting is to be held) upon which banks are open for business in both the place where the relevant Meeting is to be held and in each of the places where the Paying Agents have their Specified Offices and such period shall be extended by one period or, to the extent necessary, more periods of 24 hours until there is included as aforesaid all or part of a day upon which banks are open for business as aforesaid; and

“48 hours” means 2 consecutive periods of 24 hours.

 

2.	Issue of Voting Certificates and Block Voting Instructions

The holder of a Note may obtain a Voting Certificate from any Paying Agent or require any Paying Agent to issue a Block Voting Instruction by depositing such Note with such Paying Agent or arranging for such Note to be (to its satisfaction) held to its order or under its control or blocked in an account with a clearing system not later than 48 hours before the time fixed for the relevant Meeting. A Voting Certificate or Block Voting Instruction shall be valid until the release of the deposited Notes to which it relates. So long as a Voting Certificate or Block Voting Instruction is valid, the bearer thereof (in the case of a Voting Certificate) or any Proxy named therein (in the case of a Block Voting Instruction) shall be deemed to be the holder of the Notes to which it relates for all purposes in connection with the Meeting. A Voting Certificate and a Block Voting Instruction cannot be outstanding simultaneously in respect of the same Note.

 

3.	References to deposit/release of Notes

Where Notes are within Euroclear or Clearstream, Luxembourg or any other clearing system, references to the deposit, or release, of Notes shall be construed in accordance with the usual practices (including blocking the relevant account) of Euroclear or Clearstream, Luxembourg or such other clearing system.

 

4.	Validity of Block Voting Instructions

Block Voting Instruction shall be valid only if deposited at the Specified Office of the relevant Paying Agent or at some other place approved by the Trustee, at least 24 hours before the time fixed for the relevant Meeting or the Chairman decides otherwise before the Meeting proceeds to business. If the Trustee requires, a notarised copy of each Block Voting Instruction and satisfactory proof of the identity of each Proxy named therein shall be produced at the Meeting, but the Trustee shall not be obliged to investigate the validity of any Block Voting Instruction or the authority of any Proxy.

 

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5.	Convening of Meeting

The Issuer or the Trustee may convene a Meeting at any time, and the Trustee shall be obliged to do so subject to its being indemnified and/or secured and/or pre-funded to its satisfaction upon the request in writing of Noteholders holding not less than one tenth of the aggregate principal amount of the outstanding Notes. Every Meeting shall be held on a date, and at a time and place, approved by the Trustee.

 

6.

Notice

At least 21 days’ notice (exclusive of the day on which the notice is given and of the day on which the relevant Meeting is to be held) specifying the date, time and place of the Meeting shall be given to the Noteholders and the Paying Agents (with a copy to the Issuer) where the Meeting is convened by the Trustee or, where the Meeting is convened by the Issuer, the Trustee. The notice shall set out the full text of any resolutions to be proposed unless the Trustee agrees that the notice shall instead specify the nature of the resolutions without including the full text and shall state that the Notes may be deposited with, or to the order of, any Paying Agent for the purpose of obtaining Voting Certificates or appointing Proxies not later than 48 hours before the time fixed for the Meeting.

 

7.

Chairman

An individual (who may, but need not, be a Noteholder) nominated in writing by the Trustee may take the chair at any Meeting but, if no such nomination is made or if the individual nominated is not present within 15 minutes after the time fixed for the Meeting, those present shall elect one of themselves to take the chair failing which, the Issuer may appoint a Chairman. The Chairman of an adjourned Meeting need not be the same person as was the Chairman of the original Meeting.

 

8.

Quorum

The quorum at any Meeting shall be at least two Voters representing or holding not less than the Relevant Fraction of the aggregate principal amount of the outstanding Notes; provided, however, that, so long as at least the Relevant Fraction of the aggregate principal amount of the outstanding Notes is represented by the Temporary Global Note and the Permanent Global Note a single Voter appointed in relation thereto or being the holder of the Notes represented thereby shall be deemed to be two Voters for the purpose of forming a quorum.

 

9.	Adjournment for want of quorum

If within 15 minutes after the time fixed for any Meeting a quorum is not present, then:

 

(a)

in the case of a Meeting requested by Noteholders, it shall be dissolved; and

 

(b)

in the case of any other Meeting (unless the Issuer and the Trustee otherwise agree), it shall be adjourned for such period (which shall be not less than 14 days and not more than 42 days) and to such place as the Chairman determines (with the approval of the Trustee); provided, however, that:

 

(i)

the Meeting shall be dissolved if the Issuer and the Trustee together so decide; and

 

(ii)

no Meeting may be adjourned more than once for want of a quorum.

 

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10.	Adjourned Meeting

The Chairman may, with the consent of, and shall if directed by, any Meeting adjourn such Meeting from time to time and from place to place, but no business shall be transacted at any adjourned Meeting except business which might lawfully have been transacted at the Meeting from which the adjournment took place.

 

11.	Notice following adjournment

Paragraph 6 (Notice) shall apply to any Meeting which is to be resumed after adjournment for want of a quorum save that:

 

(a)

10 days’ notice (exclusive of the day on which the notice is given and of the day on which the Meeting is to be resumed) shall be sufficient; and

 

(b)

the notice shall specifically set out the quorum requirements which will apply when the Meeting resumes.

It shall not be necessary to give notice of the resumption of a Meeting which has been adjourned for any other reason.

 

12.	Participation

The following may attend and speak at a Meeting:

 

(a)

Voters;

 

(b)

representatives of the Issuer and the Trustee;

 

(c)

the financial advisers of the Issuer and the Trustee;

 

(d)

the legal counsel to the Issuer and the Trustee and such advisers;

 

(e)

the representatives of the Principal Paying Agent and the legal counsel to the Principal Paying Agent; and

 

(f)

any other person approved by the Meeting or the Trustee.

 

13.	Show of hands

Every question submitted to a Meeting shall be decided in the first instance by a show of hands. Unless a poll is validly demanded before or at the time that the result is declared, the Chairman’s declaration that on a show of hands a resolution has been passed, passed by a particular majority, rejected or rejected by a particular majority shall be conclusive, without proof of the number of votes cast for, or against, the resolution. Where there is only one Voter, this paragraph shall not apply and the resolution will immediately be decided by means of a poll.

 

14.

Poll

A demand for a poll shall be valid if it is made by the Chairman, the Issuer, the Trustee or one or more Voters representing or holding not less than one fiftieth of the aggregate principal

 

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amount of the outstanding Notes. The poll may be taken immediately or after such adjournment as the Chairman directs, but any poll demanded on the election of the Chairman or on any question of adjournment shall be taken at the Meeting without adjournment. A valid demand for a poll shall not prevent the continuation of the relevant Meeting for any other business as the Chairman directs.

 

15.

Votes

Every Voter shall have:

 

(a)

on a show of hands, one vote; and

 

(b)

on a poll, one vote in respect of each £1,000 in aggregate face amount of the outstanding Note(s) represented or held by him.

Unless the terms of any Block Voting Instruction state otherwise, a Voter shall not be obliged to exercise all the votes to which he is entitled or to cast all the votes which he exercises in the same way. In the case of a voting tie the Chairman shall have a casting vote.

 

16.	Validity of Votes by Proxies

Any vote by a Proxy in accordance with the relevant Block Voting Instruction shall be valid even if such Block Voting Instruction or any instruction pursuant to which it was given has been amended or revoked, provided that neither the Issuer, the Trustee nor the Chairman has been notified in writing of such amendment or revocation by the time which is 24 hours before the time fixed for the relevant Meeting. Unless revoked, any appointment of a Proxy under a Block Voting Instruction in relation to a Meeting shall remain in force in relation to any resumption of such Meeting following an adjournment; provided, however, that no such appointment of a Proxy in relation to a Meeting originally convened which has been adjourned for want of a quorum shall remain in force in relation to such Meeting when it is resumed. Any person appointed to vote at such a Meeting must be re-appointed under a Block Voting Instruction to vote at the Meeting when it is resumed.

 

17.

Powers

A Meeting shall have power (exercisable only by Extraordinary Resolution), without prejudice to any other powers conferred on it or any other person:

 

(a)

to approve any Reserved Matter;

 

(b)

to approve any proposal by the Issuer for any modification, abrogation, variation or compromise of any provisions of this Trust Deed or the Conditions or any arrangement in respect of the obligations of the Issuer under or in respect of the Notes;

 

(c)

(other than as permitted under Clause 6.3 of this Trust Deed) to approve the substitution of any person for the Issuer (or any previous substitute) as principal obligor under the Notes;

 

(d)

to waive any breach or authorise any proposed breach by the Issuer of its obligations under or in respect of this Trust Deed or the Notes or any act or omission which might otherwise constitute an Event of Default under the Notes;

 

(e)

to remove any Trustee;

 

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(f)

to approve the appointment of a new Trustee;

 

(g)

to authorise the Trustee (subject to its being indemnified and/or secured and/or pre-funded to its satisfaction) or any other person to execute all documents and do all things necessary to give effect to any Extraordinary Resolution;

 

(h)

to discharge or exonerate the Trustee from any liability in respect of any act or omission for which it may become responsible under this Trust Deed or the Notes;

 

(i)

to give any other authorisation or approval which under this Trust Deed or the Notes is required to be given by Extraordinary Resolution; and

 

(j)

to appoint any persons as a committee to represent the interests of the Noteholders and to confer upon such committee any powers which the Noteholders could themselves exercise by Extraordinary Resolution.

 

18.	Extraordinary Resolution binds all holders

An Extraordinary Resolution shall be binding upon all Noteholders and Couponholders, whether or not present at such Meeting, and each of the Noteholders shall be bound to give effect to it accordingly. Notice of the result of every vote on an Extraordinary Resolution shall be given to the Noteholders and the Paying Agents (with a copy to the Issuer and the Trustee) within 14 days of the conclusion of the Meeting.

 

19.

Minutes

Minutes of all resolutions and proceedings at each Meeting shall be made. The Chairman shall sign the minutes, which shall be prima facie evidence of the proceedings recorded therein. Unless and until the contrary is proved, every such Meeting in respect of the proceedings of which minutes have been summarised and signed shall be deemed to have been duly convened and held and all resolutions passed or proceedings transacted at it to have been duly passed and transacted.

 

20.	Written Resolution

A Written Resolution shall take effect as if it were an Extraordinary Resolution.

 

21.	Further regulations

Subject to all other provisions contained in this Trust Deed, the Trustee may without the consent of the Issuer or the Noteholders prescribe such further regulations regarding the holding of Meetings of Noteholders and attendance and voting at them as the Trustee may in its sole discretion determine.

 

22.	Several series

The following provisions shall apply where outstanding Notes belong to more than one series:

 

(a)

Business which in the opinion of the Trustee affects the Notes of only one series shall be transacted at a separate Meeting of the holders of the Notes of that series.

 

(b)

Business which in the opinion of the Trustee affects the Notes of more than one series but does not give rise to an actual or potential conflict of interest between the holder of Notes of one such series and the holders of Notes of any other such series shall be

 

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transacted either at separate Meetings of the holders of the Notes of each such series or at a single Meeting of the holders of the Notes of all such Series, as the Trustee shall in its absolute discretion determine.

 

(c)

Business which in the opinion of the Trustee affects the Notes of more than one series and gives rise to an actual or potential conflict of interest between the holders of Notes of one such series and the holders of Notes of any other such series shall be transacted at separate Meetings of the holders of the Notes of each such series.

 

(d)

The preceding paragraphs of this Schedule shall be applied as if references to the Notes and Noteholders were to the Notes of the relevant series and to the holders of such Notes.

 

(e)

In this paragraph, “business” includes (without limitation) the passing or rejection of any resolution.

 

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Signatories

 

WESTERN POWER DISTRIBUTION PLC
EXECUTED as a deed by		)
WESTERN POWER		)
DISTRIBUTION PLC		)
Acting by		)
and		)				Director
						Director  / Secretary

 

HSBC CORPORATE TRUSTEE COMPANY (UK) LIMITED
Signed as a deed by                                  as authorised signatory for HSBC CORPORATE TRUSTEE COMPANY (UK) LIMITED in the presence of:

		Signature of witness
		Name of witness
		Address of witness
		Occupation of witness

Exhibit 4.2

 

		CLIFFORD CHANCE LLP

EXECUTION VERSION

WESTERN POWER DISTRIBUTION PLC

£500,000,000

3.625 PER CENT. NOTES DUE 2023

 

 

AGENCY AGREEMENT

 

 

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CONTENTS

 

Clause				Page
1.		Interpretation			1
2.		Appointment of the Paying Agents			4
3.		The Notes			4
4.		Delivery of Permanent Global Note and Definitive Notes			5
5.		Replacement Notes and Coupons			6
6.		Payments to the Principal Paying Agent			7
7.		Payments to Noteholders			8
8.		Miscellaneous Duties of the Paying Agents			11
9.		Fees and Expenses			14
10.		Terms of Appointment			15
11.		Changes in Paying Agents			19
12.		Notices			21
13.		Law and Jurisdiction			22
14.		Rights of Third Parties			22
15.		Modification			23
16.		Counterparts			23
Schedule 1 Form of Put Event Notice					24
Schedule 2 Form of Put Event Receipt					26
Schedule 3 Specified Offices of the Paying Agents					27
Schedule 4 Duties under the Issuer-ICSDs Agreement					28

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THIS AGREEMENT is made on 6 November 2015

BETWEEN

 

(1)	WESTERN POWER DISTRIBUTION PLC (the “Issuer”);

 

(2)	HSBC BANK PLC in its capacity as principal paying agent (the “Principal Paying Agent”); and

 

(3)	HSBC CORPORATE TRUSTEE COMPANY (UK) LIMITED in its capacity as trustee (the “Trustee”) which expression includes any other trustee for the time being of the Trust Deed referred to below.

WHEREAS

 

(A)	The Issuer has authorised the creation and issue of £500,000,000 in aggregate principal amount of 3.625 per cent. Notes due 2023 (the “Notes”).

 

(B)	The Notes will be subject to, and have the benefit of, a trust deed dated 6 November 2015 (as amended or supplemented from time to time, the “Trust Deed”) and made between the Issuer and the Trustee.

 

(C)

The Notes will be in bearer form and in denominations of £100,000 and integral multiples of £1,000 in excess thereof (up to and including £199,000. The Notes will initially be in the form of a temporary global note (the “Temporary Global Note”), interests in which will be exchangeable for interests in a permanent global note (the “Permanent Global Note”) in the circumstances specified in the Temporary Global Note. The Permanent Global Note will in turn be exchangeable for notes in definitive form (“Definitive Notes”), with interest coupons (“Coupons”) attached, only in certain limited circumstances specified in the Permanent Global Note.

