Explanatory Foreword 2. Statement of Directors Responsibilities 5. Annual Governance Statement 6. Independent Auditor s Report 10

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3 Contents Page Explanatory Foreword 2 Statement of Directors Responsibilities 5 Annual Governance Statement 6 Independent Auditor s Report 10 Comprehensive Income and Expenditure Statement 13 Balance Sheet 15 Movement in Reserves Statements 16 Cash Flow Statement 19 Notes to the Accounts 20 Glossary 56 Addresses and Contact Details 66 1

4 Explanatory Foreword Tyne and Wear Passenger Transport Executive is a body corporate under the Transport Act 1968 and operates under the name of Nexus. The Directors are appointed by Tyne and Wear Integrated Transport Authority ( ITA ) and, in the year to 31 March 2014 were:- Executive Directors Bernard Garner Director General Ken Mackay Director of Rail and Infrastructure (to 01 August 2013) John Fenwick Director of Finance and Resources, Tobyn Hughes Director of Customer Services Raymond Johnstone Director of Rail and Infrastructure (from 01 January 2014) Non-Executive Directors Pat Ritchie (from 01 April 2013) Paul Woods Harvey Emms Peter Wignall Activities Nexus Who we are Nexus is the Tyne and Wear Passenger Transport Executive and with effect from April 2014, acts as a delivery agency for the North East Combined Authority. Our task is to improve the quality of life and fortunes of everyone in Tyne and Wear, by creating better transport networks. We provide, plan and promote public transport to improve the economic prosperity of Tyne and Wear, and the daily lives of its people. We also look to the future, creating the travel networks people will want to use in decades to come. We are responsible for the Tyne and Wear Metro which is operated by DB Regio Tyne and Wear Limited to a specification set by Nexus who continue to own, maintain and renew the system, with the Integrated Transport Authority (ITA) (now the North East Combined Authority) having overall responsibility for fares policy. It has 60 stations with peak service trains running every three minutes through the central core. Bus services in Tyne and Wear are provided by commercial operators who define and operate approximately 90% of routes. Nexus monitors bus service performance and secures the remaining approximate ten per cent of routes, around 200 services or parts of services by contract. Nexus also manages major bus stations at Park Lane Interchange (Sunderland), Eldon Square and Haymarket (Newcastle), Four Lane Ends, Heworth, Gateshead Interchange, Wallsend, Jarrow, Blaydon and South Shields. We are seeking to improve local bus services, working with local councils and operators through the Bus Strategy to meet the needs of local people. That means making sure buses go where people want them to, and providing a safe and welcoming travel environment. And we are investing in smart travel, with the new Pop card for use on Metro and beyond to make buying a ticket simpler and more flexible. Residents of Tyne and Wear enjoy several concessionary travel schemes (both statutory and discretionary) administered by Nexus which provide free and reduced price travel on different modes of transport. Nexus runs the only remaining cross-tyne ferry, the Shields Ferry service and also funds the train operating service on the Network Rail line between Newcastle and Sunderland. In addition, Nexus also provides information to the public via website, a call centre, electronic displays and printed materials. 2

5 Explanatory Foreword Our capital investment plans include the Metro: all change modernisation programme, providing a step change in comfort and reliability for our passengers where we are now at the end of the fourth year of an eleven year 390m programme to renew and upgrade Metro, having secured capital funding from the Department for Transport in February Performance and Development The following indicators describe the general performance of public transport in Tyne and Wear during 2013/14. The number of passenger journeys across Tyne and Wear totalled more than 172 million; representing a decrease of over 6 million journeys when compared to the previous year 2012/13. The main contributor to the patronage decline was Bus, with the number of journeys declining by almost 5 million in 2013/14 to under 135 million. Metro patronage declined by 1.3 million in 2013/14 to 35.7 million journeys, half of which is attributed to Major Line Closures, a necessary feature of our Metro: all change modernisation programme. The impact that this loss of patronage has on Nexus financial performance is kept under constant review. The cross Tyne ferry carried 480,000 passengers in 2013/14, up from 432,000 the year before but below the 500,000 journeys for the two years prior. The partial recovery will have been somewhat helped by the particularly good weather during the summer period compared to the higher than average rainfall in 2012/13. Rail passengers in Tyne and Wear made more than 1.2 million journeys on local services. Metro reliability (operated mileage) has remained at 98.2% during 2013/14. Metro Charter punctuality was 82.6% during 2013/14, a decrease on the 88.0% in the previous year. Financial Review The surplus for the group after grants and taxation was 36.3m. This compares to the surplus reported in the prior year of 27.2m. The main reasons for the difference between years relates to the movements in the pensions reserve where a 16.1m decrease in the pensions liability was reported and the timing of grant receipts which saw a decrease of 10.0m in 2013/14. The Nexus management accounts reported a trading loss of 0.884m before taxation and movements in capital reserves. A reconciliation between the management accounts and the surplus as reported in the Comprehensive Income and Expenditure Statement is included in note 4 to these accounts. The balance of usable revenue reserves stands at 15.3m at the end of the year, with a further 9.4m earmarked to be utilised in support of the medium term financial strategy during 2014/15 and 2015/16 in order to protect services, pending the delivery of a package of sustainable efficiency savings with effect from 2016/ m is retained in usable capital reserves to fund future investment with an estimated 4.5m specifically earmarked through to 2016/17. The remainder is identified for future investment plans relating to Metro and other public transport infrastructure as well as a general contingency to provide for any unforeseen, uninsurable losses across Nexus estate of fixed assets. During the year Nexus invested 37.7m of capital expenditure in public transport in Tyne and Wear which was funded primarily by grants. The liquidity of Nexus remained strong with net current assets of 54.8m, adequate to cover both short term fluctuations and future commitments from usable reserves. 3