 

(D)	The Issuer, the Principal Paying Agent and the Trustee wish to record certain arrangements which they have made in relation to the Notes.

 

(E)	This is the Agency Agreement referred to in the Trust Deed.

IT IS AGREED as follows:

 

1.	INTERPRETATION

 

1.1	Definitions

In this Agreement the following expressions have the following meanings:

“£” or “Sterling” or “GBP” denotes the lawful currency for the time being of the United Kingdom;

“Clearstream, Luxembourg” means Clearstream Banking S.A.;

“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time;

“Common Safekeeper” means an ICSD in its capacity as common safekeeper or a person nominated by the ICSDs to perform the role of common safekeeper;

 

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“Common Service Provider” means a person nominated by the ICSDs to perform the role of common service provider;

“Conditions” means the Terms and Conditions of the Notes (as scheduled to the Trust Deed and as modified from time to time in accordance with their terms), and any reference to a numbered “Condition” is to the correspondingly numbered provision thereof;

“Euroclear” means Euroclear Bank S.A./N.V.;

“Exchange Date” means the first day following the expiry of 40 days after the issue of the Notes;

“FATCA” means Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, any law implementing an intergovernmental approach thereto, in each case, as amended from time to time, and an agreement described in Section 1471(b) of the Code;

“FATCA Withholding” means any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the Code or otherwise imposed pursuant to Sections 1471 through 1474 of the Code (or any regulations thereunder or official interpretations thereof) or an intergovernmental agreement between the United States and another jurisdiction facilitating the implementation thereof (or any law implementing such an intergovernmental agreement);

“ICSDs” means Clearstream, Luxembourg and Euroclear;

“Local Banking Day” means a day (other than a Saturday or a Sunday) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the city in which the Principal Paying Agent has its Specified Office;

“Local Time” means the time in the city in which the Principal Paying Agent has its Specified Office;

“Noteholders” means the holders of the Notes for the time being;

“Paying Agent” means any institution in its respective Specified Office appointed as paying agent pursuant to this Agreement (including, for the avoidance of doubt, the Principal Paying Agent), and includes any successors thereto appointed from time to time in accordance with Clause 11 (Changes in Paying Agents);

“PRA” means the United Kingdom Prudential Regulation Authority;

“Principal Paying Agent’s Group” means collectively and individually, HSBC Holdings plc, its affiliates, subsidiaries, associated entities and any of their branches and offices, and “any member of the HSBC Group” has the same meaning;

“Put Event Notice” means a notice of exercise relating to the put option contained in Condition 5(d) (Redemption at the option of Noteholders), substantially in the form set out in Schedule 1 (Form of Put Event Notice) or such other form as may from time to time be agreed between the Issuer, the Principal Paying Agent and the Trustee and distributed to each Paying Agent;

“Put Event Receipt” means a receipt delivered by a Paying Agent in relation to a Definitive Note which is the subject of a Put Event Notice, substantially in the form set out in Schedule 2 (Form of Put Event Receipt) or such other form as may from time to time be agreed between the Issuer, the Principal Paying Agent and the Trustee and distributed to each Paying Agent;

 

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“Required Paying Agent” means any Paying Agent (which may be the Principal Paying Agent) which is the sole remaining Paying Agent with its Specified Office in any city where a stock exchange on which the Notes are listed requires there to be a Paying Agent;

“Specified Office” means, in relation to any Paying Agent:

 

(a)

the office specified against its name in Schedule 3 (Specified Offices of the Paying Agents); or

 

(b)

such other office as such Paying Agent may specify in accordance with Clause 11.8 (Changes in Specified Offices); and

“Successor” means, in relation to any person, an assignee or successor in title of such person who, under the law of its jurisdiction of incorporation or domicile, has assumed the rights and obligations of such person under this Agreement or to which under such laws the same have been transferred.

 

1.2

Records

Any reference in this Agreement to the records of an ICSD shall be to the records that each of the ICSDs holds for its customers which reflect the amount of such customers’ interests in the Notes (but excluding any interest in any Notes of one ICSD shown in the records of another ICSD).

 

1.3	Clauses and Schedules

Any reference in this Agreement to a Clause or a sub-clause or a Schedule is, unless otherwise stated, to a clause or a sub-clause hereof or a schedule hereto.

 

1.4	Principal and interest

In this Agreement, any reference to principal or interest includes any additional amounts payable in relation thereto under the Conditions.

 

1.5	Terms defined in the Conditions and the Trust Deed

Terms and expressions used but not defined herein have the respective meanings given to them in the Conditions and the Trust Deed.

 

1.6

Statutes

Any reference in this Agreement to any legislation (whether primary legislation or regulations or other subsidiary legislation made pursuant to primary legislation) shall be construed as a reference to such statute, provision, statutory instrument, order or regulation as the same may have been, or may from time to time be, amended or re-enacted.

 

1.7

Headings

Headings and sub-headings are for ease of reference only and shall not affect the construction of this Agreement.

 

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1.8

Liability

All references in this Agreement to wilful default or fraud or gross negligence means a finding to such effect by a court of competent jurisdiction in relation to the conduct of the relevant party.

 

1.9	Successors

Each party to this Agreement shall include any Successor thereto.

 

2.	APPOINTMENT OF THE PAYING AGENTS

 

2.1	Appointment

The Issuer and, for the purposes of Clause 7.8 (Paying Agents to act for Trustee) only, the Trustee appoints each Paying Agent as its agent in relation to the Notes for the purposes specified in this Agreement and in the Conditions.

 

2.2	Acceptance of appointment

Each Paying Agent accepts its appointment as agent of the Issuer and, in respect of Clause 7.8 (Paying Agents to act for Trustee) only, the Trustee in relation to the Notes and agrees to comply with the provisions of this Agreement.

 

2.3	Obligations several

The obligations of the Paying Agents are several and not joint.

 

2.4	Notices of Change of Trustee

The Issuer shall forthwith give notice to each Paying Agent of any change in the person or persons comprising the Trustee.

 

3.

THE NOTES

 

3.1	Availability

The Issuer shall arrange for the unauthenticated, uneffectuated Permanent Global Note to be made available to or to the order of the Principal Paying Agent not later than 10 days before the Exchange Date. If the Issuer is required to deliver Definitive Notes pursuant to the terms of the Permanent Global Note, the Issuer shall arrange for £500,000,000 in aggregate principal amount of unauthenticated Definitive Notes to be made available to or to the order of the Principal Paying Agent as soon as practicable and in any event not later than 30 days after the bearer of the Permanent Global Note has requested its exchange for Definitive Notes. The Issuer shall also arrange for such unauthenticated and, if applicable, uneffectuated Temporary Global Notes, Permanent Global Notes, Definitive Notes and Coupons as are required to enable the Principal Paying Agent to perform its obligations under Clause 5 (Replacement Notes and Coupons) to be made available to or to the order of the Principal Paying Agent from time to time.

 

3.2	Duties of Principal Paying Agent

The Principal Paying Agent shall hold in safe keeping all unauthenticated and, if applicable, uneffectuated Temporary Global Notes, Permanent Global Notes, Definitive Notes and Coupons delivered to it in accordance with Clause 3.1 (Availability) and shall ensure that they

 

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are authenticated (in the case of Temporary Global Notes, Permanent Global Notes and Definitive Notes), effectuated (in the case of Temporary Global Notes and Permanent Global Notes) and delivered only in accordance with the terms hereof, of the Conditions and of the Temporary Global Note or (as the case may be) the Permanent Global Note.

 

3.3	Authority to authenticate and effectuate

The Principal Paying Agent is authorised by the Issuer to authenticate and, to effectuate, the Temporary Global Note and the Permanent Global Note, any replacement therefor and each Definitive Note by the signature of any of its officers or any other person duly authorised for the purpose by the Principal Paying Agent.

 

4.	DELIVERY OF PERMANENT GLOBAL NOTE AND DEFINITIVE NOTES

 

4.1	Delivery of Permanent Global Note

Subject to receipt by the Principal Paying Agent of the Permanent Global Note in accordance with Clause 3.1 (Availability), the Principal Paying Agent shall, against presentation or (as the case may be) surrender to it or to its order of the Temporary Global Note and in accordance with the terms thereof, authenticate and deliver to the Common Safekeeper the Permanent Global Note in the aggregate principal amount required by the terms of the Temporary Global Note (together with an instruction to the Common Safekeeper to effectuate the Permanent Global Note) or, if the Permanent Global Note has already been issued in exchange for part only of the Temporary Global Note, instruct the ICSDs (in accordance with Schedule 4 (Duties under the Issuer-ICSDs Agreement)) to make appropriate entries in their records to reflect such aggregate principal amount.

 

4.2	Exchange of Temporary Global Note and Permanent Global Note

On each occasion on which the Permanent Global Note is delivered pursuant to Clause 4.1 (Delivery of Permanent Global Note) or a further exchange of interests in the Temporary Global Note for interests in the Permanent Global Note is made the Principal Paying Agent shall instruct the ICSDs (in accordance with Schedule 4 (Duties under the Issuer-ICSDs Agreement)) to make appropriate entries in their records to reflect the aggregate principal amount of the Permanent Global Note so delivered (the “relevant principal amount”), the new aggregate principal amount of the Permanent Global Note (which shall be the previous principal amount thereof plus the relevant principal amount) and the remaining principal amount of the Temporary Global Note (which shall be the previous principal amount thereof less the relevant principal amount). The Principal Paying Agent shall cancel or procure the cancellation of the Temporary Global Note when and if it has made full exchange thereof for interests in the Permanent Global Note.

 

4.3	Delivery of Definitive Notes

Subject to receipt by the Principal Paying Agent of Definitive Notes in accordance with Clause 3.1 (Availability), the Principal Paying Agent shall, against presentation or (as the case may be) surrender to it or to its order of the Permanent Global Note and in accordance with the terms thereof, authenticate and deliver Definitive Notes in the required aggregate principal amount to the bearer of the Permanent Global Note; provided, however, that each Definitive Note shall at the time of its delivery have attached thereto only such Coupons as shall ensure that neither loss nor gain accrues to the bearer thereof.

 

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4.4	Exchange of Permanent Global Note for Definitive Notes

On each occasion on which Definitive Notes are delivered in exchange for the Permanent Global Note, the Principal Paying Agent shall instruct the ICSDs (in accordance with the provisions of Schedule 4 (Duties under the Issuer-ICSDs Agreement)) to make appropriate entries in their records to reflect the aggregate principal amount of Definitive Notes so delivered (the “relevant principal amount”) and the remaining principal amount of the Permanent Global Note (which shall be the previous principal amount thereof less the relevant principal amount). The Principal Paying Agent shall cancel or procure the cancellation of the Permanent Global Note when and if it has made full exchange for Definitive Notes.

 

4.5	Election of Common Safekeeper

The Issuer hereby authorises and instructs the Principal Paying Agent to elect an ICSD to be Common Safekeeper for the Temporary Global Note and the Permanent Global Note. From time to time, the Issuer and the Principal Paying Agent may agree to vary this election. The Issuer acknowledges that in connection with the election of either of the ICSDs as Common Safekeeper any such election is subject to the right of the ICSDs to jointly determine that the other shall act as Common Safekeeper in relation to any such issue and agrees that no liability shall attach to the Principal Paying Agent in respect of any such election made by it.

 

5.	REPLACEMENT NOTES AND COUPONS

 

5.1	Delivery of Replacements

Subject to receipt of sufficient replacement Temporary Global Notes, Permanent Global Notes, Definitive Notes and Coupons in accordance with Clause 3.1 (Availability), the Principal Paying Agent shall, upon and in accordance with the instructions of the Issuer (which instructions may, without limitation, include terms as to the payment of expenses and as to evidence, security and indemnity), authenticate (if necessary) and deliver a Temporary Global Note, Permanent Global Note, Definitive Note or Coupon as a replacement for any Temporary Global Note, Permanent Global Note, Definitive Note or Coupon which has been mutilated or defaced or which is alleged to have been destroyed, stolen or lost; provided, however, that:

 

5.1.1

Surrender or destruction: no Temporary Global Note, Permanent Global Note, Definitive Note or Coupon, as the case may be, shall be delivered as a replacement for any Temporary Global Note, Permanent Global Note, Definitive Note or Coupon which has been mutilated or defaced otherwise than against surrender of the same or, in the case of a Temporary Global Note or Permanent Global Note, appropriate confirmation of destruction from the Common Safekeeper and in any case the Principal Paying Agent shall not issue any replacement Temporary Global Note, Permanent Global Note, Definitive Note or Coupon until the applicant has furnished the Principal Paying Agent with such evidence and indemnity as the Issuer and/or the Principal Paying Agent may reasonably require and has paid such costs and expenses as may be incurred in connection with such replacement; and

 

5.1.2

Effectuation: any replacement Temporary Global Note or Permanent Global Note shall be delivered to the Common Safekeeper together with instructions to effectuate it.

 

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5.2	Replacements to be numbered

Each replacement Temporary Global Note, Permanent Global Note, Definitive Note or Coupon delivered under this Agreement shall bear a unique certificate or (as the case may be) serial number.

 

5.3	Cancellation of mutilated or defaced Notes

The Principal Paying Agent shall cancel each mutilated or defaced Temporary Global Note, Permanent Global Note, Definitive Note or Coupon surrendered to it in respect of which a replacement has been delivered.

 

5.4	Notification

The Principal Paying Agent shall, upon request notify the Issuer, each other Paying Agent and the Trustee of the delivery by it of any replacement Temporary Global Note, Permanent Global Note, Definitive Note or Coupon specifying the certificate or serial number thereof and the certificate or serial number (if any and if known) of the Temporary Global Note, Permanent Global Note, Definitive Note or Coupon which it replaces and confirming that the Temporary Global Note, Permanent Global Note, Definitive Note or Coupon which it replaces has been cancelled and (if such is the case) destroyed in accordance with Clause 8.8 (Destruction).

 

6.	PAYMENTS TO THE PRINCIPAL PAYING AGENT

 

6.1	Issuer to pay the Principal Paying Agent

In order to provide for the payment of principal and interest in respect of the Notes as the same becomes due and payable, the Issuer shall pay to the Principal Paying Agent, on or before the date which is one Local Banking Day before the day on which such payment becomes due, an amount equal to the amount of principal and/or (as the case may be) interest falling due in respect of the Notes on such date in immediately available funds. In this Clause, the date on which a payment in respect of the Notes becomes due means the first date on which the holder of a Note or Coupon could claim the relevant payment by transfer to an account under the Conditions.