6 Explanatory Foreword The Pension deficit has decreased from 58.5m to 42.4m with the results of the March 2013 actuarial valuation reported during the year, setting the terms under which Nexus will make payments to the Tyne and Wear Pension Fund between 2014/15 and 2016/17 financial years, which include a significant commitment to eradicate its share of the deficit on the Fund. The next actuarial valuation is due as at March 2016 with the results expected to be communicated sometime during the autumn of Financial Instruments Nexus manages the risk on its investments by restricting its list of counterparties to institutions to those with an adequate credit rating. The period of investments is also restricted dependant on the credit rating of the counterparty. The amount invested in a particular institution is also restricted by the application of a ceiling. Donations Nexus made no disclosable political or charitable donations during the year. 4

7 Statement of Directors Responsibilities The Directors are required by company law to prepare financial statements for each financial year which present a true and fair view of the Executive's financial position and performance for that period. In preparing the financial statements, the Directors are required to: (i) (ii) (iii) (iv) (v) (vi) select suitable accounting policies and apply them consistently, ensure that the financial statements are prepared in accordance with the requirements of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom and with the Accounts and Audit Regulations 2011, make judgements and estimates that are reasonable and prudent, state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements, keep proper financial records which are up to date, and ensure that the financial management and accounting control systems are adequate and effective. 5

8 Annual Governance Statement Scope of responsibility 1. Tyne and Wear Passenger Transport Executive (Nexus) is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for and used economically, efficiently and effectively. Nexus also follows best practice in making arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness. 2. In discharging this overall responsibility Nexus is responsible for putting in place proper arrangements for the governance of its affairs, facilitating the effective exercise of its functions and which includes arrangements for the management of risk. 3. Nexus has approved and adopted a code of corporate governance which is consistent with the principles of the CIPFA/SOLACE Framework Delivering Good Governance in Local Government. This statement explains how Nexus has complied with the code and also meets the requirements of the Accounts and Audit (England) Regulations 2011, regulation 4(3) which requires all relevant bodies to prepare an Annual Governance Statement. The purpose of the governance framework 4. The governance framework comprises the systems and processes, culture and values by which Nexus is directed and controlled and its activities through which it accounts to, engages with and leads its communities. It enables Nexus to monitor the achievement of its strategic objectives and consider whether those objectives have led to the delivery of appropriate services and value for money. 5. The system of internal control is a significant part of that framework and is designed to manage risk to a reasonable level. It cannot eliminate all risk of failure to achieve policies, aims and objectives and can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an on-going process designed to identify and prioritise the risks to the achievement of Nexus policies, aims and objectives, to evaluate the likelihood and impact of those risks being realised and the impact should they be realised and to manage them efficiently, effectively and economically. 6. The governance framework has been in place at Nexus for the year ended 31 March 2014 and up to the date of approval of the annual accounts. The governance environment 7. The key elements of the governance arrangements are:- The Integrated Transport Authority (ITA), formerly the Passenger Transport Authority, is the statutory corporate body responsible for designing policies to promote and enhance the provision of public passenger transport and for overseeing the implementation of those policies through Nexus. The ITA develops and approves a Local Transport Plan which reflects the policy objectives of it, together with the Local Authorities in Tyne and Wear and is prepared in accordance with detailed guidance from Government LTP3 3rd Local Transport Plan for Tyne and Wear Strategy 2011/2021. Working within the ITA s policies and to achieve its overarching objectives, Nexus has published its Corporate Business Plan entitled Building for tomorrow through better transport today. A corporate performance management system is in place to identify and deal with possible failures in service delivery. Progress against departmental/sectional key performance indicators and service improvement plans, drawn from the annual business plan, is monitored on a quarterly basis. An updated performance reporting system introduced in 2012 continues with the submission of departmental periodic (4 weekly) reports in respect of performance to the Nexus Management Committee and its Executive Board, together with an executive performance report. 6