 

6.2	Manner and time of payment

Each amount payable under Clause 6.1 (Issuer to pay the Principal Paying Agent) shall be paid unconditionally by credit transfer in Sterling and in immediately available, freely transferable, cleared funds not later than 10.00 a.m. (London time) on the relevant day (or by such earlier time as may be determined by the Principal Paying Agent in its absolute discretion) to such account with such bank in London as the Principal Paying Agent may from time to time by notice to the Issuer (with a copy to the Trustee) specify for such purpose. The Issuer shall, before 10.00 a.m. (London Time) on the second Local Banking Day before the due date of each payment by it under Clause 6.1 (Issuer to pay the Principal Paying Agent), procure that the bank effecting payment for it confirms by authenticated SWIFT message to the Principal Paying Agent the payment instructions relating to such payment.

If any payment provided for in Clause 6.1 (Issuer to pay the Principal Paying Agent) is made late but otherwise in accordance with the provisions of this Agreement, the Principal Paying Agent and each Paying Agent shall nevertheless make payments in respect of the Notes as aforesaid following receipt by it of such payment.

 

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6.3	Exclusion of liens and interest

The Principal Paying Agent shall be entitled to deal with each amount paid to it under this Clause 6 (Payments to the Principal Paying Agent) in the same manner as other amounts paid to it as a banker by its customers; provided, however, that:

 

6.3.1

it shall not exercise against the Issuer any lien, right of set-off or similar claim in respect thereof; and

 

6.3.2

it shall not be liable to any person for interest thereon.

No monies held by any Paying Agent need be segregated except as required by law.

 

6.4	Application by Principal Paying Agent

The Principal Paying Agent shall apply each amount paid to it under this Clause 6 (Payments to the Principal Paying Agent) in accordance with Clause 7 (Payments to Noteholders) and shall not be obliged to repay any such amount unless the claim for the relevant payment becomes void under Condition 8 (Prescription), in which event it shall refund at the written request of the Issuer such portion of such amount as relates to such payment by paying the same by credit transfer in Sterling to such account with such bank in London as the Issuer has by notice to the Principal Paying Agent specified for the purpose.

 

6.5	Failure to confirm payment instructions

If the Principal Paying Agent has not, by 12.00 noon (Local Time) on the second Local Banking Day before the due date of any payment to it under Clause 6.1 (Issuer to pay the Principal Paying Agent), received confirmation of the relevant payment instructions referred to in Clause 6.2 (Manner and time of payment), it shall forthwith notify the Issuer, the Trustee and each other Paying Agent. If the Principal Paying Agent subsequently receives confirmation of such payment instructions, it shall forthwith notify the Issuer, the Trustee and each other Paying Agent.

 

7.	PAYMENTS TO NOTEHOLDERS

 

7.1	Payments by the Paying Agents

Each Paying Agent acting through its Specified Office shall make payments of principal and interest in respect of the Notes in accordance with the Conditions (and, in the case of the Temporary Global Note or the Permanent Global Note, the terms thereof); provided, however, that:

 

7.1.1

if any Definitive Note or Coupon is presented or surrendered for payment to any Paying Agent and such Paying Agent has delivered a replacement therefor or has been notified that the same has been replaced, such Paying Agent shall forthwith notify, upon request, the Issuer of such presentation or surrender and shall not make payment against the same until it is so instructed by the Issuer and the Principal Paying Agent has received the amount to be so paid;

 

7.1.2

a Paying Agent shall not be obliged (but shall be entitled) to make such payments of principal or interest in respect of the Notes, if:

 

(a)

in the case of the Principal Paying Agent, it has not received the full amount of any payment due to it under Clause 6.1 (Issuer to pay the Principal Paying Agent); or

 

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(b)

in the case of any other Paying Agent:

 

(i)

it has been notified in accordance with Clause 6.5 (Failure to confirm payment instructions) that confirmation of the relevant payment instructions has not been received, unless it is subsequently notified that confirmation of such payment instructions has been received; or

 

(ii)

it is not able to establish that the Principal Paying Agent has received (whether or not at the due time) the full amount of any payment due to it under Clause 6.1 (Issuer to pay the Principal Paying Agent);

 

7.1.3

each Paying Agent shall cancel each Definitive Note or Coupon against surrender of which it has made full payment and shall, in the case of a Paying Agent other than the Principal Paying Agent, deliver each Definitive Note or Coupon so cancelled by it to, or to the order of, the Principal Paying Agent;

 

7.1.4

upon any payment being made in respect of the Temporary Global Note or the Permanent Global Note, the relevant Paying Agent shall instruct the ICSDs (in accordance with Schedule 4 (Duties under the Issuer-ICSDs Agreement)) to make appropriate entries in their records to reflect the amount of such payment and, in the case of payment of principal, the remaining principal amount of the Notes represented by such Temporary Global Note or Permanent Global Note (which shall be the previous principal amount thereof less the principal amount in respect of which payment has then been paid); and

 

7.1.5

notwithstanding any other provision of this Agreement, each Paying Agent shall be entitled to make a deduction or withholding from any payment which it makes under this Agreement for or on account of any present or future taxes, duties or charges if and to the extent so required by applicable law or by FATCA, in which event such Paying Agent shall make such payment after such withholding or deduction has been made and shall account to the relevant authorities for the amount so withheld or deducted.

 

7.2	Exclusion of liens

No Paying Agent shall exercise any lien, right of set-off or similar claim against any person to whom it makes any payment under Clause 7.1 (Payments by the Paying Agents) in respect thereof.

 

7.3	Reimbursement by the Principal Paying Agent

If a Paying Agent other than the Principal Paying Agent makes any payment in accordance with Clause 7.1 (Payments by the Paying Agents):

 

7.3.1

it shall notify the Principal Paying Agent of the amount so paid by it, the certificate or serial number (if any) of the Temporary Global Note, Permanent Global Note, Definitive Note or Coupon against presentation or surrender of which payment of principal was made, or of the Temporary Global Note, Permanent Global Note or Definitive Note against presentation or surrender of which payment of interest was made, and the number of Coupons by maturity against presentation or surrender of which payment of interest was made;

 

7.3.2

subject to and to the extent of compliance by the Issuer with Clause 6.1 (Issuer to pay the Principal Paying Agent) (whether or not at the due time), the Principal Paying Agent shall pay to such Paying Agent out of the funds received by it under Clause 6.1

 

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(Issuer to pay the Principal Paying Agent), by credit transfer in Sterling and in immediately available, freely transferable, cleared funds to such account with such bank in London as such Paying Agent has by notice to the Principal Paying Agent specified for the purpose, an amount equal to the amount so paid by such Paying Agent.

 

7.4	Appropriation by the Principal Paying Agent

If the Principal Paying Agent makes any payment in accordance with Clause 7.1 (Payments by the Paying Agents), it shall be entitled to appropriate for its own account out of the funds received by it under Clause 6.1 (Issuer to pay the Principal Paying Agent) an amount equal to the amount so paid by it.

 

7.5	Reimbursement by Issuer

Subject to sub-clauses 7.1.1 and 7.1.2 (Payments by the Paying Agents), if a Paying Agent makes a payment in respect of Notes on or after the due date for such payment under the Conditions at a time at which the Principal Paying Agent has not received the full amount of the relevant payment due to it under Clause 6.1 (Issuer to pay the Principal Paying Agent) and the Principal Paying Agent is not able out of funds received by it under Clause 6.1 (Issuer to pay the Principal Paying Agent) to reimburse such Paying Agent therefor (whether by payment under Clause 7.3 (Reimbursement by the Principal Paying Agent) or appropriation under Clause 7.4 (Appropriation by the Principal Paying Agent), the Issuer shall from time to time on demand pay to the Principal Paying Agent for account of such Paying Agent:

 

7.5.1

the amount so paid out by such Paying Agent and not so reimbursed to it; and

 

7.5.2

interest on such amount from the date on which such Paying Agent made such payment until the date of reimbursement of such amount;

provided, however, that any payment made under sub-clause 7.5.1 above shall satisfy pro tanto the obligations of the Issuer under Clause 6.1 (Issuer to pay the Principal Paying Agent).

 

7.6

Interest

Interest shall accrue for the purpose of sub-clause 7.5.2 (Reimbursement by Issuer) (as well after as before judgment) at the rate per annum equal to the cost of the Principal Paying Agent of funding such amount, as certified by the Principal Paying Agent. Such interest shall be compounded daily.

 

7.7	Partial payments

If at any time and for any reason a Paying Agent makes a partial payment in respect of the Temporary Global Note, the Permanent Global Note or any Definitive Note or Coupon presented or surrendered for payment to or to the order of that Paying Agent, such Paying Agent shall, in the case of the Temporary Global Note and/or the Permanent Global Note, instruct the ICSDs (in accordance with the provisions of Schedule 4 (Duties under the Issuer-ICSDs Agreement)) to make appropriate entries in their respective records to reflect such partial payments and, in the case of any Definitive Note or Coupon, enface thereon a statement indicating the amount and date of such payment.

 

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7.8	Paying Agents to act for Trustee

If any Event of Default occurs, the Paying Agents shall, if so required by notice given by the Trustee to the Issuer and the Paying Agents (or such of them as are specified by the Trustee):

 

7.8.1

act thereafter, until otherwise instructed by the Trustee, as the agents of the Trustee in relation to payments to be made by or on behalf of the Trustee under the Trust Deed (save that the Trustee’s liability for the indemnification, remuneration and/or payment of out-of pocket expenses of any of the Paying Agents shall be limited to the amounts for the time being held by the Trustee on the trusts of the Trust Deed and available to the Trustee for such purpose) and thereafter to hold all Definitive Notes and Coupons and all sums, documents and records held by them in respect of the Notes on behalf of the Trustee; and

 

7.8.2

deliver up all Definitive Notes and Coupons and all sums, documents and records held by them in respect of the Notes to the Trustee or as the Trustee shall direct in such notice; provided, however, that such notice shall not be deemed to apply to any document or record which any Paying Agent is obliged not to release by any law or regulation.

 

8.	MISCELLANEOUS DUTIES OF THE PAYING AGENTS

 

8.1

Records

The Principal Paying Agent shall:

 

8.1.1

maintain a record of the Temporary Global Note, the Permanent Global Note and all Definitive Notes and Coupons delivered hereunder and of their redemption, payment, cancellation, mutilation, defacement, alleged destruction, theft, loss or replacement (and, in the case of the Temporary Global Note, exchange of interests thereof for interests in the Permanent Global Note, Definitive Notes and, in the case of the Permanent Global Note, exchange thereof for Definitive Notes); provided, however, that no record need be maintained of the serial numbers of Coupons, save for the serial numbers of Coupons for which replacements have been issued under Clause 5 (Replacement Notes and Coupons) and unmatured Coupons missing at the time of redemption or other cancellation of the relevant Definitive Notes and for any subsequent payments against such Coupons;

 

8.1.2

maintain a record of all certifications received by it in accordance with Clause 8.3 (Certifications) or the provisions of the Temporary Global Note and all confirmations received by it in accordance with Clause 8.4 (Cancellation); and

 

8.1.3

make such records available for inspection at all reasonable times by the Issuer, the other Paying Agents and the Trustee.

 

8.2	Information from Paying Agents

The Paying Agents shall make available to the Principal Paying Agent such information as may reasonable be required for:

 

8.2.1

the maintenance of the records referred to in Clause 8.1 (Records); and

 

8.2.2

the Principal Paying Agent to perform the duties set out in Schedule 4 (Duties under the Issuer-ICSDs Agreement).

 

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8.3	Certifications

Each Paying Agent shall promptly copy to the Issuer and, in the case of a Paying Agent other than the Principal Paying Agent, the Principal Paying Agent any certification received by it in accordance with the provisions of the Temporary Global Note.

 

8.4	Cancellation

The Issuer may from time to time deliver to the Principal Paying Agent Definitive Notes and unmatured Coupons relating thereto for cancellation, whereupon the Principal Paying Agent shall cancel such Definitive Notes and Coupons. In addition, the Issuer may from time to time instruct the Principal Paying Agent to cancel a specified aggregate principal amount of Notes represented by the Temporary Global Note or the Permanent Global Note (which instructions shall be accompanied by evidence satisfactory to the Principal Paying Agent that the Issuer is entitled to give such instructions) whereupon the Principal Paying Agent shall instruct the ICSDs (in accordance with the provisions of Schedule 4 (Duties under the Issuer-ICSDs Agreement)) to make appropriate entries in their respective records to reflect such cancellation.

 

8.5	Definitive Notes and Coupons in issue

As soon as practicable (and in any event within three months) after each interest payment date in relation to the Notes, after each date on which Notes are cancelled in accordance with Clause 8.4 (Cancellation) and after each date on which the Notes fall due for redemption in accordance with the Conditions, the Principal Paying Agent shall notify the Issuer, the other Paying Agents and the Trustee (on the basis of the information available to it) of the number of any Definitive Notes or Coupons against surrender of which payment has been made and of the number of any Definitive Notes or (as the case may be) Coupons which have not yet been surrendered for payment.

 

8.6	Forwarding of communications

The Principal Paying Agent shall promptly forward to the Issuer a copy of any notice or communication addressed to the Issuer by any Noteholder which is received by the Principal Paying Agent.

 

8.7	Publication of notices

The Principal Paying Agent shall, upon and in accordance with instructions of the Issuer and/or the Trustee received at least 10 days before the proposed publication date, arrange for the publication of any notice provided to it which is to be given to the Noteholders and shall supply a copy thereof to each other Paying Agent, the Trustee Euroclear, Clearstream, Luxembourg and any competent authority, stock exchange and/or quotation system by which the Notes have been admitted to listing, trading and/or quotation.