9 Annual Governance Statement The roles and responsibilities of the Board Directors (both Executive and Non-Executive) are set out in Nexus Standing Orders. The Board has a work programme covering (not exclusively) approval of the Corporate Plan, key objectives, policies, financial and risk strategies alongside service and financial performance monitoring throughout the year. Powers are delegated formally from the Board to standing committees and individuals as recorded in the Standing Orders document which are available to all employees via the Nexus intranet. The day-to-day business of Nexus is governed by formal Standing Orders including Financial Regulations which includes a Code of Conduct for Directors and Employees as well as separate specific policies and regulations which cover the proper use of computing resources, fraud and corruption, gifts and hospitality and a number of other areas. The Standing Orders including Financial Regulations are reviewed by a group comprising senior officers within Nexus who submit an updated document for approval by the Executive Board as and when necessary. The Executive Board approved the updated document at its meeting on 13 December 2012 and it has been subject to minor updates during 2013/4. As part of the continual review process, Heads of Service are required to complete and sign an annual assurance statement declaration outlining the key features of the systems of internal control within their area of responsibility. In addition, Heads of Service, along with Directors of the Executive Board are required to sign a related party transactions declaration, highlighting their relationships with external organisations with whom Nexus may have transacted and where this could be of material significance to the annual accounts This allows them to identify whether the arrangements set out are in place and operating effectively, identify problems encountered and set out action that has been taken or is proposed to address those issues. Any significant risks identified by general reporting will be considered by the Board for inclusion in the Strategic Risk Register. During 2013/14, the strategic risk register was reviewed and approved by the Executive. Departmental risk registers are formally reviewed and updated periodically alongside a review of the status of approved departmental action plans. An Audit Committee exists which reviews the adequacy of internal controls, monitors the performance of Internal Audit, and agrees the internal and external audit plan and oversees corporate governance requirements. Nexus operates an internal audit service, supplemented by specialist audit services from Newcastle City Council under a service level agreement, which is subject to regular inspection by the external auditors who report annually to the Audit Committee. The external auditors place great reliance on the work carried out by the section. Internal audit monitor and review the quality and effectiveness of internal control. The audit plan is developed in line with best practice using a robust risk model, informed by the annual audit strategy and is approved by the Audit Committee. The audit methodology is contained within the Audit manual which is largely based on the CIPFA model. In addition all Internal Audit work is planned and carried out with regard to Public Sector Internal Audit Standards. Reports for each audit are submitted to relevant line managers and Directors where appropriate. Reports include the Internal Audit Manager s independent opinion on the adequacy and effectiveness of the system of internal control, together with recommendations for any improvements. The process is subject to escalation where agreement cannot be reached and includes quarterly reviews of recommendations of the Audit Committee to ensure that they are acted upon. Nexus operates a Performance Review process for all managerial staff including Directors (which are known as ABC Reviews). This review process is intended in part to ensure that sufficient skills and knowledge are held by staff to allow them to carry out their roles effectively and to meet known future requirements in line with corporate improvement projects and plans. 7

10 Annual Governance Statement Nexus carries out a substantial amount of involvement activity including market research and customer satisfaction tracking studies and there is a formal complaints procedure for those who want to express their dissatisfaction with any aspect of public transport delivery. Nexus has in place a protocol and strategy for acting in partnership with other bodies. Major partnerships are governed by statutory and legal frameworks. The Nexus Board review partnership arrangements on an annual basis. On 1st April 2010 Nexus appointed DB Regio Tyne and Wear Limited to provide railway passenger services for the Metro Concession under the terms of an agreement dated 2nd February 2010 until March 2017 with an option available to Nexus to extend to March The agreement is underpinned by a comprehensive set of agreements managed throughout the organisation but overseen by a bespoke department (the Concession Office), under the terms of the said agreements. In addition to regular ad hoc meetings between the parties to discuss issues arising, under the terms of the Concession Agreement DB Regio are compelled to attend on a formal basis in each Reporting Period, in order to review their performance, a Concession Performance Meeting, Safety Meeting, Train Fleet Meeting, Finance Meeting, Service Delivery Meeting and Infrastructure and Engineering Meeting. DB Regio is held to account via a number of performance regimes which incentivise them to comply with the terms of the concession agreement. A periodic payment is made by Nexus to DB Regio on a four weekly basis, adjusted as necessary to reflect over or under performance. During the financial year 2013/14, Nexus continued the third year of its Metro All Change programme which will deliver 390m of investment across the Tyne and Wear Metro system during the next decade. In order to effectively govern this programme, specific reporting requirements ensure that period progress is reported to Management Committee each reporting period including progress, reporting and consideration of monthly reports to DfT. During the financial year 2013/14, Nexus continued to progress its Ticketing and Gating project which will deliver new ticket machines, gates and validators at stations together with specialist software, introducing smart travel on the Metro system. The programme is expected to be finalised in 2014/15 and the Nexus Executive Board has been kept fully appraised of progress at its 4 weekly cycle of meetings via regular updates from the internal Ticketing and Gating Project Board Review of effectiveness 8. Nexus has responsibility for conducting, at least annually, a review of the effectiveness of its governance framework including the system of internal control. The review of effectiveness is informed by the work of the managers within Nexus who have responsibility for the development and maintenance of the governance environment, the Internal Audit Manager s annual report and also by comments made by the external auditors and other review agencies and inspectorates. The terms of reference for the Audit Committee say it will:- i. Consider and make recommendations to the ITA in the appointment of the external Auditor and the audit fee in light of any advice received from the Audit Commission; ii. iii. iv. Consider the draft Annual Audit Letter from the external Auditor and the draft Final Accounts; Consider Nexus' internal control systems, together with the internal audit programme and assessment of the audit performance, including quarterly audit progress reports; Discuss with the external Auditor, before the audit commences, the nature and scope of the audit and its relationship with the Internal Audit Section's programme; v. Review any significant findings of internal investigations and receive and act upon Internal Audit Reports on breaches of Standing Orders; vi. Review Nexus' Risk Management Strategy bi-annually and make recommendations therein; and vii. Review the Gifts and Hospitality Register quarterly and other registers, etc. as considered necessary. 8