 

8.8	Destruction

The Principal Paying Agent:

 

8.8.1

Cancelled Notes: may destroy the Temporary Global Note following its cancellation in accordance with Clause 4.2 (Exchange of Temporary Global Note and Permanent Global Note) and the Permanent Global Note following its cancellation in accordance with Clause 4.4 (Exchange of Permanent Global Note for Definitive Notes) and the Temporary Global Note, the Permanent Global Note and each Definitive Note or Coupon delivered to or cancelled by it in accordance with sub-clause 7.1.3 (Payments

 

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by the Paying Agents) or cancelled by it in accordance with Clause 5.3 (Cancellation of mutilated or defaced Notes) or Clause 8.4 (Cancellation), in which case it shall furnish the Issuer with a certificate of destruction specifying the certificate or serial numbers (if any) of the Temporary Global Note or (as the case may be) the Permanent Global Note or Definitive Notes and the number of Coupons so destroyed;

 

8.8.2

Destruction by Common Safekeeper: may instruct the Common Safekeeper to destroy the Temporary Global Note and the Permanent Global Note in accordance with Clause 4.2 (Exchange of Temporary Global Note and Permanent Global Note) or Clause 7.1 (Payments by the Paying Agents) in which case, upon receipt of confirmation of destruction from the Common Safekeeper, the Principal Paying Agent shall furnish the Issuer with a copy of such confirmation; and

 

8.8.3

Notes electronically delivered to the Common Safekeeper: where it has delivered the authenticated Temporary Global Note or the authenticated Permanent Global Note to a Common Safekeeper for effectuation using electronic means, is authorised and instructed to destroy the authenticated Temporary Global Note or authenticated Permanent Global Note retained by it following its receipt of confirmation from the Common Safekeeper that the Temporary Global Note or, as the case may be, the Permanent Global Note has been effectuated.

 

8.9	Documents available for inspection

The Issuer shall provide to each Paying Agent and the Trustee:

 

8.9.1

conformed copies of this Agreement and the Trust Deed;

 

8.9.2

if the provisions of Condition 5(b) (Redemption for Taxation Reasons) become relevant in relation to the Notes, the documents contemplated under Condition 5(b) (Redemption for Taxation Reasons); and

 

8.9.3

such other documents as may from time to time be required by the London Stock Exchange to be made available at the Specified Office of the Paying Agent having its Specified Office in London.

Each of the Paying Agents shall make available for inspection during normal business hours at its Specified Office the documents referred to above and, upon reasonable request, will allow copies of such documents to be taken.

 

8.10	Voting Certificates and Block Voting Instructions

Each Paying Agent shall, at the request of any Noteholder, issue Voting Certificates and Block Voting Instructions in a form and manner which comply with the provisions of Schedule 3 (Provisions for Meetings of the Noteholders) to the Trust Deed (except that it shall not be required to issue the same less than 48 hours before the time fixed for any Meeting provided for therein). Each Paying Agent shall keep a full record of Voting Certificates and Block Voting Instructions issued by it and shall give to the Issuer and the Trustee, not less than 24 hours before the time appointed for any Meeting, full particulars of all Voting Certificates and Block Voting Instructions issued by it in respect of such Meeting.

 

8.11	Exercise of put option

Each Paying Agent shall make available to Noteholders during the period specified in Condition 5(d) (Redemption at the option of Noteholders) for the deposit of Put Event Notices forms of Put Event Notice upon request during usual business hours at its Specified Office.

 

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Upon receipt by a Paying Agent of a duly completed Put Event Notice and, in the case of a Put Event Notice relating to Definitive Notes, such Definitive Notes in accordance with Condition 5(d) (Redemption at the option of Noteholders), such Paying Agent shall notify the Issuer and (in the case of a Paying Agent other than the Principal Paying Agent) the Principal Paying Agent thereof indicating the certificate or serial numbers (if any) and principal amount of such Notes in respect of which the Put Option is exercised. Any such Paying Agent with which a Definitive Note is deposited shall deliver a duly completed Put Event Receipt to the depositing Noteholder and shall hold such Definitive Note on behalf of the depositing Noteholder (but shall not, save as provided below or in the Conditions, release it) until the relevant Put Date, when it shall present such Definitive Note to itself for payment of the redemption moneys therefor and interest (if any) accrued to such date in accordance with the Conditions and Clause 7 (Payments to Noteholders) and pay such amounts in accordance with the directions of the Noteholder contained in the Put Event Notice; provided, however, that if, prior to the Put Date, such Definitive Note becomes immediately due and payable or upon due presentation of such Definitive Note payment of such redemption moneys is improperly withheld or refused, the relevant Paying Agent shall mail notification thereof to the depositing Noteholder at such address as may have been given by such Noteholder in the relevant Put Event Notice and shall hold such Note at its Specified Office for collection by the depositing Noteholder against surrender of the relevant Put Event Receipt. For so long as any outstanding Definitive Note is held by a Paying Agent in accordance with the preceding sentence, the depositor of the relevant Definitive Note, and not the relevant Paying Agent, shall be deemed to be the bearer of such Definitive Note for all purposes. Any Paying Agent which receives a Put Event Notice in respect of Notes represented by the Permanent Global Note shall make payment of the relevant redemption moneys and interest accrued to the Put Date in accordance with the Conditions, Clause 7 (Payments to Noteholders) and the terms of the Permanent Global Note.

 

8.12	Issuer-ICSDs Agreement

The Principal Paying Agent shall comply with the provisions set out in Schedule 4 (Duties under the Issuer-ICSDs Agreement).

 

9.	FEES AND EXPENSES

 

9.1

Fees

The Issuer shall pay to the Paying Agents such fees as have been separately agreed between the Issuer and the Paying Agents (plus any applicable value added tax).

 

9.2	Front-end expenses

The Issuer shall on demand reimburse the Principal Paying Agent for all costs and expenses incurred by it in the negotiation, preparation and execution of this Agreement, and shall on demand reimburse each Paying Agent for all costs and expenses (including, without limitation, legal fees and any publication, advertising, communication, courier, fax, postage and other out-of-pocket expenses) properly incurred in connection with its services hereunder (plus any applicable value added tax, stamp, issue, registration, documentary or other taxes or duties thereon), other than such costs and expenses as are separately agreed to be reimbursed out of the fees payable under Clause 9.1 (Fees).

 

9.3

Taxes

 

9.3.1

The Issuer shall pay all value added tax, sales, stamp, registration, issue, documentary and other taxes and duties (including any interest and penalties thereon or in connection therewith) which are payable upon or in connection with the execution

 

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and delivery of this Agreement, and, notwithstanding any other provision of this Agreement, the Issuer shall indemnify each Paying Agent on demand against any claim, demand, action, liability, damages, cost, loss or expense (including, without limitation, legal fees and any applicable value added tax) which it incurs as a result or arising out of or in relation to any failure to pay or delay in paying any of the same or in connection with the Issuer’s obligation to withhold or deduct an amount on account of tax, including without limitation, FATCA. All payments by the Issuer under this Clause 9 (Fees and Expenses) or Clause 10.6 (Indemnity in favour of the Paying Agents) shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatsoever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result in the receipt by the relevant Paying Agent of such amounts as would have been received by it if no such withholding or deduction had been required.

 

9.3.2

If the Issuer or any Paying Agent is, in respect of any payment in respect of the Notes, required to withhold or deduct any amount for or on account of any taxes, duties, assessments or governmental charges, the Issuer shall give written notice of that fact to such Paying Agent as soon as the Issuer becomes aware of the requirement to make the withholding or deduction and shall give to the Paying Agent such information as the Paying Agent shall require to enable it to assess and comply with the requirement. Until such time, the Issuer confirms that all payments made by or on behalf of the Issuer shall be made free and clear of and without withholding or deduction of any such amounts.

 

9.3.3

The fees, commissions and expenses payable to the Paying Agents for services rendered and the performance of its obligations under this Agreement shall not be abated by any remuneration or other amounts or profits receivable by such Paying Agent (or to its knowledge by any of its associates) in connection with any transaction effected by such Paying Agent with or for the Issuer.

 

10.	TERMS OF APPOINTMENT

 

10.1	Rights and powers

Each Paying Agent may, in connection with its services hereunder:

 

10.1.1

except as ordered by a court of competent jurisdiction or otherwise required by law and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or any notice of any previous loss or theft thereof, but subject to sub-clause 7.1.1 (Payments by the Paying Agents), treat the holder of any Temporary Global Note, Permanent Global Note, Definitive Note or Coupon as its absolute owner for all purposes and make payments thereon accordingly;

 

10.1.2

assume that the terms of the Temporary Global Note, the Permanent Global Note and each Definitive Note and Coupon as issued are correct;

 

10.1.3

refer any question relating to the ownership of the Temporary Global Note, the Permanent Global Note or any Definitive Note or Coupon or the adequacy or sufficiency of any evidence supplied in connection with the replacement of the Temporary Global Note, the Permanent Global Note or any Definitive Note or Coupon to the Issuer for determination by the Issuer and rely upon any determination so made;

 

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10.1.4

request and be provided with such information from the Issuer, as it shall reasonably require;

 

10.1.5

rely upon and shall be protected against Liability for acting on the terms of any notice, communication or other document believed by it to be genuine and from the proper party; and

 

10.1.6

engage and pay (at the expense of the Issuer) for the advice or services of any lawyers, auditors, financial advisors or other experts whose advice or services it considers necessary and rely upon any advice so obtained (and such Paying Agent shall be protected and shall incur no liability as against the Issuer in respect of any action taken, or permitted to be taken, in accordance with such advice and in good faith).

 

10.2	Regulatory Provisions

 

10.2.1

The Principal Paying Agent is authorised by the PRA and regulated by the FCA and PRA.

 

10.2.2

Nothing shall require the Principal Paying Agent to carry on an activity of the kind specified by any provision of Part II (other than Article 5 (Accepting Deposits)) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, or to lend money to the Issuer.

 

10.3	Extent of duties

Each Paying Agent shall only be obliged to perform the duties set out herein and no implied duties or obligations (including without limitation duties or obligations of a fiduciary or equitable nature) shall be read into any such documents and if the Conditions are amended on or after the date of this Agreement in a way that affects the duties expressed to be performed by a Paying Agent, it shall not be obliged to perform such duties as so amended unless it has first approved the relevant amendment. No Paying Agent shall:

 

10.3.1

be under any fiduciary duty or other obligation towards or have any relationship of trust for or with any person or have any relationship of agency for or with any person other than the Issuer and the Trustee;

 

10.3.2

be required to do anything which would be illegal or contrary to applicable law or regulation;

 

10.3.3

be under any obligation to take any action under this Agreement that it expects, and has so notified the Issuer in writing, will result in any expense to or liability of such Paying Agent, the payment of which is not, in its opinion, assured to it within a reasonable time

 

10.3.4

be under any duty to expend its own funds;

 

10.3.5

be responsible to monitor compliance by any other party or take steps to ascertain whether any relevant event under this Agreement, the Trust Deed, the Subscription Agreement or any other document has occurred and no Paying Agent shall be liable for loss arising from breach by that party or any such event;

 

10.3.6

be liable to any person for any matter or thing done or omitted in any way in connection with this Agreement or any other document save in relation to its own gross negligence, wilful default or fraud; or

 

10.3.7

be responsible for or liable in respect of the legality, validity or enforceability of the Temporary Global Note, the Permanent Global Note or any Definitive Note or Coupon or this Agreement or any act or omission of any other person (including, without limitation, any other Paying Agent).

 

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10.4	FATCA Information

 

10.4.1

The Issuer agrees to provide to each Paying Agent, and consents to the collection and processing by the Paying Agents of, any authorisations, waivers, forms, documentation and other information, relating to its status (or the status of its direct or indirect owners or Noteholders) or otherwise required to be reported, under FATCA (“FATCA Information”). The Issuer further consents to the disclosure, transfer and reporting of such FATCA Information to any relevant government or taxing authority, any member of the Principal Paying Agent’s Group, any sub-contractors, agents, service providers or associates of such Principal Paying Agent’s Group, and any person making payments to such Principal Paying Agent or a member of such Paying Agent’s Group, including transfers to jurisdictions which do not have strict data protection or similar laws, to the extent that such Paying Agent reasonably determines that such disclosure, transfer or reporting is necessary or warranted to facilitate compliance with FATCA. The Issuer agrees to inform each Paying Agent promptly, and in any event, within 30 days in writing if there are any changes to the FATCA Information supplied to each Paying Agent from time to time. The Issuer warrants that each person whose FATCA Information it provides (or has provided) to such Paying Agent has been notified of and agreed to, and has been given such other information as may be necessary to permit, the collection, processing, disclosure, transfer and reporting of their information as set out in this clause.

 

10.4.2

The Issuer hereby covenants with each Paying Agent to reasonably promptly notify each Paying Agent of any amendment(s) or waiver(s) to the terms of the Trust Deed, the Conditions or the Agency Agreement and to either (i) provide on an opinion of independent tax counsel that such amendment(s) or waiver(s) to the terms of the Trust Deed, the Conditions or the Agency Agreement will not constitute a “material modification” of such document for the purposes of FATCA or (ii) promptly notify the Paying Agent of the effective date of the possible “material modification” of such document for the purposes of FATCA.

 

10.4.3

In the case of any default by the Issuer, each Paying Agent shall have no duty or responsibility in the performance of the Issuer’s obligations under the Conditions.

 

10.4.4

Notwithstanding any other provision of this Agreement, each Paying Agent shall be entitled to take any action or to refuse to take any action which such Paying Agent regards as necessary for such Paying Agent to comply with any applicable law, regulation or fiscal requirement or FATCA, or the rules, operating procedures or market practice of any relevant stock exchange or other market or clearing system.

 

10.4.5

Nothing in this Agreement shall require the Paying Agents to assume an obligation of the Issuer arising under any provision of the listing, prospectus, disclosure or transparency rules (or equivalent rules of any other competent authority besides the FCA or PRA).

 

10.5	Freedom to transact

Each Paying Agent may purchase, hold and dispose of Notes and Coupons and may enter into any transaction (including, without limitation, any depository, trust or agency transaction) with any holders of Notes or Coupons or with any other person in the same manner as if it had

 

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not been appointed as the agent of the Issuer in relation to the Notes and shall not in any way be liable to account for any profit made or share of brokerage or commission or remuneration or other amount or benefit received thereby or in connection therewith.

 

10.6	Indemnity in favour of the Paying Agents

The Issuer shall indemnify on demand each Paying Agent against any claim, demand, action, liability, damages, cost, loss or expense (including, without limitation, legal fees and any applicable value added tax) which it incurs, other than such costs and expenses as are separately agreed to be reimbursed out of the fees payable under Clause 9.1 (Fees) and otherwise than by reason of its own gross negligence, wilful default or fraud, as a result or arising out of or in relation to its acting as the agent of the Issuer under this Agreement. The indemnity contained in this Clause 10.6 shall survive the termination or expiry of this Agreement and whether or not such Paying Agent is then a paying agent under this Agreement.