11 Annual Governance Statement 9. The Internal Audit Manager reports to the Nexus Director of Finance and Resources, but in order to ensure independence has a right of access to both the Director General and the Nexus Audit Committee. 10. The Internal Audit Manager provides an independent opinion on the adequacy and effectiveness of the system of internal control, which it incorporates in its Audit Report to the Audit Committee. 11. Heads of Service have carried out self-assessments of the processes and controls they have in place to allow them to achieve their service objectives. Such assessments are completed on an annual basis. 12. The performance management framework requires scrutiny of departmental action plans and key performance indicators as they relate to the delivery of strategies, underpinned by the Corporate Plan. Management Committee and Executive receive a report for each period in relation to this subject by way of departmental Flash Reports covering key aspects of the services that Nexus delivers. 13. The review of the effectiveness of the system of internal control is informed by:- the work of Heads of Service within Nexus; the work of Internal Audit service; the performance management framework; the external auditors in their reports. 14. The results of the review of Nexus system of internal controls have concluded that it is satisfactory and effective and that Nexus has in place adequate corporate arrangements for securing economy, efficiency and effectiveness in the use of its resources. 15. Nexus financial management arrangements conform to the government s requirements of the CIPFA statement on the role of the Chief Financial Officer in local government. 16. In summary, the Director of Finance and Resources is Nexus nominated section 151 officer and is responsible for making arrangements for the proper administration of Nexus financial affairs. In regard to the role that the Director of Finance and Resources undertakes within Nexus as it relates to the CIPFA statement on the role of the Chief Financial Officer in local government, the Director of Finance and Resources:- is one of four Executive Directors and is therefore a key member of the Nexus leadership team; is responsible for determining the financial implications of all reports that are considered by the Nexus Executive, its Management Committee and its project boards and in this respect has regard to both immediate and longer term implications, opportunities and risks as well as alignment with the organisation s medium term financial strategy; actively promotes the economic, efficient and effective use of public money; is a member of the Chartered Institute of Public Finance and Accountancy with seventeen years post qualification experience; leads a finance function that is adequately resourced and has staff that are suitably qualified. BG Garner Director General 24 July 2014 JD Fenwick Director of Finance and Resources 9

12 Independent Auditor s Report to the Directors of Tyne and Wear Passenger Transport Executive (Nexus) Opinion on the financial statements We have audited the financial statements of Tyne and Wear Passenger Transport Executive for the year ended 31 March 2014 under the Audit Commission Act The financial statements comprise the Executive and Group Movement in Reserves Statement, the Executive and Group Comprehensive Income and Expenditure Statement, the Executive and Group Balance Sheet, the Executive and Group Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and the relevant aspects of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2013/14. This report is made solely to the Directors of the Tyne and Wear Passenger Transport Executive in accordance with Part II of the Audit Commission Act 1998, as set out in paragraph 48 of the Statement of Responsibilities of Auditors and of Audited Bodies published by the Audit Commission in March Respective responsibilities of the Accounting Officer and auditor As explained more fully in the Statement of the Accounting Officer s Responsibilities, the Accounting Officer is responsible for the preparation of the Statement of Accounts, which includes the financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom, 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 Executive and Group s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Accounting Officer; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the explanatory foreword to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for my report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the financial position of the Tyne and Wear Passenger Transport Executive as at 31 March 2014 and of its expenditure and income for the year then ended; give a true and fair view of the financial position of the Group as at 31 March 2014 and of its income and expenditure for the year then ended; and have been prepared properly in accordance with the relevant aspects of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2013/14. Opinion on other matters In our opinion, the information given in the explanatory foreword for the financial year for which the financial statements are prepared is consistent with the financial statements. 10

13 Independent Auditor s Report to the Directors of Tyne and Wear Passenger Transport Executive (Nexus) Matters on which we report by exception We report to you if: in our opinion the annual governance statement does not reflect compliance with Delivering Good Governance in Local Government: a Framework published by CIPFA/SOLACE in June 2007 and the December 2012 addendum; we issue a report in the public interest under section 8 of the Audit Commission Act 1998; we designate under section 11 of the Audit Commission Act 1998 any recommendation as one that requires the Executive to consider it at a public meeting and to decide what action to take in response; or we exercise any other special powers of the auditor under the Audit Commission Act We have nothing to report in these respects. Other matters on which we are required to conclude We are required under Section 5 of the Audit Commission Act 1998 to satisfy ourselves that the Executive has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. We are also required by the Audit Commission s Code of Audit Practice to report any matters that prevent us being satisfied that the audited body has put in place such arrangements. We have undertaken our audit in accordance with the Code of Audit Practice and, having regard to the guidance issued by the Audit Commission, we have considered the results of the following: our review of the annual governance statement; the work of other relevant regulatory bodies or inspectorates, to the extent the results of the work have an impact on our responsibilities; our locally determined risk-based work. As a result, we have concluded that there are no matters to report. Delay in certification of completion of the audit We cannot formally conclude the audit and issue an audit certificate until we have completed the work necessary to issue our assurance statement in respect of the Executive s Whole of Government Accounts consolidation pack. We are satisfied that this work does not have a material effect on the financial statements or on our value for money conclusion Gareth Davies Partner, For and on behalf of Mazars LLP, The Rivergreen Centre, Aykley Heads, Durham, DH1 5TS. 24 July