 

10.7	Exclusion of liability

Each Paying Agent will only be liable to the Issuer for losses, liabilities, costs, fees, expenses and demands arising directly from the performance of its obligations under this Agreement suffered by or occasioned to the Issuer (“Liabilities”) to the extent that the Paying Agent has been grossly negligent, fraudulent or in wilful default in respect of its obligations under this Agreement. Each Paying Agent shall not otherwise be liable or responsible for any Liabilities or inconvenience which may result from anything done or omitted to be done by it in connection with this Agreement. For the avoidance of doubt the failure of a Paying Agent to make a claim for payment of interest and principal on the Issuer, shall not be deemed to constitute gross negligence, fraud or wilful default on the part of the Paying Agent.

 

10.8	Consequential damages disclaimer

Liabilities arising under Clause 10.7 (Exclusion of liability) shall be limited to the amount of the actual loss. Such actual loss shall be determined (i) as at the date of default of the Paying Agent or, if later, the date on which the loss arises as a result of such default, and (ii) without reference to any special conditions or circumstances known to the Paying Agent at the time of entering into the Agreement, or at the time of accepting any relevant instructions, which increase the amount of the loss. Notwithstanding any provision of this Agreement to the contrary, the Paying Agents shall not in any event be liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits, goodwill, reputation or opportunity), whether or not foreseeable, even if the Paying Agent has been advised of the likelihood of such loss or damage and regardless of whether the claim for loss or damage is made in negligence, for breach of contract, breach of duty or otherwise.

 

10.9	Force Majeure

The liability of each Paying Agent under Clause 10.7 (Exclusion of liability), will not extend to any liabilities arising through any acts, events or circumstances not reasonably within its control, or resulting from the general risks of investment in or the holding of assets in any jurisdiction, including, but not limited to, liabilities arising from: nationalisation, expropriation or other governmental actions; any law, order or regulation of a governmental, supranational or regulatory body; regulation of the banking or securities industry including changes in market rules or practice, currency restrictions, devaluations or fluctuations; market conditions affecting the execution or settlement of transactions or the value of assets; breakdown, failure or malfunction of any third party transport, telecommunications, computer services or systems; natural disasters or acts of God; war, terrorism, insurrection or revolution; and strikes or industrial action.

 

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11.	CHANGES IN PAYING AGENTS

 

11.1	Resignation

Any Paying Agent may (without needing to give any reason and without incurring any Liability therefor) resign its appointment upon not less than 45 days’ notice to the Issuer (with a copy to the Trustee and, in the case of a Paying Agent other than the Principal Paying Agent, to the Principal Paying Agent); provided, however, that:

 

11.1.1

if such resignation would otherwise take effect less than 30 days before or after the maturity date or other date for redemption of the Notes or any interest payment date in relation to the Notes, it shall not take effect until the thirtieth day following such date; and

 

11.1.2

in the case of the Principal Paying Agent, or a Required Paying Agent, such resignation shall not take effect until a successor has been duly appointed consistently with Clause 11.4 (Additional and successor agents) or Clause 11.5 (Paying Agents may appoint successors) and notice of such appointment has been given to the Noteholders.

 

11.2	Revocation

The Issuer may (with the prior written approval of the Trustee) revoke its appointment of any Paying Agent by not less than 60 days’ notice to such Paying Agent (with a copy, in the case of a Paying Agent other than the Principal Paying Agent, to the Principal Paying Agent); provided, however, that, in the case of the Principal Paying Agent or any Required Paying Agent, such revocation shall not take effect until a successor has been duly appointed consistently with Clause 11.4 (Additional and successor agents) and previously approved in writing by the Trustee and notice of such appointment has been given to the Noteholders.

 

11.3	Automatic termination

The appointment of any Paying Agent shall terminate forthwith if (a) such Paying Agent becomes incapable of acting, (b) a receiver, manager or other similar officer is appointed, of the whole or any part of the undertaking, assets and revenues of such Paying Agent, (c) such Paying Agent admits in writing its insolvency or inability to pay its debts as they fall due, (d) an administrator or liquidator of such Paying Agent or the whole or any part of the undertaking, assets and revenues of such Paying Agent is appointed (or application for any such appointment is made), (e) such Paying Agent takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or declares a moratorium in respect of any of its indebtedness, (f) an order is made or an effective resolution is passed for the winding-up of such Paying Agent or (g) any event occurs which has an analogous effect to any of the foregoing. If the appointment of the Principal Paying Agent or any Required Paying Agent is terminated in accordance with the preceding sentence, the Issuer shall forthwith appoint a Successor in accordance with Clause 11.4 (Additional and successor agents).

 

11.4	Additional and successor agents

The Issuer may (with the prior written approval of the Trustee) appoint a successor principal paying agent and additional or successor paying agents and shall forthwith give notice of any such appointment to the continuing Paying Agents, the Trustee and the Noteholders, whereupon the Issuer, the Trustee, the continuing Paying Agents and the additional or successor principal paying agent or paying agent shall acquire and become subject to the same rights and obligations between themselves as if they had entered into an agreement in the form mutatis mutandis of this Agreement.

 

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11.5	Paying Agents may appoint Successors

If any Paying Agent gives notice of its resignation in accordance with Clause 11.1 (Resignation) and by the tenth day before the expiry of such notice a Successor has not been duly appointed in accordance with Clause 11.4 (Additional and successor agents), such Paying Agent may itself, following such consultation with the Issuer as is practicable in the circumstances and with the prior written approval of the Trustee, appoint as its Successor any reputable and experienced financial institution and give notice of such appointment to the Issuer, the remaining Paying Agents, the Trustee and the Noteholders, whereupon the Issuer, the remaining Paying Agents, the Trustee and such Successor shall acquire and become subject to the same rights and obligations between themselves as if they had entered into an agreement in the form mutatis mutandis of this Agreement.

 

11.6

Release

Upon any resignation or revocation taking effect under Clause 11.1 (Resignation) or 11.2 (Revocation) or any termination taking effect under Clause 11.3 (Automatic termination), the relevant Paying Agent shall:

 

11.6.1

be released and discharged from its obligations under this Agreement (save that it shall remain entitled to the benefit of and subject to Clause 9.3 (Taxes), Clause 10.6 (Indemnity in favour of the Paying Agents) and Clause 11 (Changes in Paying Agents));

 

11.6.2

in the case of the Principal Paying Agent, deliver to the Issuer and to its successor a copy, certified as true and up-to-date by an officer or authorised signatory of the Principal Paying Agent, of the records maintained by it in accordance with Clause 8.1 (Records); and

 

11.6.3

forthwith (upon payment to it of any amount due to it in accordance with Clause 9 (Fees and Expenses) or Clause 10.6 (Indemnity in favour of the Paying Agents) transfer all moneys and papers (including any unissued Notes held by it hereunder and any documents held by it pursuant to Clause 8.9 (Documents available for inspection)) to its Successor and, upon appropriate notice, provide reasonable assistance to its Successor for the discharge of its duties and responsibilities hereunder.

 

11.7

Merger

Any legal entity into which any Paying Agent or the Trustee is merged or converted or any legal entity resulting from any merger or conversion to which such Paying Agent or (as the case may be) the Trustee is a party or any legal entity to which any Paying Agent or (as the case may be) the Trustee sells all or substantially all of its corporate trust and agency business shall, to the extent permitted by applicable law, be the Successor to such Paying Agent or, as the case may be, the Trustee without any further formality, whereupon the Issuer, the other Paying Agents, the Trustee (if applicable) and such Successor shall acquire and become subject to the same rights and obligations between themselves as if they had entered into an agreement in the form mutatis mutandis of this Agreement. Notice of any such merger or conversion shall forthwith be given by such successor to the Issuer, any other Paying Agents, the Trustee (if applicable) and the Noteholders.

 

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11.8	Changes in Specified Offices

If any Paying Agent decides to change its Specified Office it shall give notice to the Issuer (with a copy to the Trustee and the other Paying Agents) of the address of the new Specified Office stating the date on which such change is to take effect, which date shall be not less than 30 days after the date of such notice. The Issuer shall at its own expense not less than 14 days prior to the date on which such change is to take effect (unless the appointment of the relevant Paying Agent is to terminate pursuant to any of the foregoing provisions of this Clause 11 (Changes in Paying Agents) on or prior to the date of such change) give notice thereof to the Noteholders.

 

12.

NOTICES

 

12.1	Addresses for notices

All notices and communications hereunder shall be made in writing (by letter or fax) and shall be sent as follows:

 

12.1.1

Issuer: if to the Issuer, to it at:

Western Power Distribution PLC

Avonbank

Feeder Road

Bristol BS2 0TB

Fax:     + 44 (0)1179 332001

Attention: Company Secretary

 

12.1.2

if to a Paying Agent, to it at the address or fax number specified against its name in Schedule 3 (Specified Offices of the Paying Agents) (or, in the case of a Paying Agent not originally a party hereto, specified by notice to the parties hereto at the time of its appointment) for the attention of the person or department specified therein;

 

12.1.3

if to the Trustee, to it at:

HSBC Corporate Trustee Company (UK) Limited

Level 27, 8 Canada Square

London E14 5HQ

Fax: +44 (0)207 991 4350

Attention: CTLA Trustee Services Administration

or, in any case, to such other address or fax number or for the attention of such other person or department as the addressee has by prior notice to the sender specified for the purpose.

 

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12.2	Effectiveness

Every notice or other communication sent in accordance with Clause 12.1 (Addresses for notices) if sent by letter, shall be deemed to have been delivered when received and if sent by fax, shall be deemed to have been delivered on completion of its transmission, provided that any such notice or other communication which would otherwise take effect after 4.00 p.m. on any particular day shall not take effect until 10.00 a.m. on the immediately succeeding business day in the place of the addressee.

 

12.3	Notices to Noteholders

Any notice required to be given to Noteholders under this Agreement shall be given in accordance with the Conditions; provided, however, that, so long as all the Notes are represented by the Temporary Global Note or the Permanent Global Note, notices to Noteholders shall be given in accordance with the terms of the Temporary Global Note or the Permanent Global Note (as applicable).

 

12.4	Notices in English

All notices and other communications hereunder shall be made in the English language or shall be accompanied by a certified English translation thereof. Any certified English translation delivered hereunder shall be certified a true and accurate translation by a professionally qualified translator or by some other person competent to do so.

 

13.	LAW AND JURISDICTION

 

13.1	Governing law

This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.

 

13.2	English courts

The courts of England have exclusive jurisdiction to settle any dispute (a “Dispute”), arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement or any non-contractual obligation arising out of or in connection with this Agreement) or the consequences of its nullity.

 

13.3	Appropriate forum

The parties agree that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that they will not argue to the contrary.

 

13.4	Rights of the Paying Agents and Trustee to take proceedings outside England

Notwithstanding Clause 13.2 (English courts), the Principal Paying Agent and the Trustee may take proceedings relating to a Dispute (“Proceedings”) in any other courts with jurisdiction. To the extent allowed by law, the Principal Paying Agent or the Trustee may take concurrent Proceedings in any number of jurisdictions.

 

14.	RIGHTS OF THIRD PARTIES

A person who is not a party to this Agreement shall have no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.

 

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15.	MODIFICATION

 

15.1	This Agreement may be amended by further agreement among the parties hereto.

 

15.2

The Issuer undertakes to notify the Principal Paying Agent in advance of any substitution, in accordance with Clause 6.3.1(b) of the Trust Deed, in order to ascertain whether the Principal Paying Agent requires any deeds, documents or instruments to be entered into or to receive any information so as to effect such substitution. The Issuer further undertakes not to modify Clause 6.3.1(b) of the Trust Deed without the prior written consent of the Principal Paying Agent.

 

16.	COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Any party may enter into this Agreement by signing any such counterpart.

AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.

 

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SCHEDULE 1

FORM OF PUT EVENT NOTICE

 

To:	[Paying Agent]

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England)

£500,000,000

3.625 per cent. Notes due 2023

PUT EVENT NOTICE

OPTION 1 (DEFINITIVE NOTES) - [complete/delete as applicable]

By depositing this duly completed Notice with the above Paying Agent for the above Notes (the “Notes”) in accordance with Condition 5(d) (Redemption at the option of Noteholders), the undersigned holder of the Notes specified below and deposited with this Put Event Notice exercises its option to have such Notes redeemed in accordance with Condition 5(d) (Redemption at the option of Noteholders) on [relevant Put Date].

This Notice relates to the Note(s) bearing the following certificate numbers and in the following denominations:

 

Certificate Number				Denomination

OPTION 2 (PERMANENT GLOBAL NOTE) - [complete/delete as applicable]

By depositing this duly completed Notice with the above Paying Agent for the above Notes (the “Notes”) in accordance with Condition 5(d) (Redemption at the option of Noteholders) and the terms of the Permanent Global Note issued in respect of the Notes, the undersigned holder of the Permanent Global Note exercises its option to have £[amount] of the Notes redeemed in accordance with Condition 5(d) (Redemption at the option of Noteholders) on [relevant Put Date].

[END OF OPTIONS]

Payment should be made by transfer to [details of the relevant account maintained by the payee] with [name and address of the relevant bank].

All notices and communications relating to this Put Event Notice should be sent to the address specified below.

 

Name of holder:
Contact details:

 

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Signature of holder:
Date:
[To be completed by Paying Agent:]
Received by:
[Signature and stamp of Paying Agent:]
At its office at
On

 

 

 

THIS NOTICE WILL NOT BE VALID UNLESS ALL OF THE PARAGRAPHS REQUIRING COMPLETION HAVE BEEN DULY COMPLETED.

 

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SCHEDULE 2

FORM OF PUT EVENT RECEIPT

 

WESTERN POWER DISTRIBUTION PLC

(incorporated with limited liability under

the laws of England)

£500,000,000

3.625 per cent. Notes due 2023

PUT EVENT RECEIPT

We hereby acknowledge receipt of a Put Event Notice relating to the Note(s) having the certificate number(s) and denomination(s) set out below. We will hold such Note(s) in accordance with the terms of the Terms and Conditions of the Notes and the Agency Agreement dated 6 November 2015 relating thereto.

In the event that, pursuant to such Terms and Conditions and the Agency Agreement, the depositor of such Note(s) becomes entitled to their return, we will return such Definitive Note(s) to the depositor against presentation and surrender of this Put Event Receipt.