14 Independent Auditor s Report to the Directors of Tyne and Wear Passenger Transport Executive (Nexus) Issue of audit opinion on the financial statements In our audit report for the year ended 31 March 2014 issued on 24 July 2014 we reported that, in our opinion, the financial statements: gave a true and fair view of the financial position of the Tyne and Wear Passenger Transport Executive as at 31 March 2014 and of its expenditure and income for the year then ended; gave a true and fair view of the financial position of the Group as at 31 March 2014 and of its expenditure and income for the year then ended; and had been prepared properly in accordance with the relevant aspects of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2013/14. Issue of value for money conclusion In our audit report for the year ended 31 March 2014 issued on 24 July 2014 we reported that, in our opinion, in all significant respects, Tyne and Wear Passenger Transport Executive had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ending 31 March Other matters on which we are required to conclude Certificate In our report dated 24 July 2014, we explained that we could not formally conclude the audit on that date until we had completed the work necessary to issue our assurance statement in respect of the Executive s Whole of Government Accounts consolidation pack. We have now completed this work. No matters have come to our attention since 24 July 2014 that have a material impact on the financial statements on which we gave an unqualified opinion and value for money conclusion. Accordingly we now certify that we have completed the audit of the accounts of Tyne and Wear Passenger Transport Executive in accordance with the requirements of the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission. Gareth Davies Partner For and on behalf of Mazars LLP, Appointed Auditor The Rivergreen Centre Aykley Heads Durham, DH1 5TS 13 August

15 Comprehensive Income and Expenditure Statement for the year ended 31 st March 2014 The Comprehensive Income and Expenditure Statements show the accounting cost in the year of providing services in accordance with generally accepted accounting practices. The figures for the year ended 31 March 2013 have been restated in accordance with the requirements of International Accounting Standard 19 (Employee Benefits) which came into effect for accounting periods beginning on or after 1st January Group * Gross Expendituriture Gross Income Net Expend- Gross Expend- Gross Income Net Expend- Notes iture iture (160,471) 85,058 (75,413) Highways and transport services (159,672) 83,800 (75,872) (2,291) - (2,291) Corporate costs (2,300) - (2,300) (356) - (356) Non distributed costs (123) - (123) (163,118 ) 85,058 (78,060 ) Cost of services (162,095 ) 83,800 (78,295 ) - 64,922 64,922 Non-specific grant income 22-66,922 66,922-38,054 38,054 Capital grants applied 22-48,077 48,077 (Loss)/Gain on disposal of non-current ) ) assets (574 - (574 (10,915) 7,022 (3,893) Financing costs and investment income 5 (10,971) 7,284 (3,687) (174,009 ) 195,056 21,047 Surplus on provision of services (173,640 ) 206,083 32, Taxation charge for the year 7 (95 ) 21,749 Surplus for the year after taxation 32,348 14,520 Remeasurement of the net Defined Benefit liability (5,160 ) 36,269 Total Comprehensive Income and Expenditure 27,188 All amounts relate to continuing operations. * Restated The notes on pages 20 to 55 form part of these accounts. 13

16 Comprehensive Income and Expenditure Statement for the year ended 31 st March 2014 Nexus * Gross Expendituriture Gross Income Net Expend- Gross Expend- Gross Income Net Expend- Notes iture iture (160,469) 85,058 (75,411) Highways and transport services (159,670) 83,800 (75,870) (2,291) - (2,291) Corporate costs (2,300) - (2,300) (356) - (356) Non distributed costs (123) - (123) (163,116 ) 85,058 (78,058 ) Cost of services (162,093 ) 83,800 (78,293 ) - 64,922 64,922 Non-specific grant income 22-66,922 66,922-38,054 38,054 Capital grants applied 22-48,077 48,077 (Loss)/Gain on disposal of non-current ) ) assets (574 - (574 (10,915) 7,022 (3,893) Financing costs and investment income 5 (10,971) 7,284 (3,687) (174,007 ) 195,056 21,049 Surplus on provision of services (173,638 ) 206,083 32, Taxation charge for the year ,768 Surplus for the year after taxation 32,460 14,520 Remeasurement of the net Defined Benefit liability (5,160 ) 36,288 Total Comprehensive Income and Expenditure 27,300 All amounts relate to continuing operations. * Restated. The notes on pages 20 to 55 form part of these accounts. 14

17 Balance Sheet as at 31 st March 2014 The Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by Nexus. The net assets of Nexus (assets less liabilities) are matched by the reserves held by Nexus. Reserves are reported in two categories usable and unusable. Usable are those reserves that Nexus may use to provide services, subject to the need to maintain a prudent level of reserves and any statutory limitations on their use. Unusable reserves are those that Nexus is not able to use to provide services. This category of reserves includes reserves that hold unrealised gains and losses, where amounts would only become available to provide services if the assets are sold; and reserves that hold timing differences. The figures for the year ended 31 March 2013 have been restated in accordance with the requirements of International Accounting Standard 19 (Employee Benefits) which came into effect for accounting periods beginning on or after 1st January Group Nexus 31 March March 2013* 31 March March 2013* Notes ASSETS Non-Current Assets Property, plant & equipment 8 440, , , ,161 Intangible assets 9 1,909 2,338 1,909 2,338 Assets under construction 10 25,948 33,412 25,948 33,412 Investments , , , ,912 Current Assets Short Term Debtors 14 18,910 30,500 18,796 30,483 Inventories , ,136 Cash and cash equivalents 13 62,900 55,644 62,897 55,639 82,723 87,280 82,606 87,258 LIABILITIES Current Liabilities Bank Overdraft Short Term borrowing 16 (3,885) (4,037) (3,885) (4,037) Short Term Creditors 17 (24,026) (29,089) (24,143) (29,303) (27,911 ) (33,126 ) (28,028 ) (33,340 ) Non-Current Liabilities Provisions 18 (735) (1,049) (735) (1,049) Long Term Borrowing 20 (50,009) (51,913) (50,009) (51,913) Deferred Taxation 19 (4,570) (5,272) (6,767) (7,486) Net Pension liabilities 21 (42,380) (58,480) (42,380) (58,480) Capital Grants Receipts in Advance 22 (227) (549) (227) (549) (97,921 ) (117,263 ) (100,118 ) (119,477 ) Net Assets 425, , , ,353 FINANCED AS FOLLOWS: Reserves as follows: Usable reserves 38,125 36,047 35,694 33,597 Unusable reserves 386, , , , , , , ,353 * Restated. The notes on pages 20 to 55 form part of these accounts. BG Garner JD Fenwick Director General Director of Finance and Resources 24 July

18 Movement in Reserves Statements for the year ended 31 st March 2014 The Movement in Reserves Statements show the movement in the year on the different reserves held by Nexus, analysed into usable reserves (i.e. those that can be applied to fund expenditure) and unusable reserves. This category of reserves includes reserves that hold unrealised gains and losses, where amounts would only become available to provide services if the assets are sold; and reserves that hold timing differences (for example the Grant Deferred Account). The Increase/(Decrease) before Transfers line shows the economic cost of providing Nexus s services and the provision of grants to fund the introduction of capital assets, more details of which are shown in the Comprehensive Income and Expenditure Statement. The figures for the year ended 31 March 2013 have been restated in accordance with the requirements of International Accounting Standard 19 (Employee Benefits) which came into effect for accounting periods beginning on or after 1st January

19 Movement in Reserves Statements for the year ended 31 st March 2014 Group Usable Reserves Unusable Reserves Pension Grant Total Total Revenue Capital Total Capital (Note 20 ) Deferred At 31 March ,497 17,737 17, ,118 38,233 (55,190 ) 343, ,615 Surplus on provision of services 32,443 32, ,443 Taxation (95) (95) (95) Remeasurement of the net Defined Benefit liability (5,160) (5,160) (5,160) Total Comprehensive Income and Expenditure 27,188 27, ,188 Grants released 15,700 15,700 - (15,700) - - (15,700) - Grants released (disposals) Capital grants applied (48,077) (48,077) - 48, ,077 - Increase/(decrease) before Transfers (5,189) (5,189) - 32, ,377 27,188 Transfer from unusable capital reserves 2,449-2,449 (2,449) (2,449) Transfer from Pension Reserve 3,290 3,290 (3,290) - (3,290) - - Increase/(decrease) in 2012/ (1,899 ) 2,449 26,638 (2,449 ) (3,290 ) 32,377 27,188 At 31 March 2013* 36,047 15,838 20, ,756 35,784 (58,480 ) 375, ,803 Surplus on provision of services 21,047 21, ,047 Taxation Remeasurement of the net Defined Benefit liability 14,520 14, ,520 Total Comprehensive Income and Expenditure 36,269 36, ,269 Grants released 17,312 17,312 - (17,312) - - (17,312) - Grants released (disposals) Capital grants applied (38,054) (38,054) - 38, ,054 - Increase/(decrease) before Transfers 15,527 15,527-20, ,742 36,269 Transfer from unusable capital reserves 2,651-2,651 (2,651) (2,651) Transfer from Pension Reserve (16,100) (16,100) - 16,100-16, Increase/(decrease) in 2013/14 2,078 (573 ) 2,651 34,191 (2,651 ) 16,100 20,742 36,269 At 31 March ,125 15,265 22, ,947 33,133 (42,380 ) 396, ,072 * Restated. The notes on pages 20 to 55 form part of these accounts. 17