 

Certificate Number				Denomination

 

Dated:  [date]
[PAYING AGENT]
By:
		duly authorised

 

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SCHEDULE 3

SPECIFIED OFFICES OF THE PAYING AGENTS

The Principal Paying Agent:

8 Canada Square

London E14 5HQ

United Kingdom

 

Fax:	+44 (0)345 587 0429

Attention:        Corporate Trust and Loan Agency, The Senior Manager, CT Client Services

 

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SCHEDULE 4

DUTIES UNDER THE ISSUER-ICSDS AGREEMENT

 

For so long as the Notes are, or are to be, represented by the Temporary Global Note or the Permanent Global Note, the Principal Paying Agent will comply with the following provisions:

 

1.	Initial issue outstanding amount: The Principal Paying Agent will inform each of the ICSDs, through the Common Service Provider appointed by the ICSDs to service the Notes, of the initial issue outstanding amount (the “IOA”) for the Notes on or prior to the relevant Issue Date.

 

2.

Mark up or mark down: If any event occurs that requires a mark up or mark down of the records which an ICSD holds for its customers to reflect such customers’ interest in the Notes, the Principal Paying Agent will (to the extent known to it) promptly provide details of the amount of such mark up or mark down, together with a description of the event that requires it, to the ICSDs (through the Common Service Provider) to ensure that the IOA of the Notes remains at all times accurate.

 

3.

Reconciliation of records: The Principal Paying Agent will at least once every month reconcile its record of the IOA of the Notes with information received from the ICSDs (through the Common Service Provider) with respect to the IOA maintained by the ICSDs for the Notes and will promptly inform the ICSDs (through the Common Service Provider) of any discrepancies.

 

4.	Resolution of discrepancies: The Principal Paying Agent will promptly assist the ICSDs (through the Common Service Provider) in resolving any discrepancy identified in the IOA of the Notes.

 

5.	Details of payments: The Principal Paying Agent will promptly provide the ICSDs (through the Common Service Provider) details of all amounts paid by it under the Notes (or, where the Notes provide for delivery of assets other than cash, of the assets so delivered).

 

6.	Change of amount: The Principal Paying Agent will (to the extent known to it) promptly provide to the ICSDs (through the Common Service Provider) notice of any changes to the Notes that will affect the amount of, or date for, any payment due under the Notes.

 

7.	Notices to Noteholders: The Principal Paying Agent will (to the extent known to it) promptly provide to the ICSDs (through the Common Service Provider) copies of all information that is given to the holders of the Notes.

 

8.	Communications from ICSDs: The Principal Paying Agent will promptly pass on to the Issuer all communications it receives from the ICSDs directly or through the Common Service Provider relating to the Notes.

 

9.	Default: The Principal Paying Agent will (to the extent known to it) promptly notify the ICSDs (through the Common Service Provider) of any failure by the Issuer to make any payment or delivery due under the Notes when due.

 

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SIGNATURES

The Issuer

For and on behalf of

WESTERN POWER DISTRIBUTION PLC

 

By:

 

The Principal Paying Agent

For and on behalf of

HSBC BANK PLC

 

By:

 

The Trustee

For and on behalf of

HSBC CORPORATE TRUSTEE COMPANY (UK) LIMITED

 

By:

Exhibit 4.3

 

		CLIFFORD CHANCE LLP

 

EXECUTION VERSION

 

 

WESTERN POWER DISTRIBUTION PLC

£500,000,000

3.625 PER CENT. NOTES DUE 2023

 

 

 

SUBSCRIPTION AGREEMENT

 

 

 

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CONTENTS

 

Clause				Page
1.		Interpretation			1
2.		Issue of the Notes			3
3.		Representations and Warranties by the Issuer			4
4.		Undertakings by the Issuer			9
5.		Selling Restrictions			11
6.		Indemnification			11
7.		Fees and Expenses			11
8.		Closing			13
9.		Termination			15
10.		Survival			16
11.		Time			16
12.		Notices			16
13.		Assignment			17
14.		Law and Jurisdiction			17
15.		Rights of Third Parties			18
16.		Counterparts			18
Schedule – Selling Restrictions					19

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THIS AGREEMENT is made on 3 November 2015

BETWEEN

 

(1)	WESTERN POWER DISTRIBUTION PLC (the “Issuer”);

 

(2)	BANCO SANTANDER, S.A., BARCLAYS BANK PLC (“Barclays”), LLOYDS BANK PLC and RBC EUROPE LIMITED, (together, the “Joint Lead Managers”); and

 

(3)	HSBC BANK PLC, MITSUBISHI UFJ SECURITIES INTERNATIONAL PLC, MIZUHO INTERNATIONAL PLC and THE ROYAL BANK OF SCOTLAND PLC (each a “Co-Lead Manager” and together with the Joint Lead Managers, the “Managers”).

WHEREAS

 

(A)	The Issuer has authorised the creation and issue of £500,000,000 in aggregate principal amount of 3.625 per cent. Notes due 2023 (the “Notes”).

 

(B)

The Notes will be in bearer form and in denominations of £100,000 and integral multiples of £1,000 in excess thereof up to and including £199,000. The Notes will initially be in the form of a temporary global note (the “Temporary Global Note”), which will be exchangeable for interests in a permanent global note (the “Permanent Global Note”) in the circumstances specified in the Temporary Global Note. The Permanent Global Note will in turn be exchangeable for notes in definitive form (“Definitive Notes”), with interest coupons (“Coupons”) attached, in the circumstances specified in the Permanent Global Note.

 

(C)

The Notes will be issued subject to, and have the benefit of, a trust deed (the “Trust Deed”), a draft of which is in the agreed form and to which will be scheduled the forms of the Temporary Global Note, the Permanent Global Note and any Definitive Notes. The Trust Deed will be made between the Issuer and HSBC Corporate Trustee Company (UK) Limited (the “Trustee”) as trustee for the holders of the Notes from time to time.

 

(D)	The Issuer will, in relation to the Notes, enter into an agency agreement (the “Agency Agreement”) with HSBC Bank Plc (the “Principal Paying Agent”) and the Trustee.

IT IS AGREED as follows:

 

1.	INTERPRETATION

 

1.1	Definitions

In this Agreement the following expressions have the following meanings:

“£” or “Sterling” or “GBP” denotes the lawful currency for the time being of the United Kingdom;

“Clearstream, Luxembourg” means Clearstream Banking S.A.;

 

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“Closing Date” means, subject to Clause 8.2 (Postponed closing), 6 November 2015;

“Common Safekeeper” means an ICSD in its capacity as common safekeeper or a person nominated by the ICSDs to perform the role of common safekeeper;

“Conditions” means the terms and conditions of the Notes as scheduled to the agreed form of the Trust Deed as the same may be modified prior to the Closing Date, and any reference to a numbered “Condition” is to the correspondingly numbered provision thereof;

“Euroclear” means Euroclear Bank S.A./N.V.;

“Event of Default” means one of those circumstances described in Condition 9 (Events of Default);

“FCA” means the United Kingdom Financial Conduct Authority;

“FSMA” means the Financial Services and Markets Act 2000;

“Group” means, at any time, the Issuer together with its Subsidiaries;

“ICSDs” means Clearstream, Luxembourg and Euroclear;

“Issue Documents” means the Trust Deed and the Agency Agreement;

“Issue Price” means 99.581 per cent. of the aggregate principal amount of the Notes;

“Licence” means, in respect of a Licensed Subsidiary, the electricity distribution licence granted or treated as granted under section 6(1)(c) of the Electricity Act 1989 that authorises such Licensed Subsidiary to distribute electricity;

“Licensed Subsidiary” means each of Western Power Distribution (West Midlands) plc, Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc and Western Power Distribution (South West) plc;

“Loss” means any liability, damages, cost, loss or expense (including, without limitation, legal fees, costs and expenses and any value added tax thereon);

“person” means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality;

“Preliminary Prospectus” means the preliminary prospectus dated 23 October 2015 prepared in connection with the issue of the Notes;

“Prospectus” means the prospectus dated the date of this Agreement prepared in connection with the issue of the Notes, as the same may be amended or supplemented from time to time provided, however, that for the purposes of Clause 3.3 (Representations repeated) any such amendment or supplement shall be disregarded unless the Joint Lead Managers (on behalf of the Managers) expressly agree otherwise;

 

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“Prospectus Directive” means Directive 2003/71/EC, as amended, (subject as provided in the Schedule);

“Related Party” means, in respect of any person, any affiliate of that person or any officer, director, employee or agent of that person or any such affiliate or any person by whom any of them is controlled (where the terms “affiliate” and “controlled” have the meanings given to them by the Securities Act and the regulations thereunder);

“Restructuring Event” has the meaning given to it in the Conditions;

“Securities Act” means the United States Securities Act of 1933, as amended; and

“Stabilising Manager” means Barclays.

 

1.2	Clauses and Schedules

Any reference in this Agreement to a Clause, a sub-clause or a Schedule is, unless otherwise stated, to a clause or sub-clause hereof or a schedule hereto.

 

1.3	Legislation

Any reference in this Agreement to any legislation (whether primary legislation or regulations or other subsidiary legislation made pursuant to primary legislation) shall be construed as a reference to such legislation as the same may have been, or may from time to time be, amended or re-enacted.

 

1.4

Headings

Headings and sub-headings are for ease of reference only and shall not affect the construction of this Agreement.

 

1.5	Agreed Form

Any reference herein to a document being in “agreed form” means that the document in question has been agreed between the proposed parties thereto, subject to any amendments that the parties may agree upon prior to the Closing Date.

 

2.	ISSUE OF THE NOTES

 

2.1	Undertaking to issue

The Issuer undertakes to the Managers that:

 

2.1.1

Issue of Notes: subject to and in accordance with the provisions of this Agreement, the Notes will be issued on the Closing Date, in accordance with this Agreement and the Issue Documents; and

 

2.1.2

Issue documentation: it will, on or before the Closing Date, execute the Issue Documents.

 

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2.2	Undertaking to subscribe

The Managers undertake to the Issuer that, subject to and in accordance with the provisions of this Agreement, they will subscribe for the Notes on the Closing Date at the Issue Price plus (if the Closing Date is postponed in accordance with Clause 8.2 (Postponed closing)) any accrued interest in respect thereof. The obligations of the Managers under this sub-clause are joint and several.

 

2.3	Stabilisation

In connection with the issue of the Notes, the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) may over allot Notes or effect transactions with a view to supporting the price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or persons acting on behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Such stabilisation shall be conducted in accordance with all applicable laws and rules. Any loss or profit sustained as a consequence of any such over-allotment or stabilisation shall be for the account of the Stabilising Manager. The Managers acknowledge that the Issuer has not authorised the creation and issue of Notes in excess of £500,000,000 in aggregate principal amount.

 

2.4	Fixed price re-offering

Each Manager represents, warrants and agrees that, prior to being notified by Barclays that the Notes are free to trade, it has not offered or sold and will not offer or sell (and has procured and will procure that none of its Subsidiaries or affiliates offers or sells) any Notes at a price less than the offered price set by Barclays.

 

2.5	Agreement among Managers

The execution of this Agreement on behalf of all parties hereto will constitute acceptance by each Manager of the ICMA Agreement Among Managers Version 1 with respect to the Notes and reference therein to the Lead Manager shall mean the Managers and reference therein to the Settlement Manager shall mean Barclays, and it shall be subject to any amendment notified to such Manager in writing at any time prior to the receipt by Barclays of the document appointing such Manager’s authorised signatory and its execution of this Agreement.

 

3.	REPRESENTATIONS AND WARRANTIES BY THE ISSUER

 

3.1	Issuer’s representations

The Issuer represents and warrants to the Managers that:

 

3.1.1

Incorporation and authorisation: the Issuer and each Licensed Subsidiary is duly incorporated and validly existing under the laws of England with full power and authority to conduct its business as described in the Preliminary Prospectus and the Prospectus and is lawfully qualified to do business in those jurisdictions in which business is conducted by it;

 

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3.1.2

Capacity: the Issuer has full power and capacity to create and issue the Notes, to execute this Agreement and the Issue Documents and to undertake and perform the obligations expressed to be assumed by it herein and therein, and the Issuer has taken all necessary action to approve and authorise the same;

 

3.1.3

No breach: the creation, issue and sale of the Notes, the execution of this Agreement and the Issue Documents and the undertaking and performance by the Issuer of the obligations expressed to be assumed by it herein and therein and compliance with the terms and obligations herein and therein (in each case by it) will not:

 

(a)

conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under the documents constituting it or any agreement or instrument to which it is a party or by which it or any of its properties is bound; or

 

(b)

infringe any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental body or court in the jurisdiction of its incorporation, or so far as the Issuer is aware, any foreign jurisdiction, law or regulation, or any of its properties which is material in the context of the transactions contemplated by this Agreement and the Issue Documents;

 

3.1.4

Legal, valid, binding and enforceable: this Agreement constitutes and, upon due execution by or on behalf of the Issuer and (in the case of the Temporary Global Note, the Permanent Global Note and any Definitive Notes) due authentication, effectuation and delivery, the Issue Documents, the Temporary Global Note, the Permanent Global Note and any Definitive Notes will, subject to laws of bankruptcy and other laws affecting the rights of creditors generally, constitute legal, valid, binding and enforceable obligations of the Issuer;

 

3.1.5

Status: the Notes will constitute direct, general and unconditional obligations of the Issuer which (i) rank pari passu and without preference among themselves and (ii) will at all times rank at least pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application;

 

3.1.6

Approvals: all authorisations, consents and approvals required by the Issuer in connection with the creation, issue and sale of the Notes, the execution of this Agreement and the Issue Documents, the performance by the Issuer of the obligations expressed to be undertaken by it herein and therein and the distribution of the Preliminary Prospectus and the Prospectus in accordance with the provisions set out in the Schedule have been (or will, prior to the Closing Date, be) obtained and are (or will, on the Closing Date, be) in full force and effect;

 

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3.1.7

Taxation: subject as described in the Preliminary Prospectus and the Prospectus, all payments of principal and interest in respect of the Notes and the Coupons, and all payments by the Issuer under this Agreement and the Issue Documents, may be made free and clear of, and without withholding or making any deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the United Kingdom or any political subdivision or authority thereof or therein having power to tax;

 

3.1.8

Preliminary Prospectus: the Preliminary Prospectus contained as of its date of issue all information which was (in the context of the issue, offering and sale of the Notes) material; as of such date such information was true and accurate in all material respects and was not misleading in any material respect; any opinions, predictions or intentions expressed in the Preliminary Prospectus were as of such date honestly held or made and were not misleading in any material respect; the Preliminary Prospectus did not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in the context of the issue, offering and sale of Notes) not misleading in any material respect; and all proper enquiries were made to ascertain or verify the foregoing;

 

3.1.9

Prospectus: the Prospectus contains all information which is (in the context of the issue, offering and sale of the Notes) material; such information is true and accurate in all material respects and is not misleading in any material respect; any opinions, predictions or intentions expressed in the Prospectus are honestly held or made and are not misleading in any material respect; the Prospectus does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in the context of the issue, offering and sale of the Notes) not misleading in any material respect and all proper enquiries have been made to ascertain or verify the foregoing;

 

3.1.10

Investor Presentations: the presentation materials used by the Issuer in meetings with prospective investors in the Notes (the “Investor Presentations”) as at their respective dates, when read together with the Preliminary Prospectus and/or the Prospectus, as the case may be, contained all information which is (in the context of the issue of the Notes) material; as of their respective dates, such Investor Presentations and any statements made by the Issuer in the Investor Presentations were true and accurate in all material respects and not misleading; any opinions, predictions or intentions expressed in the Investor Presentations or such statements were, as at the dates thereof, honestly held or made and were not misleading; and all reasonable and proper enquiries were made to ascertain or verify the foregoing;

 

3.1.11

Financial statements: the Issuer’s consolidated audited financial statements for its financial year ended 31 March 2015 were prepared in accordance with accounting principles generally accepted in the United Kingdom and consistently applied and give (in conjunction with the notes thereto) a true and fair view of the financial condition of the Issuer and its Subsidiaries (taken as a whole) as at the date as of which they were prepared and the result of the operations of the Issuer and its Subsidiaries (taken as a whole) during the periods then ended;

 

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3.1.12

General duty of disclosure: the Prospectus contains all such information with respect to the Issuer and the Notes as is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer and of the rights attaching to the Notes;

 

3.1.13

No material litigation: there are no pending actions, suits or proceedings against or affecting the Issuer and/or any member of the Group or any of their respective properties (including any claims against directors in relation to or concerning the business of the Issuer and/or the Group) that it is aware of, which if determined adversely to the Issuer and/or the Group, as the case may be, would individually or in the aggregate have a material adverse effect on the Issuer and/or the Group’s condition (financial or other), prospects, results of operations or general affairs or profitability which is material in the context of the issue of the Notes, or on its ability to perform its obligations under the this Agreement, the Issue Documents or the Notes in any material respect in the context of the issue of the Notes, or that are otherwise material in the context of the issue of the Notes and, so far as it is aware, no such actions, suits or proceedings are threatened or contemplated;

 

3.1.14

No Material Change: since the date of its last consolidated audited financial statements copies of which have been delivered to each Manager, there has been no adverse change in the prospects of the Issuer and its subsidiaries and no significant change in the financial or trading position of the Issuer and its subsidiaries;

 

3.1.15

No Event of Default or Restructuring Event: so far as it is aware no event has occurred or circumstance arisen that might (whether or not with the passage of time and/or giving of notice and/or fulfilment of any other requirement) constitute a Restructuring Event or an Event of Default;

 

3.1.16

Sanctions and anti-corruption:

 

(a)

Sanctions: none of the Issuer or any member of the Group nor, to the best knowledge of the Issuer, any director, officer, agent, employee or other person acting on behalf of the Issuer or any member of the Group is currently a target of any financial or economic sanctions or trade embargoes administered or enforced by the Office of Foreign Assets Control of the US Department of Treasury (OFAC), the U.S. Departments of State or Commerce or any other US, EU, United Nations or UK economic sanctions (“Sanctions”);

 

(b)

Anti-corruption: neither the Issuer nor, to the best of the knowledge of the Issuer, any director, officer, agent, employee, affiliate of or person acting on behalf of the Issuer or any member of the Group has engaged in any activity or conduct which would violate the U.S. Foreign Corrupt Practices Act of 1997 and the U.K. Bribery Act of 2010, each as amended and the rules and regulations thereunder;

 

(c)

Anti-money laundering: its operations are and have been at all times conducted in compliance with applicable financial recordkeeping and reporting requirements of the Money Laundering Laws (as defined

 

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below) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving it with respect to the Money Laundering Laws is pending or, to the best of its knowledge, threatened, where “Money Laundering Laws” means the United States Currency and Foreign Transactions Reporting ACT of 1970, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency; and

 

(d)

the Issuer has instituted and maintains policies and procedures designed to prevent money laundering, bribery and corruption by the Group and by persons associated with the Group.

 

3.1.17

Additional Consents: all consents, licences, authorisations and approvals (including any such as it considers may be required pursuant to any Licence), necessary for the conduct of the Group’s business substantially as conducted at the date hereof, which if not obtained or complied with or which if revoked or terminated, would have an adverse change on its condition (financial or other) or the Group’s general affairs that is, in each case, material in the context of the issue of the Notes, have been or will be obtained prior to the Issue Date and, so far as it is aware, will not be revoked or otherwise terminated (unless to be replaced with an analogous consent, licence, authorisation and approval);

 

3.1.18

No SUSMI: it is a foreign issuer and there is no substantial U.S. market interest (as defined in Rule 902(j)(2) and (3) of Regulation S under the Securities Act) with respect to the Issuer’s debt securities;

 

3.1.19

Directed Selling Efforts: neither it, nor, so far as it is aware, any of its affiliates, nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (as defined in Regulation S under the Securities Act) with respect to the Notes; and

 

3.1.20

Stabilisation: neither it nor, so far as it is aware, any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act), nor any person acting on its behalf has taken or will take, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to cause or result in, the stabilisation in violation of applicable laws or manipulation of the price of any security to facilitate the sale or resale of Notes.

 

3.2	Change in matters represented

The Issuer shall forthwith notify the Managers of anything which at any time prior to the later of completion (in the view of the Managers) of the offer of the Notes and admission of the Notes to trading on the Regulated Market of the London Stock Exchange has or may have rendered, or will or may render, untrue or incorrect in any respect any representation and warranty by the Issuer in this Agreement as if it had been made or given at such time with reference to the facts and circumstances then subsisting.

 

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3.3	Representations repeated

The representations and warranties in Clause 3.1 (Issuer’s representations) shall be deemed to be repeated (with reference to the facts and circumstances then subsisting) on each date falling on or before the Closing Date.

 

4.	UNDERTAKINGS BY THE ISSUER

 

4.1	Publication and delivery of Prospectus

The Issuer shall procure that the Prospectus is made available to the public in accordance with the requirements of the Prospectus Directive and relevant implementing measures in the United Kingdom. In addition the Issuer shall deliver to the Managers, without charge, on the date of this Agreement and hereafter from time to time as requested as many copies of the Prospectus as the Managers may reasonably request.

 

4.2	Supplements

Without prejudice to its obligations under applicable law, the Issuer shall at the request of the Managers at any time prior to the later of completion (in the view of the Managers) of the offer of the Notes and admission of the Notes to trading on the Regulated Market of the London Stock Exchange amend or supplement the Prospectus to the satisfaction of the Managers. The Issuer shall procure that any such amended Prospectus or supplementary Prospectus is made available to the public in accordance with the requirements of the Prospectus Directive and relevant implementing measures in the United Kingdom. In addition the Issuer shall deliver, without charge, to the Managers from time to time as many copies of the relevant amended Prospectus or supplementary Prospectus as the Managers may reasonably request.

 

4.3	No announcements

From the date of this Agreement to (and including) the Closing Date, the Issuer shall not, without the prior written consent of the Joint Lead Managers (on behalf of the Managers) (such consent not to be unreasonably withheld or delayed), make:

 

4.3.1

any public announcement which might reasonably be expected to have a material adverse effect on the marketability of the Notes, other than any announcement required by law or by any relevant regulatory or similar body or stock exchange; or

 

4.3.2

any communication which might reasonably be expected to prejudice the ability of any Manager lawfully to offer or sell the Notes in accordance with the provisions set out in the Schedule hereto.

 

4.4	No competing issues

The Issuer agrees that, during the period commencing on the date of this Agreement and ending on the date which is 30 calendar days after the Closing Date, neither the Issuer nor any of its Subsidiaries nor any other person on their behalf, will, without the prior written consent of the Managers, issue, place, offer, sell, contract to sell or otherwise dispose of any other notes, bonds or other debt securities in any financial market.

 

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4.5	Delivery of Notes

The Issuer shall make arrangements reasonably satisfactory to the Managers to procure that the Temporary Global Note shall be exchanged for a Permanent Global Note or for Definitive Notes, that the Permanent Global Note shall be exchanged for Definitive Notes, in each case in accordance with the Agency Agreement and the relevant Note.

 

4.6	Listing and Trading

The Issuer shall use all reasonable endeavours to procure that the Notes are admitted to listing on the Official List of the FCA and to trading on the Regulated Market of the London Stock Exchange, and to maintain such admission/listing until none of the Notes is outstanding; provided, however, that, if it is impracticable or unduly burdensome to maintain such admission/listing, the Issuer shall use all reasonable endeavours to procure and maintain as aforesaid the admission to listing, trading and/or quotation for the Notes by such other competent authorities, stock exchanges and/or quotation systems as it may (with the approval of the Managers and the Trustee) decide and further, the Issuer shall be responsible for any fees incurred in connection therewith.

 

4.7	No fiduciary duty

The Issuer:

 

4.7.1

acknowledges and agrees that no fiduciary or agency relationship between the Issuer and any Manager has been created in respect of any issue of Notes, irrespective of whether any Manager has advised or is advising the Issuer on other matters; and

 

4.7.2

hereby waives any claims that it may have against any Manager with respect to any breach of fiduciary duty in connection with any issue of Notes.

 

4.8	Stabilisation

In relation to the Notes, the Issuer authorises the Stabilising Manager to make adequate public disclosure of the information required by Commission Regulation (EC) 2273/2003.

 

4.9

Proceeds

 

4.9.1

The Issuer will ensure that the proceeds raised in connection with the issue of the Notes will not (to the extent that it, having made reasonable inquiries, is able to link the application of the proceeds of the Notes to the relevant activities) directly or indirectly be lent, contributed or otherwise made available (in a manner which results in a violation of any Sanctions) to any person or entity (whether or not related to the Issuer) for the purpose of financing the activities of any person, entity or vessel currently the subject of Sanctions or located, organised or resident in any country or territory that is the subject of Sanctions or in any other manner that will result in a violation by any person (including any Manager) of Sanctions;

 

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4.9.2

it will ensure that the proceeds raised in connection with the issue of the Notes will not (to the extent that it, having made reasonable inquiries, is able to link the application of the proceeds of the Notes to the relevant activities) directly or indirectly be lent, contributed or otherwise made available in any manner that would result in a violation of the Foreign Corrupt Practices Act of 1977 or the UK Bribery Act 2010; and

 

4.9.3

it will use the net proceeds for the issuance of the Notes in the manner described in the Prospectus under “Use of Proceeds”.

 

4.10	Notification of Event of Default or Restructuring Event

It shall notify each of the Managers and the Trustee promptly upon it becoming aware of the occurrence of an Event of Default or a Restructuring Event.

 

5.	SELLING RESTRICTIONS

Each of the parties to this Agreement represents, warrants and undertakes as set out in the Schedule.

 

6.	INDEMNIFICATION

The Issuer undertakes to each Manager that if that Manager or any of that Manager’s Related Parties incurs any Loss arising out of, in connection with or based on:

 

6.1.1

Misrepresentation: any inaccuracy or alleged inaccuracy of any representation and warranty by the Issuer in this Agreement (on the date of this Agreement or on any date when it is deemed to be repeated); or

 

6.1.2

Breach: any breach or alleged breach by the Issuer of any of its undertakings in this Agreement; or

 

6.1.3

Prospectus: any untrue or misleading (or allegedly untrue or misleading) statement in, or any omission (or alleged omission) from, the Preliminary Prospectus or the Prospectus,

the Issuer shall pay to that Manager on demand an amount equal to such Loss. No Manager shall have any duty or other obligation, whether as fiduciary or trustee for any of its Related Parties or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause.

 

7.	FEES AND EXPENSES

 

7.1	Combined management and underwriting commission

The Issuer shall, on the Closing Date, pay to Barclays for the account of the Managers a combined management and underwriting commission of 0.485 per cent. of the aggregate principal amount of the Notes. Such commission shall be deducted from the Issue Price.

 

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7.2	Issuer’s costs and expenses

The Issuer is responsible for paying:

 

7.2.1

Professional advisers: the fees and expenses of the legal, accountancy and other professional advisers instructed by the Issuer (including, for the avoidance of doubt, the fees and expenses of the Managers’ legal advisers) in connection with the creation and issue of the Notes and the preparation of the Preliminary Prospectus and the Prospectus;

 

7.2.2

Legal documentation: the costs incurred in connection with the preparation and execution of this Agreement and the Issue Documents and any other document connected with the Notes;

 

7.2.3

Printing: the cost of setting, proofing, printing and delivering the Preliminary Prospectus, the Prospectus, the Temporary Global Note, the Permanent Global Note and any Definitive Notes;

 

7.2.4

Trustee and Agents: the fees and expenses of the other parties to the Issue Documents (other than, for the avoidance of doubt, any tax on such parties’ net income, profit or gains);

 

7.2.5

Advertising: the cost of any advertising agreed between the Issuer and the Managers;

 

7.2.6

Listing and trading: the costs incurred in connection with the application for the Notes to be admitted to the Official List of the FCA and admitted to trading on the Regulated Market of the London Stock Exchange;

 

7.2.7

Ratings: the cost of obtaining any credit rating for the Notes.

If any of the Managers incurs any of such fees, costs and expenses on behalf of the Issuer, the Issuer shall on demand reimburse that Manager for the same. Any amount due to a Manager under this sub-clause may be deducted from the Issue Price.

 

7.3	Management expenses

In addition, the Issuer shall reimburse each Manager on demand for all legal fees and expenses and any travelling, communication, courier, postage and other out-of-pocket expenses incurred by it in connection with the management of the issue of the Notes. Any amount due to a Manager under this sub-clause may be deducted from the Issue Price.

 

7.4

Taxes

All payments by and on behalf of the Issuer in respect of the obligations of the Issuer under this Agreement shall be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of within the United Kingdom or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result in the receipt by the relevant Manager of such amounts as would have been received by it if no such withholding or deduction had been required.