20 Movement in Reserves Statements for the year ended 31 st March 2014 Nexus Usable Reserves Unusable Reserves Pension Grant Total Total Revenue Capital Total Capital (Note 20 ) Deferred At 31 March ,935 15,175 17, ,118 38,233 (55,190 ) 343, ,053 Surplus on provision of services 32,445 32, ,445 Taxation Remeasurement of the net Defined Benefit liability (5,160) (5,160) (5,160) Total Comprehensive Income and Expenditure 27,300 27, ,300 Grants released 15,700 15,700 - (15,700) - - (15,700) - Grants released (disposals) Capital grants applied (48,077) (48,077) - 48,077-48,077 - Increase/(decrease) before Transfers (5,077) (5,077) - 32, ,377 27,300 Transfer from unusable capital reserves 2,449-2,449 (2,449) (2,449) Transfer from Pension Reserve 3,290 3,290 - (3,290) - (3,290) - - Increase/(decrease) in 2012/ (1,787 ) 2,449 26,638 (2,449) (3,290 ) 32,377 27,300 At 31 March 2013* 33,597 13,388 20, ,756 35,784 (58,480 ) 375, ,353 Surplus on provision of services 21,049 21, ,049 Taxation Remeasurement of the net Defined Benefit liability 14,520 14, ,520 Total Comprehensive Income and Expenditure 36,288 36, ,288 Grants released 17,312 17,312 - (17,312) - - (17,312) - Grants released (disposals) Capital grants applied (38,054) (38,054) - 38, ,054 - Increase/(decrease) before Transfers 15,546 15,546-20, ,742 36,288 Transfer from unusable capital reserves 2,651-2,651 (2,651) (2,651) Transfer from Pension Reserve (16,100) (16,100) - 16,100-16, Increase/(decrease) in 2013/14 2,097 (554 ) 2,651 34,191 (2,651 ) 16,100 20,742 36,288 At 31 March ,694 12,834 22, ,947 33,133 (42,380) 396, , ,641 * Restated. The notes on pages 20 to 55 form part of these accounts. 18

21 The Group Cash Flow Statement shows the changes in cash and cash equivalents of Nexus during the reporting period. The statement shows how Nexus generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of Nexus are funded by way of grant income or from the recipients of services provided by Nexus. Investing activities represent the extent to which cash outflows have been made for resources which are intended to contribute to Nexus s future service delivery. Cash flows arising from financing activities are useful in predicting claims on future cash flows by providers of capital (i.e. borrowing) to Nexus. Group Nexus * * Notes Net surplus on provision of services after taxation 21,749 32,348 21,768 32,460 Adjustments to reconcile income to net cash flows: Capital grants applied (38,054) (48,077) (38,054) (48,077) Financing costs and Investment 1,573 1,307 1,573 1,307 Pension transactions (1,580) (1,870) (1,580) (1,870) Depreciation 21,754 20,576 21,754 20,576 Loss/(gain) on disposal of non-current assets (24) 574 (24) 574 (Increase)/decrease in debtors 953 (3,509) 1,050 (3,509) (Increase)/decrease in inventories Increase/(decrease) in creditors and provisions (5,969) 4,510 (6,083) 4,400 Net cash flows from operating activities 625 6, ,157 Investing Activities Payments on capital projects (38,027) (48,419) (38,027) (48,419) Capital grants received 48,392 44,096 48,392 44,096 Net receipts from disposal of non-current assets Net cash flows from investing activities 10,393 (4,320 ) 10,393 (4,320 ) Financing Activities Interest paid (2,025) (2,235) (2,025) (2,235) Interest received Repayment of loan capital (2,056) (2,139) (2,056) (2,139) Net cash flows from financing activities (3,762 ) (3,509 ) (3,762 ) (3,509 ) Net increase/(decrease) in cash and cash equivalents 7,256 (1,674) 7,258 (1,672) Cash and cash equivalents as at 1 April 55,644 57,318 55,639 57,311 Cash and cash equivalents as at 31 March 13 62,900 55,644 62,897 55,639 * Restated. The notes on pages 20 to 55 form part of these accounts. 19

22 1 Introduction The accounts have been prepared in accordance with the Accounts and Audit (England) Regulations These require the accounts to be no less informative than if the disclosure requirements of the Companies Acts were, as far as appropriate, applicable. They also require that the accounts are prepared in accordance with the local authority Code of Practice on Local Authority Accounting in the United Kingdom 2010/11 [Code of Practice] and the Best Value Accounting Code of Practice. The financial statements were authorised for issue at a meeting of the directors on 24 July Basis of preparation The Group financial statements have been prepared on a historical cost basis, except for certain operational assets that are measured at fair value, in accordance with the Code of Practice. The consolidated accounts have been prepared using consistent accounting policies, removing inter-company transactions and balances outstanding at the 31 March Statement of Compliance with IFRS Nexus has adopted all aspects of IFRS requirements other than as follows: Property, plant and equipment. IAS 16 allows either the cost model or the fair value model to be adopted for the subsequent measurement of property, plant and equipment. The Code of Practice allows use of the cost model for infrastructure, non-operational assets and intangibles. Nexus considers that where appropriate the cost model has been adopted. Pension Operating Costs. IAS 19 determines that all costs in relation to employee benefit schemes should be charged to profit and loss each period. However, the Audit and Accounts Regulations 2011 allows Nexus to recognise only the amount payable under the relevant pensions regulations. Therefore although the costs are recorded, they are then credited back from a notional reserve. Refer to note 21 for further details. Consolidation The Group financial statements include the results of the subsidiary Tyneside Transport Services as at 31 March Summary of Significant Accounting Policies 3.1 Property, Plant, Equipment and Intangible Assets Items of property, plant and equipment are stated at cost less accumulated depreciation, with the exception of certain operational assets which are measured at fair value. Nexus s policy is to write off the carrying value all assets, other than freehold land, on a straight line basis over its estimated remaining useful life. 20