 

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7.5	Stamp duties

The Issuer shall pay all stamp, registration and other taxes and duties (including any interest and penalties thereon or in connection therewith) which may be payable upon or in connection with the creation and issue of the Notes and the execution of this Agreement and the Issue Documents, and the Issuer shall indemnify each Manager against any claim, demand, action, liability, damages, cost, loss or expense (including, without limitation, legal fees) which it may incur as a result or arising out of or in relation to any failure to pay or delay in paying any of the same.

 

8.

CLOSING

 

8.1

Closing

Subject to Clause 8.3 (Conditions precedent), the closing of the issue shall take place on the Closing Date, whereupon:

 

8.1.1

Delivery of Temporary Global Note: the Issuer shall deliver the Temporary Global Note, duly executed on behalf of the Issuer and authenticated in accordance with the Issue Documents, to a Common Safekeeper designated for the purpose by Euroclear and Clearstream, Luxembourg for credit on the Issue Date to the account of Euroclear and Clearstream, Luxembourg with such Common Safekeeper; and

 

8.1.2

Payment of net issue proceeds: against such delivery, the Managers shall procure the payment of the net proceeds of the issue of the Notes (namely the Issue Price plus (if the Closing Date is postponed in accordance with Clause 8.2 (Postponed closing)) accrued interest less the fees and expenses that are to be deducted pursuant to Clause 7 (Fees and Expenses)) to the Issuer by credit transfer in Sterling for immediate value to such account as the Issuer has designated to the Managers.

 

8.2	Postponed closing

The Issuer and the Joint Lead Managers (on behalf of the Managers) may agree to postpone the Closing Date to another date not later than 20 November 2015, whereupon all references herein to the Closing Date shall be construed as being to that later date.

 

8.3	Conditions precedent

The Managers shall only be under obligation to subscribe and pay for the Notes if:

 

8.3.1

Closing documents: the Managers receive on (or, in the case of the evidence referred to in sub-paragraph (d), on or before) the Closing Date:

 

(a)

Legal opinions: legal opinions dated the Closing Date and addressed to the Managers, the Trustee and the Principal Paying Agent from Allen & Overy LLP in a form acceptable to the Managers;

 

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(b)

Internal Authorisations of the Issuer: certified copies of constitutive documents of the Issuer and internal authorisations of the Issuer authorising the issue of the Notes, the execution of this Agreement and the Issue Documents and the performance of the Issuer’s obligations thereunder and the appointment of the persons named in sub-clause 8.3.1(d) below (Certificate of Incumbency);

 

(c)

Closing certificate: a closing certificate dated the Closing Date, addressed to the Managers and, signed by duly authorised signatory on behalf of the Issuer in a form acceptable to the Managers;

 

(d)

Certificate of Incumbency: certificates from the Issuer certifying the names, titles and specimen signatures of the persons authorised on behalf of the Issuer, as the case may be:

 

(i)

to execute this Agreement and the Issue Documents or the Notes (as appropriate);

 

(ii)

to authorise the issue of the Notes and sign or give or deliver all notices and other documents to be delivered in connection with this Agreement and the Issue Documents; and

 

(iii)

to take any other action in relation to this Agreement and the Issue Documents;

 

(e)

Comfort letters: comfort letters dated the date of this Agreement and the Closing Date and addressed to the Managers from Ernst & Young LLP; in a form acceptable to the Managers;

 

(f)

Rating: confirmation from Moody’s Investors Service Limited, Standard & Poor’s Credit Market Services Europe Limited and Fitch Ratings Limited that they have assigned a rating to the Notes;

 

(g)

Issuer – ICSDs Agreement: a duly executed or conformed copy of the agreement between the Issuer and the ICSDs with respect to the settlement in the ICSDs of Notes in New Global Note form;

 

(h)

Effectuation Authorisation: a duly executed or conformed copy of the authorisation from the Issuer to the relevant ICSD acting as Common Safekeeper to effectuate the Temporary Global Note and the Permanent Global Note; and

 

(i)

Common Safekeeper Election Form: a duly executed or conformed copy of the election form pursuant to which the Fiscal Agent has elected an ICSD as Common Safekeeper in accordance with Clause 4.5 (Election of Common Safekeeper) of the Agency Agreement;

 

8.3.2

Issue documentation: the Issue Documents are executed on or before the Closing Date by or on behalf of all parties thereto;

 

8.3.3

No material adverse change: there has, since the date of this Agreement, been no adverse change, or any development reasonably likely to involve an adverse change, in the condition (financial or otherwise) of the Issuer or any of its Subsidiaries that is material in the context of the issue of the Notes;

 

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8.3.4

Accuracy of representations: the representations and warranties by the Issuer in this Agreement are true and correct on the date of this Agreement and on each date on which they are deemed to be repeated and would be true and correct if they were repeated on the Closing Date with reference to the facts and circumstances then subsisting;

 

8.3.5

Listing and trading: the Managers receive confirmation on or before the Closing Date that the Notes have, subject only to the execution, authentication and delivery of the Temporary Global Note, been admitted to the Official List of the FCA and admitted to trading on the Regulated Market of the London Stock Exchange

provided, however, that the Joint Lead Managers (on behalf of the Managers) may, at their discretion, waive satisfaction of any of the conditions specified in this Clause 8.3.

 

9.	TERMINATION

 

9.1	Managers’ right to terminate

The Managers may give a termination notice to the Issuer at any time prior to the payment of the net proceeds of the issue of the Notes to the Issuer on the Closing Date if:

 

9.1.1

Inaccuracy of representation: any representation and warranty by the Issuer in this Agreement is or proves to be untrue or incorrect on the date of this Agreement or on any date on which it is deemed to be repeated;

 

9.1.2

Breach of obligation: the Issuer fails to perform any of its obligations under this Agreement;

 

9.1.3

Failure of condition precedent: any of the conditions in Clause 8.3 (Conditions precedent) is not satisfied or waived by the Joint Lead Managers (on behalf of the Managers) on the Closing Date; or

 

9.1.4

Force majeure: since the date of this Agreement there has been, in the opinion of the Managers, such a change in national or international financial, political or economic conditions or currency exchange rates or exchange controls as would in its view be likely to prejudice materially the success of the offering and distribution of the Notes or dealings in the Notes in the secondary market.

 

9.2	Consequences

Upon the giving of a termination notice under Clause 9.1 (Managers’ right to terminate) and subject to Clause 9.3 (Saving):

 

9.2.1

Discharge of Issuer: the Issuer shall be discharged from performance of its obligations under Clauses 2.1 (Undertaking to issue), 7.1 (Combined management and underwriting commission) and sub-clause 8.1.1 (Delivery of Temporary Global Note); and

 

9.2.2

Discharge of Managers: the Managers shall be discharged from performance of their respective obligations under Clause 2.2 (Undertaking to subscribe) and sub-clause 8.1.2 (Payment of net issue proceeds).

 

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9.3

Saving

A discharge pursuant to Clause 9.2 (Consequences) shall not affect the other obligations of the parties to this Agreement and shall be without prejudice to accrued liabilities.

 

10.

SURVIVAL

The provisions of this Agreement shall continue in full force and effect notwithstanding the completion of the arrangements set out herein for the issue of the Notes and regardless of any investigation by any party to this Agreement.

 

11.

TIME

Any date or period specified herein may be postponed or extended by mutual agreement among the parties but, as regards any date or period originally fixed or so postponed or extended, time shall be of the essence.

 

12.

NOTICES

 

12.1	Addresses for notices

All notices and other communications hereunder shall be made in writing and in English (by letter or fax) and shall be sent as follows:

 

12.1.1

Issuer: if to the Issuer, to it at:

 

Western Power Distribution PLC

Avonbank

Feeder Road

Bristol BS2 0TB

 

Tel:      + 44 (0)1179 332000

Fax:     + 44 (0)1179 332001

Attention: Company Secretary

 

12.1.2

Managers: if to the Managers, to them at:

 

Barclays Bank PLC

5 The North Colonnade

London E14 4BB

United Kingdom

 

Tel:      +44 (0) 20 7773 9090

Fax:     +44 (0) 20 7516 7548

Attention: Debt Syndicate

 

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12.2	Effectiveness

Every notice or other communication sent in accordance with Clause 12.1 (Addresses for notices) shall be effective upon receipt by the addressee; provided, however, that any such notice or other communication that is received (or deemed to take effect in accordance with the foregoing) outside business hours or on a non-business day in the place of receipt shall be deemed to take effect at the opening of business on the next following business day in such place. Any communication delivered to any party under this Agreement which is to be sent by fax or electronic communication will be written legal evidence. Each communication from the Issuer may only be revoked if the relevant Manager has not acted on it.

 

13.	ASSIGNMENT

 

13.1	By the Issuer

The Issuer may not assign or transfer its rights or obligations under this Agreement without the prior written consent of the Managers and any purported assignment or transfer without such consent shall be void.

 

13.2	By the Managers

No Manager may assign its rights or transfer its obligations under this Agreement, in whole or in part, without the prior written consent of the Issuer and any purported assignment or transfer without such consent shall be void, except for an assignment and transfer of all of such Manager’s rights and obligations hereunder in whatever form such Manager determines may be appropriate to a partnership, corporation, trust or other organisation in whatever form that may succeed to, or to which the Manager transfers, all or substantially all of such Manager’s assets and business and that assumes such obligations by contract, operation of law or otherwise. Upon any such transfer and assumption of obligations, such Manager shall be relieved of and fully discharged from all obligations under this Agreement, whether such obligations arose before or after such transfer and assumption.

 

14.	LAW AND JURISDICTION

 

14.1	Governing law

This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.

 

14.2	English courts

The courts of England have exclusive jurisdiction to settle any dispute (a “Dispute”), arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement or any non-contractual obligation arising out of or in connection with this Agreement) or the consequences of its nullity.

 

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14.3	Appropriate forum

The Issuer agrees that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary.

 

14.4	Rights of the Managers to take proceedings outside England

Notwithstanding Clause 14.2 (English courts), the Managers may take proceedings relating to a Dispute (“Proceedings”) in any other courts with jurisdiction. To the extent allowed by law, the Managers may take concurrent Proceedings in any number of jurisdictions.

 

15.	RIGHTS OF THIRD PARTIES

A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement except and to the extent (if any) that this Agreement expressly provides for such Act to apply to any of its terms.

 

16.	COUNTERPARTS

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when so executed shall constitute one and the same binding agreement between the parties.

AS WITNESS the hands of the duly authorised representatives of the parties to this Agreement the day and year first before written.

 

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SCHEDULE

Selling Restrictions

 

1.

GENERAL

Each Manager undertakes to the Issuer that it will comply with all applicable laws and regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Notes or has in its possession or distributes the Prospectus or any related offering material, in all cases at its own expense.

 

2.	UNITED STATES

 

2.1	No registration under Securities Act

The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

 

2.2	Compliance by Issuer with United States securities laws

The Issuer represents, warrants and undertakes to each of the Managers that neither it nor any of its respective affiliates (including any person acting on behalf of the Issuer or any of its affiliates) has offered or sold, or will offer or sell, any Notes in any circumstances which would require the registration of any of the Notes under the Securities Act or the qualification of the Trust Deed as an indenture under the United States Trust Indenture Act of 1939 and, in particular, that:

 

2.2.1

No directed selling efforts: neither the Issuer nor any of its affiliates nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Notes; and

 

2.2.2

No SUSMI: the Issuer reasonably believes that there is no substantial U.S. market interest in its debt securities.

 

2.3	Managers’ compliance with United States securities laws

Each Manager represents, warrants and undertakes to the Issuer that it has not offered or sold, and will not offer or sell, any Notes constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S under the Securities Act and, accordingly, that neither it nor any of its affiliates (including any person acting on behalf of such Manager or any of its affiliates) has engaged or will engage in any directed selling efforts with respect to the Notes.

 

2.4	Managers’ compliance with United States Treasury regulations

Each Manager represents, warrants and undertakes to the Issuer that:

 

2.4.1

Restrictions on offers etc: except to the extent permitted under United States Treasury Regulation §1.163-5(c)(2)(i)(D) (the “D Rules”):

 

(a)

No offers etc to United States or United States persons: it has not offered or sold, and during the restricted period will not offer or sell, any Notes to a person who is within the United States or its possessions or to a United States person; and

 

(b)

No delivery of definitive Notes in United States: it has not delivered and will not deliver in definitive form within the United States or its possessions any Notes sold during the restricted period;

 

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2.4.2

Internal procedures: it has, and throughout the restricted period will have, in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Notes are aware that the Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules; and

 

2.4.3

Additional provision if United States person: if it is a United States person, it is acquiring the Notes for the purposes of resale in connection with their original issuance and, if it retains Notes for its own account, it will only do so in accordance with the requirements of United States Treasury Regulation §1.163-5(c)(2)(i)(D)(6),

and, with respect to each affiliate of such Manager that acquires Notes from such Manager for the purpose of offering or selling such Notes during the restricted period, such Manager undertakes to the Issuer that it will obtain from such affiliate for the benefit of the Issuer the representations, warranties and undertakings contained in sub-clauses 2.4.1, 2.4.2 and 2.4.3.

 

2.5	Interpretation

Terms used in clauses 2.2 and 2.3 above have the meanings given to them by Regulation S under the Securities Act. Terms used in clause 2.4 above have the meanings given to them by the United States Internal Revenue Code and regulations thereunder, including the D Rules.

 

3.	UNITED KINGDOM

Each Manager represents, warrants and undertakes to the Issuer and each other Manager that:

 

3.1

Financial promotion: it has only communicated or caused to be communicated, and will only communicate or cause to be communicated, any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and

 

3.2	General compliance: it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

 

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SIGNATURES

The Issuer

WESTERN POWER DISTRIBUTION PLC

 

By:

 

The Managers

BARCLAYS BANK PLC

 

By:

BANCO SANTANDER, S.A

HSBC BANK PLC

LLOYDS BANK PLC

MITSUBISHI UFJ SECURITIES INTERNATIONAL PLC

MIZUHO INTERNATIONAL PLC

RBC EUROPE LIMITED

THE ROYAL BANK OF SCOTLAND PLC

 

By:
		(under power of attorney)

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SIGNATURES

The Issuer

WESTERN POWER DISTRIBUTION PLC

 

By:

 

The Managers

BARCLAYS BANK PLC

 

By:

BANCO SANTANDER, S.A

HSBC BANK PLC

LLOYDS BANK PLC

MITSUBISHI UFJ SECURITIES INTERNATIONAL PLC

MIZUHO INTERNATIONAL PLC

RBC EUROPE LIMITED

THE ROYAL BANK OF SCOTLAND PLC

 

By:
		(under power of attorney)