23 The range of estimated useful lives for each class of assets is as follows: Freehold buildings Short leasehold buildings Infrastructure assets Plant and equipment Vehicles Marine Vessels Intangibles 40 years over the lease term up to 50 years 5 to 30 years 5 to 10 years 30 years 5 to 10 years Nexus analyse assets into their component parts as appropriate for items in excess of 100,000. Expenditure that cannot be directly allocated to specific assets i.e. administration of the Capital Programme and for preliminary consultancy works are fully charged to the Comprehensive Income and Expenditure Statement in the year in which they are incurred. Depreciation on the asset is commenced with effect from the month following capitalisation. Capitalisation of assets is carried out as soon as practicable following its availability for use. Annual reviews are made of the estimated remaining life and current carrying amount of assets, ensuring that significant assets with a life greater than five years are reviewed annually. An annual assessment is made at the end of each financial year as to whether there is any indication that an asset, or class of assets, is impaired, ie whether its carrying value in the accounts exceeds its recoverable amount. Where an asset is determined to be impaired its carrying value will be written down to its recoverable value. For the on-going measurement of property, plant and equipment, Nexus is adopting Code of Practice which requires the fair value method to be applied to non-infrastructure operational assets. This heading includes the Passenger Ferries and various items of Metro Equipment. Nexus has set a materiality level of 100,000 and a five year life before valuations are sought. Non-current assets classified as held for sale are classified as such, and measured at the lower of carrying amount and fair value less costs to sell. Property, plant and equipment classified as held for sale are not depreciated. 3.2 Assets under construction Assets under construction relate to expenditure incurred in respect of assets which are incomplete as at the reporting date. The assets are transferred to the appropriate heading and depreciated when they become available for use. 3.3 Capital grants Capital grants receivable are recognised immediately in the Comprehensive Income and Expenditure Statement except where the grant has a condition that has not yet been met. These amounts are recognised in the Balance Sheet- Short Term Liabilities until such time as the conditions are met whereupon they are transferred to the Comprehensive Income and Expenditure Statement. 3.4 Stores Nexus carry spares and parts for the maintenance of Metro infrastructure and equipment not for resale. These are valued at actual historic cost after provision for slow moving items on the First in First out method. 21

24 3.5 Financial Assets Financial assets are classified at recognition as loans, deposits or receivables in accordance with IAS 39, and recognised at cost. Nexus has not designated any financial assets as at fair value through profit or loss. Nexus s financial assets include cash, short-term deposits, trade and other receivables. Subsequent measurement depends on their classification as follows: Cash and cash equivalents: funds held with banks and other financial institutions. For the purpose of the Group cash flow statement, cash and cash equivalents are as defined above, net of outstanding bank overdrafts. Trade and other receivables: recognised and carried at invoice or contract value less an allowance for any amounts which may not be collectable. Should an amount become uncollectable, it is written off to the income statement in the period in which it is recognised. 3.6 Financial Liabilities Financial liabilities are classified at recognition as loans and borrowings in accordance with IAS 39, and recognised at cost. Nexus has not designated any financial liabilities assets as at fair value through profit or loss. Nexus s financial liabilities include bank overdraft, trade creditors, loans and other payables. Subsequent measurement depends on their classification as follows: Loans and borrowings: non-derivative financial liabilities with fixed or determinable payments not quoted in an active market. Such interest-bearing liabilities are carried at that value which corresponds to the amount required for full repayment of the loan over its natural term. Trade and other payables: recognised and carried at invoice or contract value. Should an amount become non-payable, it is written back to the income statement in the period in which it is recognised. 3.7 Offsetting of Financial Instruments Financial assets and liabilities are offset, and the net amount reported in the Statement of Financial Position, if and only if there is an enforceable legal right to offset, and there is an intention to settle on a net basis in order to realise the assets and discharge the liabilities simultaneously. 3.8 Provisions Provisions are recognised when Nexus has a present, legal or constructive obligation as a result of a past event which makes it probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate can be made of its amount. Where Nexus expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset only if the reimbursement is highly probable. The expense relating to any provision is recognised in the income statement net of any reimbursement. 3.9 Revenue Revenue mainly comprises the value of all passenger receipts in the normal course of business and the activities share of revenue from the countywide travel and concessionary travel schemes Lease Income Amounts receivable under finance leases are stated net of interest allocated to future periods. Interest is allocated to accounting periods to produce a constant periodic rate of return on the remaining net investment. 22